And a terrible time for a return to Trump’s approach
Correction: the UK government that ended due to tax cuts and an interest rate spike was the Liz Truss Premiership, not Theresa May's.
How long can Democrats cut the deficit by taxing rich people only? I assume there's still some juice there in the short term, but in the long term, we are going to have to squeeze entitlements or raise middle class taxes substantially. Would love to see a post on how to do this optimally from a policy perspective and another post on how to sell this politically...
So which taxes should be raised and what spending should be cut?
- cutting medicare reimbursement rates to be in-line with european standards
- abolishing SALT and charitable contribution deductions
- enacting carbon taxes
- treating capital gains as normal income
- massively increasing inheritance taxes
Entitlement spending (Social Security, Medicaid, Medicare, welfare) is nearly half the Federal Budget at the moment (46%).
Defence is politically difficult to cut - and honestly in the current geopolitical environment it might be necessary to increase it.
Sure you could increase taxes - but clearly taxes alone can’t get fix the deficit. So what is it that we cut?
Not the main thrust of the column, but David Brooks' piece last week was lame. It was the same "sympathy for white Trumpists" thing half of all op-ed writers have been writing since November 9, 2016. And the purpose of these columns is to spark the other half of all op-ed writers to bust out their "actually, all Trump support is about race" response columns. I'm pretty sure all opinion writers keep a copy of one column or the other in a small case marked "break in case of three-day weekend."
It’s worth noting that high interest rates may not stick around for long— Powell has explicitly said that the Fed believes that current real rates are restrictive and that the Fed wants real rates to be similarly or less restrictive as inflation gets closer to target.
Everyone keeps saying that rates are high now. No, they're only high relative to the recent past. They can go a lot higher. Mortgages were up to 17% in the early 80s. Put that kind of number in and see how the deficit explodes.
Good analysis, though approximately 0% of the conversation around student debt relief focuses on the interest rate side of things (other than in this space) so I'm not sure that's going to convince people to get off the idea.
I just took a peek at the US Treasury interest rates and the 5-, 10-, and 30-year rates are still below the 1-year rates (~4% vs. 5%). Not like 4% is *that* low relative to where we were, but it does seem like investors are still expecting that the Fed is going to lower rates once inflation cools down (which it already has to some extent), and maybe they're expecting we return to the former paradigm of cheap money? It bugged me for a long time that we used to have the opposite problem (people thinking we were about to return to the high inflation/high rates of the late-1970s) but I'm wondering if we've lived through low interest rates for so long now that the business community has the opposite mentality.
"Not only does the new debt increase the amount of interest you have to pay, but it tends to push up the rate on the accumulated stock of interest, and the line starts pointing more sharply upward. This is the dynamic that ended Theresa May’s government in the U.K.
In theory, May could have tried harder to fight back and force the Bank of England to keep interest rates low."
I think you are referring to Liz Truss (I briefly forgot her name). 'Interestingly', the UK is now paying around 10% of all revenue out as bond interest, mainly because of high reliance on inflation linked bonds. This is the highest in the developed world.
“to talk Trump-hating educated elites through what the world looks like from the other side and to get people to see the appeal of symbolic backlash politics.”
That’s his job, and yours as well. You need to keep your ears to the ground and let the elites know when they are making mistakes. In this time of elite failure, getting them to recognize that they (have) are creating a peasant revolt would help keep them and you in power.
The author notes that Bush and Trump coupled their large tax cuts on the rich with modest tax cuts for the middle. This was politically astute and in the polling that asks voters which party they favor on taxes, the GOP usually wins just as the Ds win on healthcare and environment.
Now the Dems imo can win with higher taxes on the rich, but it should be accompanied with lower taxes on the middle, rather than their usual approach which is to just spend it on new programs like student debt forgiveness. I do believe in social welfare where appropriate, but sometimes the best social welfare is just to tax the working class less. And politically it will dethrone the GOP as the party that means less taxes for the non rich,
Boomers hold half the nation's $140T in wealth, yet represent 40% of federal spending through SS, Medicare/Medicaid. Healthcare is simply too expensive in this country, and that is especially true for end of life care. The deficit will continue to grow, period.
Thank you for a good article. I am a Democrat on the conservative side and a bit of a deficit hawk, more from a moral standpoint, you should pay for what you buy, than claiming economic savvy.
As you noted, Trump and Bush accompanied the big tax cut bonuses for the rich with mild tax cuts for the middle. Polling on various issues show that voters favor the GOP on taxes even as they favor the Dems on healthcare and other issues.
On the Democratic side, there is imo an appropriate policy of reclaiming the taxes on the wealthy, who continue to outpace everybody else in income and wealth, but the political mistake imo is to offer no tax relief for the middle but rather to spend the money on some new program like college debt forgiveness etc.
If the Dems want to win back the working class which has been going to the GOP, they need to combine higher taxes on the rich with their own middle class tax reduction, and reduce the deficit.
Raising revenue is easy theoretically, if all the deductions in the tax code were eliminated, it would raise hundreds of millions to billions of dollars. The problem is all sorts of special-interest groups would be up in arms about this.
Healthcare costs will never get under control, when we have 60-65% of the population being overweight or obese, 10-15% of the population who smoke tobacco, and another percentage of people who have problems with alcohol or drugs, leading to conditions like hepatitis, HIV, emphysema, heart failure. All of the chronic diseases that kill people in developed countries, are directly caused by lifestyle factors. Japan's life expectancy is something like 84, meanwhile the US is hovering around 75-76.
What the US really needs is a VAT.
How much could reforming government procurement operations save? Matt has mentioned in passing that he thinks cost-plus procurement is inefficient--could reforming this net any major gains? Likely not enough to avoid making some hard choices but everything helps.