I’m not sure what this means.
Yes… it’s very easy to get rid of surplus if you want to. Remember Ben Bernanke getting the moniker “Helicopter Ben” in 2002 after quoting (or at least citing) Milton Friedman… that they can throw cash from helicopters to stop deflation, if necessary?
I think that was pretty close to my very first Economist issue when I read about that. Certainly the very first subscription.
Right now there is almost no limit to what the government will spend on programs. At one point the debt limit may have been seen as a cap on spending but that time is well past.
Bills that are passed need, for a start, a realistic estimate of what they will cost. Also we need to abandon the fiction that a tax cut will somehow pay for itself. This has almost never been the case and would only be possible if our tax rates were much higher.
In the end we will need spending cuts and tax increases. Yes, tax increases.
This will not be popular so it will probably not happen until the crisis is acute.
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Yeah, FICA taxes are at an all-time high, but income taxes are nowhere close.
And when you say
Much much MUCH higher
That said I think the Biden administration is on the right track hiring more IRS agents. If we kept tax rates where they are but collected a greater share of the tax due that would be a big step in the right direction. I think that move will pay for itself.
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I wonder if people would be incentivized more to get their filings done on time if there was a “credit” applied for filing before a deadline rather than imposing a fee/fine for getting them paid after that deadline.
That is, filing for an extension would result in not getting the “credit”, but failure to complete by a second deadline would result in more being paid.
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Before my late parents’ investment portfolio was simplified, tax time was a pain. I only got exposed to the full complexity for a couple of years (the two tax seasons after my mother passed), but final reports for tax preparer use from some of the odd partnerships in their portfolio weren’t received until sometime in March.
They had an accountant do their taxes (I gave it a shot the first year after my mom passed, but it was beyond my skillset). Their accountant usually filed for an extension, because they simply ran out of time, given their other duties.
If I were an accountant, I would probably resist attempts to discourage that first extension.
Remember also that the first extension includes (and I know I’m doing a sloppy job explaining it) the feature of “pay what you think you’re going to owe; there will be a penalty if you discover you owe more”, which provides the necessary incentive to get money to the IRS by the deadline.
I don’t know that extensions are the problem. I think the problem is more likely misuse of deductions and unreported income.
On the unreported income bit – c.f. the public fuss over plans to have PayPal, Venmo, etc. start reporting transactions over $600.
And on the deductions bit, while the deductions I filed on my father’s tax returns are appropriate (nursing homes are expensive!), I was dreading the potential for the IRS to come back and request documentation. It was low risk, due to the lack of IRS staff and the limited potential upside from the IRS’s perspective, but still…
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I’d like some kind of mandatory reminder. Maybe a letter/text/email sent to all Americans every few years detailing the country’s finances on a per Capita basis. It would be super cool to show other economic indicators, trends, comparisons, etc as well. Maybe nobody would read it except actuaries, but whatever.
I think the debt ceiling fight is a particularly braindead and toxic version of that, and frankly Congress “let me bring a snowball to a global warming debate” can go fuck themselves anyway.
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I think that is generally done. According to the CBO website:
CBO is also required by law to produce a cost estimate for nearly every bill that is approved by a full committee of either the House or the Senate.
I agree that “tax cuts raise revenue” is a fantasy.
I agree that we will need more tax revenue (both from better enforcement and new laws) and some spending cuts to control the debt. I was just questioning the “blank check budgeting”.
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Does the CBO do a reconciliation of their past estimates? That would be useful.
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Exactly. I think that we can find some instances where CBO estimates were basically wishful thinking. I think CBO should have a scorecard showing how close they were to targets.
But more than that I think that there needs to be a mechanism where the budget that goes too far off target gets a course correction to bring it closer to targets. Almost all states and cities do this and need to keep their budgets balanced for each fiscal period (many states have two year “bieniums” rather than an annual budget). The federal budget does not need to be necessarily balanced but it should not grow without bounds.
Perhaps this is what the debt limit was intended to accomplish but it plainly has not worked that way in practice.
The US debt and deficit have not reached the crisis levels yet but we keep getting closer and the population trends that we’re on make a crisis inevitable if action is not taken soon. Sadly, the longer we delay taking action the worse the crisis that ensues will be.
That’s exactly how Oregon does property taxes.
If you pay the full year by this date you get a 3% discount. And then there’s a couple more options (half now / half later maybe? Pay by a later date?) that get you smaller discounts.
I only ever paid attention to the first since that’s what the mortgage companies do if you’re paying through escrow… which I usually was, although with one mortgage I paid the tax directly. But still the amount to get the maximum discount because I am a cheap actuary.
And I’ve seen the discount apply to parking tickets. If you pay within one week then it’s $25. After a week it’s $80. This motivates you to actually pay it.
The issue with income taxes is that the amounts can be SO large that you really do want that interest ticking up as time goes by.
Maybe if the tax due is less than $1,000 and you pay by April 15 then you get a 5% discount.
But when someone owes $100,000 you don’t want to just say that they lose the 5% discount for not paying on time… you want the amount to keep growing.
Definitely correct. Any discount should be for paying on time, not for filing on time. Extensions don’t hurt the IRS at all. By the second half of February they’re behind in processing returns so it doesn’t really speed anything up or help in any other way if a greater share of returns are filed before the deadline. It just matters when stuff is paid.
And extensions do NOT extend the deadline to pay. Tax Day this year is April 17. Failure to Pay penalties kick in on April 18… even for the folks who extend. If you extend then you don’t get hit with a Failure to File penalty until October 17. (Extended filing deadline is October 16 this year.)
These are two big issues, for sure. And just simply not filing / not paying at all. Someone always comes into VITA saying “I haven’t filed any taxes since 2016… please help me.” Probably fewer now because the stimulus incentivized those folks to get caught up. But still… you’d be surprised. It blows my mind sometimes.
My suggestion was to have a second deadline beyond which additional fees are assess.
My thinking is far more psychological to the extent that many “don’t want to lose that deal” vs. “meh . . . so I have to pay some more”.
Sort of like what I’ve experienced by getting students to actually do the work by making it “extra credit” vs. “regular assignment”.
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Okay, but what is the mechanism?
I think they’ve tried a number of things. At one time, members couldn’t propose bills that increased spending unless they also funded that with spending cuts or tax increases. That didn’t last. Now, I believe, they do macro totals and then try to pass budgets within them.
It takes something like a constitutional amendment, but it we don’t want a hard line, how do we describe the fuzz?
I’ve suggested that we simplify taxes to the point where we could do budgeting by referendum. Even there, I’d have a “safety valve”, but maybe it would have more political cost.
We probably would need a constitutional amendment, and enacting that would be no mean feat.
Regardless of the source of legal authorization we’d need civilian employees (not political appointees) empowered to be watchdogs on the government balance of payments. If the deficit goes outside the guardrails established in the budget then this would trigger congress to have to rework the budget. Congress would have a deadline after which automatic proportional cuts would kick in.
Of course we would actually need a budget in addition to probably a constitutional amendment. We’ve been operating on continuing resolutions most of the time.
I don’t think we want to pay off the debt. That would be a substantial reduction in the money supply which would be disastrous. Inflation gets on our nerves, deflation would be the unraveling of the economy.
What needs to die is the myth that taxes fund the government. Taxes shrink the money supply and spending increases it. That’s all either of them do. The federal debt is a cash surplus for everyone else in the world. Paying that off would remove that surplus from the pockets of all non US government accounts.
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Yup. Credit is money, so just definitionally, whatever the govt spends and does not tax back out of circulation is someone’s savings. Govt debt = private savings, by construction.
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The federal debt comes in different forms. Greenbacks are federal debt, so are 30 year bonds.
The first is non-interest bearing and redeemable immediately (or as soon as I owe the gov’t something). The second earns interest and cannot be redeemed until the stated maturity date.
I think that “repay the debt” is generally used about the second, not the first.
I’m responding to my own post.
The NYT has an article on this. The Biden administration says they have no plans to prioritize.
The political calculation is that it would be terrible optics to pay the institutions and wealthy individuals (and foreigners) who own most of the bonds while not paying US doctors who provided care and are billing Medicare/Medicaid. Of course, not sending SS checks would be worse still.
Having some material volume of government bonds outstanding is a good thing for the economy.
However, when we approach a point where we are unwilling or unable to make the interest payments on those bonds (or to accept the inflation caused by creating more money to make those interest payments)…that would be a problem, one that I wish the government would steer clear of.