The two new taxes you'll be paying by 2027
I dropped by the New School University this morning to see a panel discussion on the state of the U.S. economy. The line-up included Nobel Prize winning economist Robert Solow, CNBC's Larry Kudlow, economist and superblogger Brad DeLong, and Robert Hormats of Goldman Sachs. Former Nebraska Senator Bob Kerrey, the president of the New School, moderated. The general view from the panel was that the economy is in fairly decent shape, but that during the Bush administration we've squandered an opportunity to invest for the future and to improve our fiscal health. I'm guessing "Goldilocks" Kudlow doesn't sign on to the second half of that formulation, but I came in near the end of his opening remarks and he left before the discussion really opened up. That's a shame--it might have been a fun debate to watch.

In any case, I picked up some interesting insights:

Consumption taxes are coming. That's the forecast, at least, of panelist Robert Shapiro, a former undersecretary of Commerce during the Clinton administration. He thinks we're likely to see two additional federal taxes imposed in the next 20 years. First, a carbon tax to address global warming. Second, a "value added" tax just to pay for Medicare. "Under anything like the current political constraints, we will have to find enormous new resources to pay for Medicare," he said. "And that's how you get to a VAT."

A VAT is similar to a sales tax, except that the money is collected from all the businesses involved in making and distributing a good. (To a consumer, it can still look exactly like sales tax, depending on the design.) According to Taxing Ourselves by Joel Slemrod and Jon Bakija, almost every other industrialized nation uses a VAT.

Shapiro's prediction for a Medicare VAT sounds pretty plausible. Of maybe it will be a bigger, broader Health Care VAT. As another panelist, Julie Kosterlitz of the National Journal, observed, polls suggest that most Americans would be willing to pay higher taxes in exchange for universal health coverage. And Kerrey, the long-time politician, said that the public is usually more accepting of taxes that are earmarked for a specific purpose.

As I pointed out in an earlier post, if future tax hikes come in the form of consumption taxes, you'll pay them even if you stashed your savings in a Roth account. Maybe that's another reason for lawmakers to like them.

Yes, China could be a problem. China has been lending us lots and lots of money, which in turn has made it easier for us to buy all their t-shirts, blenders and televisions. They do this even though our dollar is clearly overvalued; as its value falls, so will China's return on its loans to us. Most observers think that won't be a problem--the imbalance will unwind slowly as China's economy matures. You'll also hear that a falling dollar really isn't so bad, since it would boost the overseas demand for goods manufactured here. (We do still do that.)

But DeLong pointed out that what matters here is velocity. What if China really isn't okay with lousy returns on its dollar-denominated assets? And what if it realizes this, as DeLong vividly put it, "in the middle of the night," in a panic? A fast decline in the dollar would still boost foreign demand for the stuff we make, but to benefit we'd have to shift a whole lot of our workforce out of the service and construction sectors (which would be hurting) and back into manufacturing. Just how quickly can we retrain interior decorators and Home Depot managers and turn them into auto workers?

DeLong said he isn't betting on such a catastrophe. He was suggesting that we need some "fire insurance," just in case. Since I don't think State Farm wants to write the entire U.S. economy a policy, the only "insurance" would be to get the budget in better shape. DeLong's analysis poses a bit of a problem for liberals. (DeLong worked in the Clinton administration.) People like Paul Krugman and James Galbraith are arguing that Democrats should lose their obsession with balanced budgets, so that they can get big things done if they win all the marbles in 2008. And it's true that deficits aren't always so terrible. But this would have been an easier case to make in 2000. As it stands today, deficit spending for health care, education or the rest of the Democrats' wish list will have be piled on top of the deficits generated by what DeLong calls Bush's "three big projects:" tax cuts, the war, and Medicare Part D.

Why you can't afford New York real estate, part 2. Bob Kerrey said that on the island of Manhattan, 16% percent of the population works in finance or insurance, but that those people earn 65% of the borough's income. I'm not sure where he's getting those numbers, but they certainly sound about right.

One common response to concerns about rising inequality is to say that it's just a side-effect of our incredible system of higher education. The economic return for going to college or graduate school is very high--and who would really want it to be otherwise? Well, New York has no shortage of educated people. You can't swing a cat on 14th Street without hitting five or six people with advanced degrees. But a Ph.D. and six bucks will just about buy you a Metrocard in this town. Teachers, nurses and scientists--productive people with lots of training--are barely hanging on here. It's important to reward people who invest in their brains, but is it just maybe possible we're rewarding the narrow slice of smart people who invest in MBAs a little too much?
Posted by Pat Regnier 4:47 PM 30 Comments comment | Add a Comment

Many college graduates toil for low wages; I have a degree and earn my state minimum wage. So who says college graduates deserve big bucks?
Posted By Terry Pratt, Portland, Oregon : 6:08 PM  

*Yawn*, Hey Pat, where's our red meat? You know, fire and brimstone right wing stuff like abolishing Social Security and Medicare? Your going soft... and its making for sleepy articles.
Posted By Cedric Williams, Portland OR : 6:56 PM  

The proposed military budget for the coming year is $625 billion. If we ran our military budget at the same level as most other industrialized nations - about 2% of GDP - we would eliminate the deficit altogether. Next, restore the "death tax" and increase it with the stated purpose of paying off the national debt; the baby-boomers borrowed against the future (our future), and it's time for them to pay up on their loans. Eliminate the AMT. Institute a 2% national sales tax to help pay down the national debt sooner (so there is less interest paid out) and create a single-payer health care system in the U.S. to ensure everyone can have reasonable health care and to take a huge burden off of corporations - especially small businesses which are the heart of America.
Posted By Brandon, Ann Arbor, MI : 12:42 AM  

Without the military there are no colleges. No all night raves. No bad reality TV shows. No real estate deeds. No foul rap music. No equal rights. No suing your neighbor because his dog watered your lawn. What anchors everything in the US is the Constitution and the ONLY thing that maintains it's ultimate survival and it's status quo is the military. That's it so get over how much it costs to maintain it, especially coming from people who will never serve in the first place because your too narcissistic. It's not maintained by sniveling college students or Professors whining about not being left wing enough in an article. You want to get financially stabilized? Exercise some self control and stop the ridiculous housing lending that has driven home prices way beyond anything close to what they are worth. 1.4 Trillion in loans using foreign money to finance millions of Americans so they can go out and by overpriced homes they can't afford. Way to go America! And when you default on those loans, the bankers will run to the Govt., and get mostly paid off and stick the rest of us (who were smart enough not to buy an over priced house) with the tax bill to pay for it. Thanks. The bankers and realtors who pulled this stuff will walk and if it doesn't destabilize the world economy in the process I'll be surprised. Fix that. Try and get 100's of millions of spoiled rotten Americans to show some self restraint in their deeds and actions and put society above themselves in their daily lives. Try and get them to turn the other cheek and realize life isn't perfect and that's just the way it is. Fix the frivolous lawsuits that lawyers and unscrupulous people bring that is crushing manufacturing and dozens of other industries. Implement a "loser pays" legal system in the US to eliminate frivolous lawsuits so the lawyers have to pay if they lose a case. Wow! What a concept! A lawyer that not only doesn't get paid if he loses a case, but is personally liable to the victors of the case for their losses! Check out the legal system in England. Freedom? Most young people don't know what the word means. It used to mean live and let live (but that only works if you actually turn the other cheek and respect other peoples opinions and privacy). Instead, we cram political correctness down everyones throat, which is not freedom, but a social engineering experiment gone wrong. Balance. Common Sense Self Control. Humility. Hard Work. Honesty. Sacrifice. Teach that to the next generation.
Posted By Rick Venus, Detroit, MI : 11:29 AM  

You pay more to those who bring in the bacon. As America currently does not do any productive manufacturing anymore and survives on the arbitrage of the dollar against the yuan the entire country is getting fed by the tricks Wall Street is playing on the Chinese. I think the financiers deserve all their salaries as their shell games are all that is keeping the American populace off the streets and well fed
Posted By Prabuddha , Austin Texas : 1:25 PM  

rick, you don't need a large military to have a large well functioning economy, look at japan. look at the scandinavian states. You will see every period of history when a superpower rises, the next thing that occurs is imperialism. The us has stretched itself too far for imperialistic gains, while neglecting domestic issues. we don't need more military rick, i'm sorry, that will create the downfall of society and the downfall of liberty. But i do agree totally about your social agenda goals pertaining to the ridiculous american legal system and our social structure "american way of life" (which is an idea based on gluttony, greed and oppression). Unfortunately ppl only survive in this current economic system if they are pawns or workers of others who hold power. god forbid you have your own idea. America is not the land of mental freedom and the greatest ideas anymore, it is a nation whos collective conscious has been stolen and a nation that is struggling to maintain its feeble power grip on the world.
Posted By chris, abingdon, md : 9:09 PM  

Other countries spend @ 2% on defense BECAUSE the U.S. basically covers the entire western world's defense needs. Europe? Japan? South America? No worries, Uncle Sugar will jump in if there's a fight.
Posted By John C. Los Angeles, CA : 9:25 PM  

I am concerned about the future relationship with China. If they hate us so much aren't they setting us up to take an Economic Fall after fueling their rise to power through buying our debt and selling us cheap stuff at Wallmart?

By 2020 won't there be hundreds of millions of men without the possiblity of marriage?

With all that testosterone.... WAR
In space, Online, and Economically by taking our dollar and ushering in the 2nd great depression.

who will care about Medicare and Consuption taxes then... when hyperinflation hits due to bad budgets and a Dollar that china sinks.

My predictions for our Future. Unfortunately....
Posted By James Austin TX : 5:36 AM  

A note to those folks that have a simple solution to government funding issues (courtesy of the GAO):
I would hope that the level of discourse on this board would reflect more knowledge of basic economics. Simple concepts like NPV, the cash equation (income = spending per per period), and 'debt is eventually repaid' go a long way towards understanding the futility of tweaking the current system.

TANSTAAFL (with apologies to R. Heinlein)
Posted By Patrick, DSM, IA : 1:45 PM  

If I'm not mistaken I read that 80% of our foreign held debt is in the hands of EU and japan, with china holding some 5%... thats not a large enough chunk to do much.
Posted By Kevin, Seattle WA : 2:45 PM  

We have the best system in the world. Those of you who want more taxes to pay for everything should try living in Europe. No one gets ahead because the governments there take 50, 60 70 cents on every dollar they make to pay for Health Care etc. Look at France, everything is an entitlement and they can�t even get people to work a 30 hour week without riots. I enjoy having a choice in a competitive marketplace like ours. Government does not need to provide us with everything. That is called Socialism and it does not work and never will. To all of you who want a healthcare system like Canada or the UK ask someone who lives there what it is like . . . . If you like 6 month waits for anything you will be excited.

Also, the sky is not falling people! Just because there is a deficit does not mean the country is going to go bankrupt! Do you know how much money the federal government BORROWED to fight WWII? Over $4trillion! Did the US all of a sudden shrivel up and die? No we did not, we prospered and became the greatest nation on Earth because of the current system. We do not need to change what we do just because the rest of the world has a VAT or socialized medicine. My humble opinion is that we should do exactly the opposite because the rest of the world does not work. So what if China becomes what everything thinks they will? They have a couple of billion people, but communism will prevent them from overtaking the US because their system does not allow the free and open exchange of ideas and thought. We are the best in the World even with our flaws and there is no reason to change. Get a grip and quit listening to the �sky is falling� crowd. It is just not true! Work hard and you will be alright
Posted By Jack, Phoenix AZ : 6:51 PM  

Jack, Amen! Please do go and live in the countries you praise for their health care systems (and get a disease or two) and their great economies and then preach. On the issue of people with MBA's gettin gover paid: it is simply a matter of supply and demand and we all have the same opportunity to do as well as those on wall street do given the appropriate qualifications and talent. Not everyone can slam dunk like Michael Jordan and not everyone can become the next Warren Buffet.

China is a growing economic power but they will never be a great society like ours where chinese citizens can get thrown in jail for decades for something as simple as "disturbing social order".

Goto France, try to get a job there and see how easy it is or how well you like it (btw in france you pick your profession at a ridiculously young age, goto school/technical college for it/learn that skill and stick with that profession for the rest of your life with no other opportunity or possibilities as far your career goes).

Let's take another country as an example: Health care in Mexico is cheap and free for its citizens but its also a place where most of its citizens make a couple of bucks a day and barely make enough to survive while something like this is possible:

I am not saying everything is fine here at home -- we do have our share of problems -- but we also have some of the brightest in the world and every day there are many many brightest and best in the world who migrate to the U.S to call it their home. For example: there was an article on CNN about Germany and how many professionals from Germany are migrating to the U.S -- more Germans left Germany than returned last year -- read it).

So i think we are and will be vigilant and we'll be alright.
Posted By Jasmine, San Diego CA : 4:45 AM  

To Pat Regnier,

I agree that we should reward educated people for being well educated. And I think the system already does that. But it's no secret that nurses, teachers, and scientists are undervalued. Doctors are paid too much. We allow too many lawsuits to go to court. We don't support teachers enough and pay administrators too much. America is addicted to money. The sad lesson we are teaching our kids is that if you aren't rich, you are a nobody. The media is much to blame for that. Too many gold teethed rappers and American Idol wannabes.

I have my MBA by the way and I'm far from what I'd consider wealthy.
Posted By Chris H., San Diego, CA : 7:01 PM  

To Jasmine in San Diego,

I agree with you! We do live in the greatest country on earth. Our system isn't perfect, but it is the best on the planet.
Posted By Chris H, San Diego, CA : 7:11 PM  

Several posters have correctly pointed out that Japan and the European companies spend less of their GDP on defense than we do because they're getting a free ride off of the USA.

I will go further and point out that they have been getting that free ride for over 60 years.

If it were not for the protection of the United States, western Europe would have been swallowed up by the Communist block states years ago.

And not a one of them would have been able to sustain their socialist welfare states that some people in this country seem so enamored of if that DID have to spend as much as we have been spending on their behalf.

Most of them are mighty ungratefull for our beneficience to boot.

As others have said here, those who think the socialist way of doing things is so great are free to move to one of those countries and live it for yourself.

I don't want that crap imported here.
Posted By Gilbert, Smyrna, TN : 10:48 PM  

The military is responsible for defending the Constitution. However, they are not and should not be the World's Police. Cutting the military to 'bare bones' gives us the ability to reduce the debt (forget the deficit) and to restablize the US economy. Add to that we should have strict tariffs against Chinese goods (upwards of 45%) to insure that US manufacturing jobs do not leave the country and to enforce the end of slave labor (China has a plan to 'relocate' people and they need jobs...) This, along with the end of SS and Medicare (yes, the end of the only National system of Healthcare that will only drive everyone into the poor house with NO health care.) Social Security was and is supposed to be a 'safety net' not an additional source of income when you hit 65, 66, 67 or maybe 70. There are enough 'programs' out there that any savvy 25 year old will be able to build their own retirement plan. We need to end the debt, and now. Clinton actually had a plan and it was working. Look at the rate of growth in the late 90s and compare it to the last six years. Some difference...
Posted By James McKenzie, Tucson, Arizona : 12:23 AM  

Hey Jack from phoenix , nice work . I didn't think there were any sensible folks west of the mississippi.. America rocks , why ? because We can!! ..
Why don't you run for President rather than Mccain .. have a good one !!! Mark in Virginia ( where America started the right way !!)
Posted By Anonymous : 9:56 PM  

To Rick Venus, Detroit, MI. when are you running for president? You my friend hit the nail right on the head. Best comment I've read.
Posted By Steve Hall, New York NY : 11:26 AM  

While all the comments blamed others for our problems with the ecomony no one addressed the issue that the ecomony is a earn and spend circle. I believe instead of the Chinese we are headed back to the days of Rockefeller and Vanderbilt. Why should any one person earn 26 million dollars and then cut workforces not one of these supposedly highly educated execs see the big picture that its great to pull home a giant salary but for how long afterall by eliminating workers there will be less people able to demand my products therefore hurting the ecomony I agree they should earn a good salary but how much can one person spend. If we spread the wealth we wouldn't have to cut the workers to increase the bottom line. Afterall it is cause and effect with the cause being execs pulling in giant salaries and effect the working class now not being able to afford the products. The more that work the more that spend and keep the system humming.

As for Social Security and Medicare we need to stop abusing it and use it what it was intended for. I realize we have all paid in to the system but if you are pulling down say 50,000 a year in retirement do you really need that $700/a month check lets remember if we don't work together and not be greedy we can continue to build the greatest system in the world.

Posted By d, pennsy : 12:53 PM  

Who wants to live in Hilary's village? I don't. I appreciate the thought of making my own decisions and paying my own way. I raised my children, sent them to school and see them working at their careers. America the beautiful!
Posted By SJ., Morristown, NJ : 4:13 PM  

You dont tax the next generation for the previous two generations underfunded liabilities. Im not sure what the answer is but since only 12% of the population is 65 or older I have a feeling they'll be the ones paying.
Posted By Mark, Peoria, IL : 4:13 PM  

To James in Tuscon,
You really think "Clinton had a plan"? I think his main plan was to get in the pants of teenagers by using his slick personality. As far as the economy goes, you might note that the stock market began plummeting in January 2000, when the falsifications of the "Clinton Plan" were becoming obvious. You see, the Clinton plan was for companies to lie to everyone about how much the new technology was going to increase .com's productivity over the next 20 years. Businesses followed Clinton's leadership in lying about, well, just about everything - some to the extent that they went completely belly up despite having billions of $ worth of business (MCI, Enron). The stock markets rocketed up from 1995 to the end of 1999 with nothing but a bunch of non-profitable .coms supporting it. Tax revenue increased as people paid extra taxes on speculative profits on stocks. The military was cut, placing our entire nation and way of life at risk to even minor entities like rogue terrorists. When people relized that all the speculative tech companies were never going to make a profit, the stock market tumbled and tax revenue was punished for five years because people could deduct their losses instead of paying extra taxes. The fact that we survived and did not have the economy devastated when we had to pay the bill for "the Clinton Plan" says a lot about the resiliance of America. The Clinton plan says everything about the man - the plan can be summed up in three letters... LIE.

BTW, I concur completely with those who have pointed out that we have provided for the military protection of Europe and they are ungrateful. I think they are ungrateful because they realize how sad their socialist lives are and wish things were different. But rather than blaming themselves for their selfishness (selfishness drives people to want socialism) they pick out the US to blame. We are a big target and can absorb many body blows. Socialism is generated by people who want the government to provide for them the things they have not earned and for which they cannot pay. I wish the government would provide us all with a brand new sports car. But don't raise my taxes, just raise the taxes on the rich!
Posted By Dave, Denver, CO : 5:10 PM  

Other countries spend @ 2% on defense BECAUSE the U.S. basically covers the entire western world's defense needs. Europe? Japan? South America? No worries, Uncle Sugar will jump in if there's a fight.
Posted By John C. Los Angeles, CA : 9:25 PM

and we're dumb enough to pay for it. maybe we should just protect ourselves and use the money for other priorities
Posted By Anonymous : 10:15 PM  


All that money we are spending fighting everyone else's battles, we could be using those funds here.

For instance:

The United States has a terrible intra-structure. We have Big Rigs taking up the highways (which were never designed for this) to deliver goods when this material should be shipped via high speed train. The trucks should only be used to deliver from local hubs. Think about all the fuel that would save.

I am in full agreement with the comments above about the legal system. I think you will find few people who disagree. As a juror on a BS personal injury case, I can tell you I wish I could have awarded damages to the defendent. I would have. There should be a penalty applied to cases which are totally out there.
Posted By WNM, Jeff, IN : 2:04 AM  

The U.S. Constitution states clearly what the Federal Government can or can not do. Taking U.S. tax dollars and supporting foriegn countries is not a stated as a right the federal government may do. So as you work and get taxed at 50% (that is all taxes combined), only blame yourself because you vote Republican or Democrat. Go register as an Independent !!!!!!!!!!
Posted By Ed Wright Columbia, SC : 11:12 AM  


To Dave in Denver, Sooo right.
Posted By Mark, Taxtown, Taxacusetts : 1:33 PM  

There is no such thing as the "common good" or "decision that is best for society." Society and the common good are abstract terms that don't apply to anyone. Although most Americans would be willing to pay higher taxes for universal health care, it's not the government's job to raise taxes to provide it. The people who want it should fund it privately, not force the people who don't want it to pay for those who can't afford it and didn't pay for it.

If you feel like certain professions are overvalued and overpaid, then why don't you give your money to teachers, nurses, and other workers? The capitalist system works to place "value" on things, although the value is determined through demand and supply also. Each person has individual values for products and services and it's not the government's job to find a compromise. It is the government's job ONLY to protect people and help maintain a free marketplace so that opportunities to present theirselves. The government has no right to take money from people who rightfully earned it through their own innovation and investment and give it to people who are "unlucky." Each person knows, going to college, the risks associated with their fields and degrees. If you don't get a job, then work harder, find other experience, or train for something else. The market should not cater to you if there is no need for your skills. That would be taking resources away from skills and products that people actually want.

Maybe no one needs $26 million dollars, but it makes no difference if that money is held by one person or 26 million. The money will be spent and distributed rather swiftly. Most millionaires invest their money or save it. Companies spend the money to hire new workers, create new products, construct new buildings; and banks lend out money to people who don't have it but want to invest it in buying something or also building something. There is nothing wrong with the current distribution of money: rich people reinvest their money to provide jobs to people so that they can make money and support theirselves. People who don't earn the money but may receive it through government handouts also invest the money by buying a car or a shirt at a store. The money ends up in the same place, so long as people are spending. The only difference is that the distribution currently allows people to keep what they earn, and socialist programs promotes an equality that doesn't even exist.
Posted By Sara K., Washington D.C : 2:55 PM  

Many of the world's problems can be attributed to the fact that incompetent people continue to have kids. In fact, the incompetent have a far greater birth rate. What defines incompetence? It's not limited to race, religion or geography. There are lousy parents from all races and religions. It's not money dependent, unless of course, there isn't enough for food, shelter and education (which is the problem for about 1/3rd of the world's population). In fact the super rich are often incompetent parents. If a person hasn't learned anough about the world to pass on to their kids, or doesn't have the time and patients to do it, the person is incompetent.

Crime, poverty, starvation, disease, war, etc. are all related to this phenomenon
Posted By Robert S. Tucson, AZ : 12:58 AM  

I am a boomer so it is too late for me, and it is too late for my (the excess)generation.
You younger people better wake up soon and stop the growth of government. We are well on the road to total socialism.
Start the change to:
1. More individual freedom and less government.
2. More quality and less quantity.
3. More saving and less consumption.
4. More working and less complaining.
Do your yourselves a big favor and don't vote for another baby boomer for President. Also, start thinking about a third party that wants to tell the masses the truth and start redcing the size of government everywhere. You are probably our last chance.
Posted By Bruce, Baton Rouge, Louisiana : 10:32 AM  

Or feel free to send a letter to the editor about this story. Top of page


Add to Technorati Favorites

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.