Debt and Taxes

As we face the bitter annual battle about increasing the debt limit, it is interesting to take a look at how we got here and what could be done to improve the situation.

The current national debt is approximately $31.5 trillion.  Our budget deficit for 2022 was approximately $1.4T for a budget of about $6T, which means that we increased our debt by about 4.4% in 2022.  

 

The last time we had a budget surplus was 2001, when the surplus was $130B.  After that, two things contributed to create significant deficits (from $160B to $450B) from 2002 to 2008:  major tax breaks instituted by the Bush administration and the Afghanistan and Iraq wars.  

 

The 2008 financial crisis increased the budget deficit dramatically in 2009 to $1.42T and it slowly decreased after that until the Trump tax cuts in 2017 started another upward trend and the deficit reached $1T in 2019.

 

The last 3 years have seen a major increase in our debt due primarily to the impact of COVID. The deficit for 2020 was over $3T, and in 2021 it was $2.8T (double that in 2022). 

The current debt is approximately 125% of the national GDP (Gross Domestic Product).  Our interest payments on this debt are about 15% of our spending.  But it is interesting to note that only about 25% of those debt payments go to foreign investors.  The rest is either intragovernmental or paid to US institutions, mutual funds, bond holders, etc.  Compared to other developed nations, the USA is near the top in terms of ratio of debt to GDP, but not the highest.  Japan wins that award at over 230%!  For comparison, Italy has 135%, France 98%, the UK 80% and Germany 60%.  

 

Yet American investments, securities and currency are still the most desirable in the world.  So clearly the world doesn’t yet view the USA as having a huge debt issue or any type of impending disaster.  But most economists seem to feel that we must work to limit or even reverse debt growth as we face a more challenging period of social security and Medicare expenses from an aging population, as well as likely growth in defense spending.

 

The budget deficit can be decreased by spending less and/or taxing more.  There is always waste in government. The passionate feelings that fiscal conservatives have about reducing government are not unreasonable, but they run into hard numbers of required spending pretty quickly.  

 

Social Security is $1.2T and Health Care (Medicare, Medicaid, Children’s Health Insurance Program and Affordable Care Act subsidies) come in at $1.4T.  Along with some other mandated costs they make up about 65% of our $6T spending, and those costs will only increase as time goes on unless we are willing to cut them, which is generally a very unpopular concept!

The defense budget is about 16% of the federal budget.  Here is the overall breakdown of the federal budget.

And a more detailed look at discretionary spending:

I partly agree with the part of conservative thought that fears the steady, unexamined expansion of government.  There is nothing evil about this expansion, it is simply entropy at work.  It seems to me that there should be some bi-partisan group tasked with closely monitoring government spending and making recommendations to congress for reductions. 

 

Admittedly, this would be a near impossible job and subject to all sorts of political machinations, but it is worth a try.  The Congressional Budget Office (CBO) does some of this work, but more along the lines of estimating costs than analyzing the cost-effectiveness or value of government programs.

 

But no matter how much effort is put into attempts to reduce our current spending, it is highly unlikely we will be able to balance the budget in this manner.  

 

With that in mind, let us look at taxation in the USA and see what can be done there!  Here are some facts about taxes for the highest earners:

• Top 1%. (1.6M taxpayers) had average adjusted earnings of $1.6M per taxpayer and paid 25.6% in tax, or an average of $413k per taxpayer.  The total of their taxes was $612B.
• Top 10% (14.8M) had average adjusted earnings of $380k per taxpayer and paid 19.9% in tax, or an average of $75k/taxpayer.  Their total of taxes was $1.12T.
• The bottom 50% (74M taxpayers) had average adjusted earnings of $18k per taxpayer and paid 3.5% in tax, or an average of $653/taxpayer.  Their total taxes were $48B out of a total tax revenue of 1.58T

 

The top 10% of taxpayers had a total of $5.6T in adjusted income (after deductions and all the legal maneuvering).  If they paid another 10% in taxes, that would give the country $560B in revenue and would only decrease their average income from $380k to $342k.  This additional tax could be structured in a graduated manner so as to have less effect on those down at the $200k-$400k level.

 

The effect of this additional taxation would be minimal in terms of the lifestyles of the wealthy.  Opponents of tax increases believe fervently that increased taxation on the wealthy will somehow decrease investment and throttle growth.  The top 10% of wage earners have so much accumulated wealth that it is very hard to imagine that they would limit their investments or somehow quit innovating or creating new companies.

 

I have seen many arguments by the Heritage Foundation and other conservative organizations framing the argument around share of taxation and income.  They fall all over themselves pointing out that the rich pay a much higher share of taxes (71%) than their share of income (48%).  

 

But this is looking at the situation backwards.  The salaries and wealth of the rich are so large that they can afford to pay much more in tax and still have everything they need for their lifestyles and their business investments.  In contrast, the poor and even the middle class struggle to keep their heads above water.  

This is why large numbers of billionaires and multi-millionaires have declared their support for significant increases in their taxes.  Increased taxes on the wealthy would also begin to move us away from the dangerously inegalitarian society that has developed over the last 40 years.

 

In the long run we will need to make significant changes in both our taxation and government spending.  But the first step needs to be to increase taxes, both income and estate, at the upper end of the scale.

 

Thoughts on LGBTQIA+

I had an interesting exchange with my best friend from my high school days, and then with my younger daughter, on the subject of LGBTQIA+.  My friend is very conservative and views any sexual or gender aberration from traditional heterosexual and male/female roles to be a sin and a mental disorder.  He said that he had sympathy for those who fall into these categories, but that society must strongly discourage them.  He sent me a rather controversial Bill Maher monologue on the topic that I then forwarded to my daughter for her reaction.  She sent a very thoughtful response that spurred me to write this blog entry.

The conservative backlash against gay marriage and gender issues is based partly on religious beliefs and partly on a general opposition to what they consider ‘unnatural’.  In their view, heterosexuality is natural and there are only two sexes and they mirror the two genders – male and female.

 

As in many things that conflict with religious beliefs or deeply ingrained cultural mores, there can be a large chasm to bridge.  A science-based approach to sexuality and gender does not give us all the answers, but it certainly does not align well with religious dogma.  The genetic basis of sexuality is nuanced and has the potential for many variations.  Recent studies of DNA in large numbers of people have revealed that there is often a patchwork of genetically distinct cells, some with a sex that might not match that of the rest of their body.  Some studies suggest that the sex of each cell drives its behavior through a complicated network of molecular interactions.

 

The process of sex determination is complex and subtle changes in gene activity or the number of molecules can tip the balance towards or away from the sex spelled out by the chromosomes.

 

Genetic studies have also found groups of genes that correlate with homosexuality.  There is no single or definite ‘gay gene’, but there are genes that appear to play a strong role in predisposing one to same sex preference.  The exact biological nature of sexual orientation is still somewhat a mystery, but what is clear from observation and scientific study is that it expresses itself very early and that it is not a ‘choice’ or a psychological condition.

 

If one accepts the facts of evolution, then it is not surprising that human sexuality is a spectrum.  Millions of years of evolution, with the attendant genetic mutations, will certainly have produced quite a bit of biological and sexual diversity.  

 

But if one believes that God created man and woman and that is that, then it is understandably very difficult to accept the impact and ambiguity of evolutionary influences in sexuality and gender.

 

Which brings us to the question of ‘what is natural’?  A religious person will say that what God has ordained and created is natural.  An evolutionary biologist will say that what is ‘natural’ is what nature, i.e. evolution, produces, and thus, what is ‘natural’ is forever changing and may encompass a large spectrum.

 

In a world that has long built its social and economic structures on top of a male/female, heterosexual foundation, confronting this brave new world of a sexuality and gender continuum is no easy task.  We do not know what the mix of biology, genetics, hormones and environment is that place people at various points on this continuum.

The question of whether homosexuality, or any other variant of sexual orientation or gender, is genetically determined may be an interesting one to some of us, but to many gay people it is irrelevant.  They believe that they are who they are regardless of the factors that may have played a role.  And they want to be accepted unconditionally.  They don’t see themselves as an aberration, but rather just as another part of humanity.  This is a difficult change in perception for most heterosexuals, or at least those who have grown up surrounded by very traditional cultural values.

The fear that impressionable young people can be swayed by their peers or by social pressure to embrace a certain sexual orientation or gender is highly exaggerated, but it should not be entirely dismissed.  Everyone should be free to find their own path without being influenced either by society at large, by social media, or even by their peers.

 

There are no definitive answers to the question of how to proceed in this world of LGBTQIA+ openness.  The argument that we should not persecute or condemn sexual behavior and gender choices that do not harm others seems reasonable.  But the thornier issues of gender therapy for young people and the development of sexuality/gender curricula in schools is no simple matter.  We must strive for a healthy affirmation and acceptance of behaviors and choices, yet also avoid the potential pitfalls of harmful experimentation or premature decisions with long term consequences.

Prayers and Faith Can Be Expressions of Hope and Optimism

I am a skeptic.  Much of formal religion, with its creeds, stories and decrees I find illogical and superstitious.  But I try to be open-minded about issues of faith and prayer, because I know that they have powerful effects on people and I believe that they incorporate a very human need for hope and optimism.

We are born into this world with an uncertain future and with our mortality slowly creeping up on us.  We are bound to experience heartache, failure, disappointment and even tragedy along the way.  We will also have joy, fascination, pleasure and ecstasy.  Life is a mixed bag but the drumbeat of the finite time we are allowed cannot help but make us somewhat anxious.

 

Religion and spirituality are there to reassure us that there is some meaning to life beyond our physical selves and our short human trajectory.  In moments of bravado, we may claim to be perfectly happy with a materialistic, beautiful-universe concept of existence, but I do not wish for my existence to end with death.

 

If we say that we have faith in God and that we pray, it does not have to mean that we subscribe to any particular creed or even understand what that faith or prayer will accomplish.  Faith and prayer are expressions of hope for meaning in life, and optimism that good things will happen.  I pray for someone to get well, not because I believe God is arranging things and may intercede, but simply to express my love and hope that somehow they will get well. 

 

I have faith that there is something eternal, some form of love that prevails in this universe.  I do not choose to associate that faith with any religion or philosophy because my rational mind finds too many flaws in their representations.  But I can appreciate the beauty and sagacity of Jesus’ sermon on the mount, of David’s Psalms, of the Koran, of the Upanishads, and of every good faith effort to guide human thought and behavior.  I embrace what makes sense and I discard what divides and is clearly an expression of outmoded social or political manipulation.

 

The mystery of our life and existence is both exhilarating and frightening.  It is understandable to want to take refuge in a well-defined religious worldview.  But the march of time and of human knowledge and experience have challenged us to accept ambiguity and reject dogma.  

Perhaps our death will make it all clear.  Until then, we have faith and prayer to console us.

 

Democracy or the Philosopher-King?

It is a bit ironic that we attribute our democratic ideals to the early Greeks when the most famous and enduring Greek philosophy comes from three men who were strident critics of democracy – Socrates, Plato and Aristotle.  They associated democracy with the rule of the mob and generally aligned themselves with the aristocratic elite in their theories of government.

Their basic objection to democracy was that it gave too much power to uneducated people who were not capable of understanding the complex issues of government, economics and society.  The mob could easily be led astray by demagogues and charlatans.  Their allegiance could be bought or stolen easily and would lead to instability and frequent violent episodes.

 

Plato also recognized the inherent problems associated with aristocratic government, namely the potential for corruption and the motivation to line one’s own pockets first, so he came up with a proposal for a government led by philosopher-kings.  The concept here was to create a super class of intellectuals who would be chosen at birth to lead the nation.  

 

They would be separated from the general public and lead ascetic lives, living as single men in dormitories and never accumulating possessions or riches of any kind.  They would be educated to an extremely high level, especially in philosophy, to enable them to analyze complex societal issues and make the best possible choices.  Their spartan lifestyle and independence would make them uncorruptible and preclude them making decisions based on self-interest or class preference.

 

This type of ideal government has, of course, never seen the light of day.  Every government in the history of humankind has been either led by the wealthy and powerful or by revolutionary zealots who soon become the wealthy and powerful.  Indeed, in the USA it has become de rigueur for business tycoons to spend their way to higher office with an almost cartoonish combination of vanity and the hubris of the heroic job-creator.

 

In our current political environment, the anti-democratic spirit is alive and well, taking the form of stolen election accusations and voting restrictions.  One can easily argue that the anti-democratic argument is at the very heart of our republic.  Only property-owning white citizens could vote for the first 80 years or so.  If you had polled the founders about voting rights, it is likely that most of them would have echoed Plato and his brethren in their distaste for a fully democratic government. 

 

It is somewhat defensible to believe that ideally a certain level of education is important in making political decisions.  But implementing any sort of policy to limit voting to so-called educated citizens is an unimaginably difficult task and is unlikely to be effective.  So perhaps the real solution is to attempt to educate the masses rather than limit the vote.

 

If we are to avoid the negative aspects of universal suffrage – the demagoguery, the herd instinct and the mob mentality – then I would suggest the answer lies in a more cerebral approach to elections.  By this I mean limiting election materials to written platform and policy statements, shortening the time period for campaigning, severely limiting campaign funds, using a great portion of funds to develop independent, non-partisan reviews of the issues, putting all negative portrayals of opponents through a non-partisan review before allowing them to be published, and staging separate candidate interviews on the issues (not debates) with questioning by recognized experts.

 

The chances of this happening are only slightly greater than the probability of the USA cultivating philosopher-kings, but one can dream, right?