US Economy

[a_majoor]

Time to start making preparations:

http://pajamasmedia.com/vodkapundit/2011/06/28/its-delightful-its-delicious-its-default/?print=1

It’s Delightful, It’s Delicious, It’s Default
Posted By Stephen Green On June 28, 2011 @ 2:37 pm In Uncategorized | 128 Comments

The chatter today has been all about Lawrence Lindsey’s WSJ column about our dire fiscal situation. Excuse me — the meaningful chatter. The meaningless chatter has been about Michele Bachmann, and whether she’s the Gaffe-O-Matic or merely gaffetastic. After watching her embarrassing campaign launch yesterday, I can’t say I much care. Honestly, it was the worst GOP presidential announcement since the last one. Bachmann and Jon Huntsman might turn out to be the Dueling Flame-outs, bookending the left and right of the party.

But I digress, and we have serious business to cover. What Lindsey says about our spending problem comes down to: We are so screwed.

Some facts and figures for you:

The president’s budget of February 2011 projects economic growth of 4% in 2012, 4.5% in 2013, and 4.2% in 2014. That budget also estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion. So, if we just grow at trend those three years, we will miss the president’s forecast by a cumulative 5.2 percentage points and—using the numbers provided in his budget—incur additional debt of $4 trillion. That is the equivalent of all of the 10-year savings in Congressman Paul Ryan’s budget, passed by the House in April, or in the Bowles-Simpson budget plan.

Here’s what I got out of that: If the Ryan or Bowles-Simpson budgets were to become law, our economy would quickly right itself — and the resulting increase in interest rates would eradicate all the savings.

Did you get that? Without seriously drastic cuts — cuts that would make Paul Ryan blanch — we can’t fix this economy without wrecking the government. Or maybe it’s the other way around.

Can we tax our way out? Back to Lindsey:

The tax-the-rich proposals of the Obama administration raise about $700 billion, less than a fifth of the budgetary consequences of the excess economic growth projected in their forecast. The whole $700 billion collected over 10 years would not even cover the difference in interest costs in any one year at the end of the decade between current rates and the average cost of Treasury borrowing over the last 20 years.

Clinton-era tax rates won’t even begin to cover the spending problem. Not even close.

That leaves us with three possible outs: Cut the budget to the bone, hyperinflate away our debts, or default.

The most serious budget-cutter we have, Congressman Paul Ryan, is not nearly serious enough about the disaster we face. Or if he is serious, he doesn’t have enough of his party backing him up. And even if he had that, Ryan still would face a public too uninformed to understand or tolerate what must be done.

Option One, in other words, is off the table. Ain’t. Gonna. Happen.

So how about Option Two, Hyperinflation?

Inflation only as high as eight or ten percent is harmful to a nation’s economy, its savings, and even its social fabric. Hyperinflation destroys all of those things. It’s no remedy; it’s a cure worse than the disease.

That leaves us with Option Three: Default. Simply put, the government of the United States simply refuses to honor its debt obligations. It’s called “sovereign default” because you can’t take the government to its own courts to make it pay up.

Default would be terrible. The dollar would cease to act as the world’s reserve currency and that inflation we’ve spent the last forty years exporting to the rest of the world, would come flooding back to our shores all at once. Can you imagine how expensive a barrel of oil would be, if we had to scrounge up enough euro or yuan from our meager reserves, to pay for one?

And what about our budget? It would still be seriously out-of-whack — but Washington would lose the ability to borrow from overseas to cover the shortfall. Washington would either have to balance the budget — and right then, buster! — or start rolling the printing presses again. Call it “The Mother of All Quantitative Easings.”

Or just call it Option Two. We’re back to hyperinflation.

The way I see it right now, default still might be our least-bad option. Because default doesn’t necessarily lead to hyperinflation. Not if three things happen. We’ll call it the VodkaPundit Plan for Putting Washington Through Chapter 11. It goes like this:

1. Immediate cuts to spending.

2. A long-term plan to keep spending in line is enacted. (A glide-down path, along with maybe a balanced budget amendment.)

3. Hike interest rates. (To protect the dollar and give the middle class a reason again to save and investors a reason to invest. And also because “free” money makes people stupid.)

The first item is going to happen no matter what; we’re simply out of money. The second item is a necessary step to reassuring jilted creditors that maybe someday they can trust us again. And we are so deep in the hole that the third item might be possible only after we’ve defaulted. Lindsey never made that point in his piece, but it seems perfectly clear: Since we can’t even afford to pay what we already owe, default is looking like our least-bad option.

Not that I’m advocating default. I still think it would probably lead to hyperinflation. A government too paralyzed by cowardice to step out of the way of a moving train, probably doesn’t have the balls to make the hard choices my plan would entail.

If anyone can think of another way out, I’m all ears.

Article printed from Vodkapundit: http://pajamasmedia.com/vodkapundit

URL to article: http://pajamasmedia.com/vodkapundit/2011/06/28/its-delightful-its-delicious-its-default/

 

[tomahawk6]

What the democrat scare mongers arent pointing out is that the Treasury has billions of dollars in revenue coming  so a default is not very likely. Obama wants the debt ceiling raised so that he can continue to spend money - which is the root of the problem.Too much spending until thats reduced you cant begin to bring the budget into balance.

 

[a_majoor]

Perhaps the problem on a more meta level is the basis of wealth has changed and we haven't figured out the adjustment yet:

http://washingtonexaminer.com/politics/2011/07/replacing-property-source-wealth-creation

Replacing property as a source of wealth creation
By: Michael Barone | Senior Political Analyst Follow Him @MichaelBarone | 07/02/11 8:05 PM
photos.com

Our property holders' democracy has served us well. Let's hope it leaves the way open for us to develop new forms of wealth accumulation.

One of the interesting things about our country, the independence of which the Founders declared 235 years ago Monday, is that we have been a property holders' democracy.

This is not something the Founders originally advocated. While they protested taxation by a British Parliament in which they were not represented, they did not think that everyone had a right to vote. Like their British contemporaries, they thought that only those property holders should vote. Otherwise representatives elected by the poor majority would vote to take away the property of the rich minority.

But in the early years of the republic it became apparent that almost all white males were farmers who owned the land they farmed. As property holders, they could be trusted with the vote.

So by the early 19th century just about all the states extended the franchise to adult white males. It would be extended in time to blacks and women as well.

In this property holders' democracy, elected representatives have naturally sought to facilitate the accumulation of property, as Walter Russell Mead has pointed out in his unfailingly interesting Via Media blog on the-american-interest.com.

For a century this property took the form of the farm. Government sold land cheaply and on credit and under the Homestead Act gave it away to those who worked it for a few years.

Government set up agricultural colleges and financed agricultural research. It regulated the rates railroads could charge farmers.

In the Great Depression, when 25 percent of Americans still lived on farms, government started subsidizing producers of certain crops. Amazingly, it hasn't stopped, although only 2 percent of Americans live on farms, though one hears that agricultural programs have been on the chopping block in various budget negotiations.

In the 20th century most Americans moved to cities, and the new form of property ordinary folks accumulated was their houses. Government stepped in to subsidize that property too, in the form of low- or no-interest mortgages and tax deductions for interest payments.

For many years these policies worked pretty well. Just as government enabled people to accumulate property in the form of farms, it enabled people to accumulate property in the form of urban and then suburban houses.

Then, as with farm programs, government went too far. Fannie Mae and Freddie Mac, with support from administrations of both parties, financed loans to uncreditworthy borrowers on the theory that, hey, you didn't really need a down payment or steady income to be able to afford a house.

The result was a housing bubble that burst and produced the weakest economy America has seen since the 1930s. Gretchen Morgenson and Joshua Rosner tell the harrowing story in their recent book "Reckless Endangerment."

So just as the rural farm is no longer a means by which the great bulk of Americans can accumulate property, so the suburban house seems unlikely to be a wealth-accumulating investment for the next generation or two of Americans.

What, Walter Russell Mead asks, will take its place? How will most Americans continue to accumulate wealth and enable us to maintain a robust property holders' democracy?

Finding an answer, it seems to me, must start with recognition of a change that has been occurring for decades and that has accelerated with the financial crisis and recession: The fact that Americans are less likely to work their whole careers in large organizations and more likely to work in small organizations and skip from one to another.

We are less likely to find success and accumulate wealth as small interchangeable cogs in very large machines and more likely to do so as unique contributors to nimble and adaptive enterprises. We can no longer rely on the brand names of our employers but must seek to establish brand names of our own.

That sounds pretty vague, and one problem with a free-market economy is that no one can foresee exactly how it will grow in the future. The Internet holds out many possibilities, but few seem visible initially.

But attempts to resurrect the recent past seem futile. Efforts to restore bubble housing prices seem no more effective than the efforts a century ago to maintain the farm as the focus of national life.

Our property holders' democracy has served us well. Let's hope it leaves the way open for us to develop new forms of wealth accumulation.

Michael Barone,The Examiner's senior political analyst, can be contacted at mbarone@washingtonexaminer.com. His column appears Wednesday and Sunday, and his stories and blog posts appear on ExaminerPolitics.com.

Read more at the Washington Examiner: http://washingtonexaminer.com/politics/2011/07/replacing-property-source-wealth-creation#ixzz1R6G27pjB

 

[Redeye]

What the democrat scare mongers arent pointing out is that the Treasury has billions of dollars in revenue coming  so a default is not very likely. Obama wants the debt ceiling raised so that he can continue to spend money - which is the root of the problem.Too much spending until thats reduced you cant begin to bring the budget into balance.

That's not scaremongering. That's the reality.  They have billions in revenue coming, but they have billions in spending obligations - a substantial amount more.  When they hit the debt ceiling, they default. Period.  That's how it works.

Despite the claims of the GOP (who raised the debt ceiling how many times during their adminstrations?  Reagan did it 17 times?), they have a spending AND a revenue problem.  Without raising taxes substantially and undertaking some spending changes, there's no solution.  Raising the debt ceiling (a useless legal construct to begin with) isn't an optional thing.  It's inevitable.

 

[Edward Campbell]

...  Raising the debt ceiling (a useless legal construct to begin with) isn't an optional thing.  It's inevitable.

I agree. The consequences of not raising the debt ceiling, of defaulting, in other words, are so dreadful that not even the dumbest American legislators - who are evenly distributed across all party and movement lines - want to do that.

 

[Kirkhill]

So is it fair to say that the histrionics will continue until August 1st at which time a deal will be announced that ratchets down spending (not as much as Ryan would like) and also raises the debt ceiling until the next time?  The drama will then continue on August 2nd until Nov 4 2012.

 

[Edward Campbell]

So is it fair to say that the histrionics will continue until August 1st at which time a deal will be announced that ratchets down spending (not as much as Ryan would like) and also raises the debt ceiling until the next time?  The drama will then continue on August 2nd until Nov 4 2012.

That's a good guess ... the spending cuts will, most likely, be made at the expense of mostly useful, productive programmes; wasteful, ill-conceived programmes, especially those in the DoD, will continue unabated; no consideration will be given to a productive (national consumption) tax but it may be necessary to take useful money out of the hands of those most likely to use it in a productive manner and give it to those (bureaucrats) who will waste it quickly.

 

[Kirkhill]

That's a good guess ... the spending cuts will, most likely, be made at the expense of mostly useful, productive programmes; wasteful, ill-conceived programmes, especially those in the DoD, will continue unabated; no consideration will be given to a productive (national consumption) tax but it may be necessary to take useful money out of the hands of those most likely to use it in a productive manner and give it to those (bureaucrats) who will waste it quickly.

Gawd.... to be so cynical so young.  >

 

[tomahawk6]

There is plenty of revenue,the administration just has to reduce spending. Something democrats are loathe to do. In his first year or so in office Obama spent more than any other President in our history.With very little accountability.

 

[Edward Campbell]

There is plenty of revenue,the administration just has to reduce spending. Something democrats are loathe to do. In his first year or so in office Obama spent more than any other President in our history.With very little accountability.

Here is one estimate of US federal revenues out to 2016:

Source: http://www.usgovernmentrevenue.com/federal_revenue_chart

And here, same source, is an estimate of how it is collected in 2011:

Source: http://www.usgovernmentrevenue.com/US_fed_revenue_pie_chart

Given that even the Ryan Plan requires nearly $4.0 Trillion in spending in 2016 (same source) and the guesstimate is revenues of $4.5 Trillion there is not an awful lot of room for contingencies, bad guesses or bad politics.

 

[Redeye]

There is plenty of revenue,the administration just has to reduce spending. Something democrats are loathe to do. In his first year or so in office Obama spent more than any other President in our history.With very little accountability.

Spoken like a man with no understanding whatsoever of the US federal budget.  Cutting all discretionary budget items to zero will not fix the problem - and that in and of itself is not possible.  Taxes are at historic lows, and they are in no way sustainable at those levels.  Taxes must rise, it is really that simple.

 

[Kirkhill]

Spoken like a man with no understanding whatsoever of the US federal budget.  ......

Redeye - just a thought that I hope will be taken constructively.

Do you find it absolutely necessary to take the attack to the man all the time?  Often your very relevant comments are obscured by all the fire and smoke you generate by the manner in which you present them.  And that is a shame.

Play the ball, not the man..... ;D

 

[CBH99]

Not only that, but much of the spending authorized in the government bailouts was done prior to Obama taking office.  So while the money was spent under his administration, it was a long time coming & had a majority of it organized and authorized by the prior Bush administration.

 

[Redeye]

Redeye - just a thought that I hope will be taken constructively.

Do you find it absolutely necessary to take the attack to the man all the time?  Often your very relevant comments are obscured by all the fire and smoke you generate by the manner in which you present them.  And that is a shame.

Play the ball, not the man..... ;D

Fair comment - it just infuriates me that people will make statements that are so obviously false, as though they've never bothered to even consider them.  This is exactly why there's so little meaningful political discourse in the US in particular, because they can't even discuss anything from a basis in reality.  This "we don't have a revenue problem" mantra is a lie being sold to Joe Public in the USA and not questioned at all, and it is not always easy to stomach that.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the Ottawa Citizen, is an opinion piece with which I mostly agree:

http://www.ottawacitizen.com/news/empire+verge+again/5055723/story.html

An empire on the verge, again

By Dan Gardner, The Ottawa Citizen

July 6, 2011

Americans may have celebrated July 4th with the usual hotdogs and fireworks, but Uncle Sam was a sick old man on his 235th birthday. Deficits and debt. A moribund economy. Appalling unemployment. Crumbling infrastructure. Endless foreign wars. We all know the litany of ills. It's long and grim and the question for most observers is not whether Uncle Sam will continue to decline, but how far, and how fast.

The more excitable sorts, like the journalist Chris Hedges, foresee the end. Or rather, The End. "We stand on the cusp of one of the bleakest periods in human history," Hedges wrote, "when the bright lights of a civilization blink out and we will descend for decades, if not centuries, into barbarity." But even the sane are glum. "These trends will see a continued erosion of America's ability to provide a good, middle class standard of living at home and to extend security abroad," wrote policy analyst Clyde Prestowitz in Foreign Policy. "The really smart people have already put their money in gold bars and moved to New Zealand."

Somewhat less dramatically, but no less certainly, Margaret Wente of the Globe and Mail compared Canada and the United States. "It seems to me our problems can be solved," Wente concluded, "and theirs can't."

Really, it's hard to disagree. In an essay published at the beginning of 2010, James Fallows - esteemed journalist and speech writer in the Carter White House - noted that the problems besetting the United States "are no worse than others the nation has faced in more than 200 years" and Americans are not lacking in the money, technology, and creativity needed to deal with them. But changing course requires an effective political system, and the American system is a shambles. "This is the American tragedy of the early 21st century: a vital and self renewing culture that attracts the world's talent, and a governing system that increasingly looks like a joke."

A year and a half later, "joke" is too kind a description. Reasonable discussion and compromise seem impossible, the Republican presidential contenders resemble a troupe of circus clowns piling out of one of those tiny cars, and the entire American political class spent precious weeks obsessed with whether a Democratic congressman had tweeted photographs of his penis and lied about it subsequently. He had. And he resigned. So the political system can deal with penis-tweeters, but issues of greater magnitude seem entirely beyond the capacities of the world's oldest and most successful democracy.

Inevitably, crisis looms. At the end of this month, or early next, Congress must officially permit the U.S. Treasury to take on debt above a defined limit. In the past, raising the debt ceiling has been pro forma. If it's not raised, the United States would default on its debts. The consequences would be catastrophic. You want Chris Hedges' crazy prediction to be right? That's one way to go about it.

And that's exactly what many Republicans want to do. Others have at least threatened to refuse to raise the debt ceiling if the White House doesn't make concessions, which is tantamount to putting a gun to Uncle Sam's head. One would think Americans would frown on that. But something close to half the political spectrum considers it to be more than acceptable. It's patriotic.

And it's effective. President Obama has made huge concessions, offering trillions of dollars in spending cuts in exchange for the closing of various loopholes which will raise a few hundred million dollars. "If the Republican Party were a normal party, it would take advantage of this amazing moment," wrote conservative columnist David Brooks in the New York Times.

But the Republican party is no longer a normal party. It has been taken over by fanatics and flakes, although Brooks, being Brooks, puts it much more eloquently. The Republicans may actually pull the trigger, he fears.

So that's it for the world's only superpower, right? It's only a question of how far and how fast.

Maybe. But it's worth remembering Uncle Sam has been in bad shape before. Many times, in fact.

"Throughout the entirety of my conscious life, America has been on the brink of ruination, or so we have heard, from the launch of Sputnik to whatever is the latest indication of national falling apart or falling behind," wrote James Fallows.

Of course we don't remember it ever being this bad. But that's what psychologists call "hindsight bias." It has indeed been this bad before.

Think back to the early 1990s. The U.S. would soon be a wholly owned subsidiary of Japan Inc. A best-selling look at the state of federal finances was entitled Bankruptcy 1995. And you want political dysfunction? When Bill Clinton and Newt Gingrich squared off, the whole damned government was shut down. The mood of the era was captured perfectly in the Michael Douglas movie Falling Down, featuring Douglas as a laid-off engineer who has a really bad day.

The early 1980s? That wasn't morning in America, sunshine.

The 1970s? A polyester hell. I wrote about that decade's bleak expectations in my book, Future Babble. A short summary took the better part of a chapter.

Remember 1968? The eve of destruction. Political scientist Andrew Hacker published The End of the American Era.

Of course none of this proves Uncle Sam will bounce back today. But he's been written off so many times before, it would be foolish to do it again.

As Winston Churchill once observed, "The Americans always do the right thing. After they have exhausted all the alternatives."

Dan Gardner's column appears Wednesday and Friday. E-mail: dgardner@ottawacitizen.com
© Copyright (c) The Ottawa Citizen

There are two points where I disagree with Gardner:

First: the lunacy, irresponsibility, call it what you will, is not confined to the Republican party, not even to its fruitcake wing. The Democrats deserve a full, fair, equal share of the blame; and

Second: it is not the American political system that is broken ~ it is American culture, and specifically the culture wars, that began in the late 1950s and that have poisoned American (and often Canadian) political discourse for the past 50± years, that is broken.

But, for the rest, I agree: America is on the “eve of destruction” and there are more than enough irresponsible idiots in leadership roles – in the White House, in the Congress, in the commentariat and academe and in society at large who are willing to risk destruction in order to make their own, petty, partisan (Democrat, Republican and Tea Party) points. But, as Garden reminds us, it is unwise to count America out; let's hope they manage to “exhaust all the alternatives” before 2 Aug 11.

 

[astecki]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the Ottawa Citizen, is an opinion piece with which I mostly agree:

http://www.ottawacitizen.com/news/empire+verge+again/5055723/story.html

There are two points where I disagree with Gardner:

First: the lunacy, irresponsibility, call it what you will, is not confined to the Republican party, not even to its fruitcake wing. The Democrats deserve a full, fair, equal share of the blame; and

Second: it is not the American political system that is broken ~ it is American culture, and specifically the culture wars, that began in the late 1950s and that have poisoned American (and often Canadian) political discourse for the past 50± years, that is broken.

But, for the rest, I agree: America is on the “eve of destruction” and there are more than enough irresponsible idiots in leadership roles – in the White House, in the Congress, in the commentariat and academe and in society at large who are willing to risk destruction in order to make their own, petty, partisan (Democrat, Republican and Tea Party) points. But, as Garden reminds us, it is unwise to count America out; let's hope they manage to “exhaust all the alternatives” before 2 Aug 11.

Could not agree more with your second point, was thinking the same thing as soon as he brought the point up.  It's not just the politicians or the system that's broken, it's the underlying acceptance of the status quo by the majority involved.  It's a bipartisan problem that cannot be solved with partisan solutions, and that requires more than simple recognition by those in the system.  It requires a serious change of attitude and focus by those that prop up the system, i.e. the general public, the culture as a whole.

 

[Brad Sallows]

>Taxes are at historic lows, and they are in no way sustainable at those levels.

High taxes might be "unsustainable" (ie. the people taxed will literally be taxed out of their assets and become unable to pay any more taxes).  Low taxes are easily sustainable.

I assume you mean that US federal spending is unsustainable.  That spending - at around 24% of GDP - is not only unsustainable at current levels of tax revenue (somewhere just above 15% of GDP); it is unsustainable compared to the oft-cited 18% of GDP around which US federal tax take has hovered since WWII.  Occasionally that tax take has stuck its nose up to just over 20% (at the tail end of WWII, and at the height of the dot-com boom, which emphatically are not periods similar to the one in which we find ourselves).

Given the gap between "24" and "18", or even just "24" and "20", let alone "24" and "15", it should be clear to even basically innumerate people that spending is the problem.  The reality is that the basket of policies followed for the past 3+ years have failed to goose the economy - they'd be lucky to hit the historical 18% average any time soon.

Government spending (there and here) should have been cut significantly and immediately when the trouble began to brew.  Only a small hole (recession) can be paved over with deficit financing.  The 1997-2007 decade of relative prosperity was an abnormality; the corresponding tax revenues were abnormal.  Government spending was calibrated to those boom levels; spending now needs not only to fall to the baseline, but below the baseline since so much future tax revenue has already been spent.

 

[Redeye]

High taxes might be "unsustainable" (ie. the people taxed will literally be taxed out of their assets and become unable to pay any more taxes).  Low taxes are easily sustainable.

That would actaully be ipretty much mpossible under the US tax system (and ours) since taxes are based on income, not assets (with the specific exemption of the estate tax and ad valorem property taxes, which in the US tend to be low).  That said, at some level high taxation becomes a disincentive to work more and earn more income, this is the balance that must be found and maintained.

I assume you mean that US federal spending is unsustainable.  That spending - at around 24% of GDP - is not only unsustainable at current levels of tax revenue (somewhere just above 15% of GDP); it is unsustainable compared to the oft-cited 18% of GDP around which US federal tax take has hovered since WWII.  Occasionally that tax take has stuck its nose up to just over 20% (at the tail end of WWII, and at the height of the dot-com boom, which emphatically are not periods similar to the one in which we find ourselves).

Absolutely - the problem, as I said, is both a revenue problem and a spending problem.  What makes it particularly troublesome is that there's not a lot of interest in taking on some of the huge items.  For example, when President Obama negotiated the New START treaty, which would reduce the US nuclear arsenal substantially (at a not insignificant cost saving), many on the right in the US attacked him for "undermining security", even though the US nuclear arsenal after the treaty would remain more than sufficient to wipe life off the earth a few hundred times over.  Similarly, the massive handouts given to countries like Israel (almost $4bn a year) aren't up for discussion, but defunding Planned Parenthood and saving what in relative terms is a pittance seemed to be some kind of progress?  That's the "culture wars" Mr. Campbell refers to at work.

Given the gap between "24" and "18", or even just "24" and "20", let alone "24" and "15", it should be clear to even basically innumerate people that spending is the problem.  The reality is that the basket of policies followed for the past 3+ years have failed to goose the economy - they'd be lucky to hit the historical 18% average any time soon.

Spending is a problem.  It is not the problem.

Government spending (there and here) should have been cut significantly and immediately when the trouble began to brew.  Only a small hole (recession) can be paved over with deficit financing.  The 1997-2007 decade of relative prosperity was an abnormality; the corresponding tax revenues were abnormal.  Government spending was calibrated to those boom levels; spending now needs not only to fall to the baseline, but below the baseline since so much future tax revenue has already been spent.

Not only was government spending "calibrated" to those levels, the boom was used as an excuse to make massive, unaffordable tax cuts, the ones that President Obama would desperately like to get rid of but is presently unable to.  That would make some difference.  The economic value of them is wildly debated, but I tend to think that restoring the rates that existed under the Clinton Administration would likely have a minor impact if any at all.  The idea of cutting government spending when hard times are on the horizon sounds great in theory, but cutting that spending in such times is probably even more difficult than it is now.  The idea now, for example, of slashing federal government employees as some means of cutting spending is a little laughable, because that will simply serve to worsen the US' already terrible unemployment figures.

 

[Kirkhill]

If the apple cart is about to be upset in any case because of circumstances maybe the right thing to do is upset it on your own terms at a time and place of your own choosing.

If the current system of income based taxation, and a rule book that makes the Byzantines look positively Scandinavian, is insupportable maybe now is the time to (ware Scottish metaphor) "grasp the nettle" and chuck out the old system.  In its place eliminate the income tax entirely and replace it with ERC's favourite consumption tax, perhaps even a carbon based tax if that is popular with over 50% of the population.    Many people that are opposed to a carbon tax on philosophical grounds would get over it if they didn't have to fill out income tax forms and watch the government abscond with the 20 to 40% of the fruits of their labour.    The poor among us - omnipresent - could be protected with credits, supplements and/or grants.

That would allow the government to rebalance the books (revenue increases included) without having to fight the old battles. 

The question is: Can and "old" government get away with that? Or is there too much stored ill will so that it requires a new "trusted" government to upset the cart and convince people that it was absolutely necessary, there were no other options and the result isn't as bad as they feared?

 

[Redeye]

That would perhaps be an ideal solution - scrap the entire system altogether and build a new one from the ground up - but doing so I suspect would take quite a while just to get organized, then you'd need a "conversion date" (ie the start of a new fiscal year) to start using the new system.  There's something to be said for a consumption tax being the primary source of revenue, and even though it's largely fairer, it's still going to rub people the wrong way.  All the "you don't have income tax taken off your pay" won't go far when you're facing a 25% (or more) sales tax on everything but essentials.

If the apple cart is about to be upset in any case because of circumstances maybe the right thing to do is upset it on your own terms at a time and place of your own choosing.

If the current system of income based taxation, and a rule book that makes the Byzantines look positively Scandinavian, is insupportable maybe now is the time to (ware Scottish metaphor) "grasp the nettle" and chuck out the old system.  In its place eliminate the income tax entirely and replace it with ERC's favourite consumption tax, perhaps even a carbon based tax if that is popular with over 50% of the population.    Many people that are opposed to a carbon tax on philosophical grounds would get over it if they didn't have to fill out income tax forms and watch the government abscond with the 20 to 40% of the fruits of their labour.    The poor among us - omnipresent - could be protected with credits, supplements and/or grants.

That would allow the government to rebalance the books (revenue increases included) without having to fight the old battles. 

The question is: Can and "old" government get away with that? Or is there too much stored ill will so that it requires a new "trusted" government to upset the cart and convince people that it was absolutely necessary, there were no other options and the result isn't as bad as they feared?