Strange times

[Fudi]

Well ... for those sitting on the edge of their seats, eagerly awaiting news about this, NJ finally got back to me and let me know that though they remain humbled by my offer, thanks, but no thanks:


Hello,

Thank you, again, for expressing your interest in assisting the State of New Jersey's response to the unprecedented challenges raised by COVID-19.
Thousands of people and organizations have reached out, and we're truly humbled by our communities' response to these trying times.
At this time, the State of New Jersey has sufficient technical staff to support critical services. However, we are grateful for your interest and your spirit of public service. As we battle this pandemic, we are constantly evaluating our needs and the best ways to continue serving New Jerseyans. Should further technological assistance be required, we will be in touch.

In the interim, if you are interested in volunteering, we encourage you to explore the following two options:
1) There are an array of non-profit service providers assisting New Jerseyans in need - sign up to volunteer in your community by visiting our new volunteer portal.
2) U.S. Digital Response is offering pro bono support to state and local governments across the country - learn more about signing up to help other communities here.

Thank you, again, for your offer to assist the State of New Jersey.

Sincerely,
The State of New Jersey’s COVID-19 Response Team

So much for my short-lived feeling of having something useful to offer the world at large. (Just kidding, really ... sort of relieved ... though *willing* to help, to tell you the truth, I'm happier in my jammies, playing cryptograms.) Ah well. And there's always the *next* pandemic. Maybe I'll be somehow useful then.

[Eureka]

Thanks for letting us know, Fudi. At least you'll have more time for cryptograms! It's great to see that they had such a great response from people.

[maradnu]

Massive Budget Deficits

I saw that munchlet expressed deep concern about the cost of Covid-19 mitigation and what that would do over the longer term to the United States. That is certainly a valid concern, since we were on track to have a trillion dollar deficit this year even before the pandemic, and we’ve now committed to spending trillions more to mitigate the damage to the economy from this.

The first question is how we even deal with this. The simple answer of course is higher revenue (i.e. higher taxes) and lower spending. We have to have some way of doing both that does not cripple the economy. We then need to muster the political will to actually implement the necessary changes. With both, there will be people who are hurt and those people will apply political pressure to avoid paying for those changes.

The second question is who pays for this and how do we implement it. I have my own ideas, and while I have a decent foundation in economics, I can’t readily calculate the full costs of the changes. The Covid-19 relief efforts should be a short term thing. We can’t ignore them, but should not base our entire strategy on something that should phase out probably within the next year. That said, our primary concern should be in crafting something that will largely eliminate the trillion dollar deficit we were already expecting.

On the top of my list would be repealing the 2017 Trump tax cuts. The cost of that alone has been estimated at over 2 trillion dollars over several years. In itself that would not even erase the previous annual deficit, but at least it would reduce it. While many people got at least some benefit from those tax cuts, the lion’s share went to the wealthiest individuals and corporations.

The second thing I’d do is raise the top marginal tax rates. In the 1950s and early 1960s, when the economy was doing quite well, our top marginal income tax rate was 90% or more. Businesses still thrived, and people still became wealthy even at that. I don’t think we should go back to that, but instead of the current 37%, I think we should have the top tax rate at 50%, which it was during much of Ronald Reagan’s administration. I understand that the wealthy have means of sheltering income from taxation so very little income would actually be taxed at that rate, but it would help.

Corporate taxes need to increase as well. Right now in this country we have corporations making billions of dollars of income while paying little or nothing in the way of taxes. Corporate tax rates have dropped and companies use all manner of clever means to dodge US income taxes. Some of that comes from sheltering income overseas through foreign subsidiaries. They can use foreign manufacturing along with playing with transfer pricing to show the income where is will be more leniently taxed. We need to begin to tax that foreign income, along with raising corporate tax rates.

We need to raise inheritance taxes. Only a tiny proportion of estates have to pay any tax at all, by most estimates less than 1%, and while the top inheritance tax rate is 40% the average estate that is taxed pays only 17%. The truly wealthy shelter their estates through trusts and other means to protect them from estate taxes. While we might not get a huge amount from this, it is an important signal.

Currently hedge fund managers only pay income tax at the capital gains rate. The idea of lower rates for capital gains was to encourage investment and compensate for putting money at risk. Those individuals have no money of their own at risk, but make money on how well their investors do. Since they have no money at risk, they should pay standard tax rates.

We need to raise or even eliminate the cap on Social Security and Medicare taxes. Currently we only tax the first $137,700 in income for Social Security and Medicare. While those funds currently have a surplus, it is estimated that by 2035 they will run out of money. That would be devastating to retirees and would likely require benefit cuts.

We also need to take a look at spending cuts. The US currently spends as much on its military as the next ten countries put together. We have roughly 800 military bases in some 70 countries with tens of thousands of troops stationed overseas. Do we need all of those bases and all of those troops there? We spend many billions on new weapons, some of which don’t even work properly. We buy weapons which even the Pentagon says we don’t need, because the manufacturing is in certain congressional districts. There is clearly money to be saved if we take a hard look and make some hard decisions.

We also spend billions in subsidies to already highly profitable companies. We give massive tax breaks to fossil fuel companies even as we know that burning those fossil fuels increases global warming and in many cases costs more than using renewable energy sources.

This is honestly only the tip of the iceberg. There is much that we can do to bring the federal budget into line. There will be pain to some companies and individuals, but that is part of the price if we truly want a healthy economy going forward.

[kahvecowgirl]

Thank you, maradnu, for putting in the effort to detail all those ideas. I'm sure your post will cause some controversy. I don't have much of a background in economics, but (and this probably won't surprise anyone) I agree with you that there are many sources of tax revenue, especially corporate taxes and taxes on the wealthy, that will be necessary in order to rescue the economy. I also think it's important to actually say these things, even if they are controversial, because we need to see possible solutions instead of just dwelling on how messed up everything is. Still, the economy isn't just crippled, it's also going to be very different for quite a while. Getting the spread of this virus under control is looking very unlikely, and as long as we're unable to do that, and don't have a vaccine (which I suspect won't be available until around the fall of 2021), we'll probably continue to see waves of infections whenever restrictions are lifted. There are certainly things that need to be done, and people who need something to do, but I'm afraid that, kind of like food on farms and empty grocery store shelves, they won't be able to connect. No brilliant answers in this post, I'm afraid. I'm just trying to formulate the right questions to ask.

But that brings me back to Puffybob's original question. I'm up, down, all over the place. I'm trying to be ok with sometimes just saying to myself that this sucks, and getting on with what I need to do. I'm telling myself, as I hear children are being told these days, that it's ok not to be ok.

[Blemish Cardigan]

The budget ideas offered here are an old wish list of the Left that has little to do with the pandemic or the current deficit. Taxing the rich more is always an easy idea, but it will not get rid of the deficit. Stealing the total wealth of the top 1% would not remove the national debt. Bill Gates' entire enormous personal wealth is a fraction of 1% of the national debt. If we threw his entire worth at one year's deficit, it would cut it by about 20%, and then the next year we'd be right back where we were, and our total debt would be barely knicked.

On the spending side, cutting defense seems like an easy target, though it's portion of federal spending is about half what it was under Kennedy. We take for granted the relative calm of our globe that is afforded by our defense spending, but we would appreciate that value once a global retreat created a much costlier chaos.

The real problem is that the solution involves hard decisions that few on the national scene have the courage to say out loud. We spend much more on federal largess to the population than we actually have. Elections are won by promises of spending once elected, and boasting of spending recently secured. The monies involved in all of this generosity is money we do not have. And after it's spent, the inevitable crisis is met with the answer, "Tax the rich to pay for it".

Margaret Thatcher's old maxim that the trouble with Socialism is that eventually you run out of other people's money, applies to more than just Socialism. It applies generally to our modern political practice of buying votes to win elections by promising to spend money we do not have.