If you look at the figure below, tax receipts are down about 6% from the Clinton era (we went from a 2% budget surplus to the current deficit). It is perhaps legitimate to argue that the economy needed stimulus after 9/11. But we've had a couple of years of >3% GDP growth now, and we're in the middle of a "war" (or at least, expensive foreign policy debacle). Why should tax receipts as a fraction of GDP be at historic lows?
Steve,
ReplyDeleteObviously you belong to the reality-based community.
Haven't you heard that deficits don't matter? ;)
MFA
If you look at the General Fund deficit (~$600 Billion) the deficit is closer to 5.5% of GDP. The annual surplus from Social Security masks the severity of the fiscal crisis.
ReplyDeletehttp://calculatedrisk.blogspot.com/2005/01/general-fund-deficit.html
http://www.nytimes.com/2005/01/19/international/asia/19letter.html
ReplyDeleteThe Japan-China Stew: Sweet and Sour
By NORIMITSU ONISHI
TOKYO - Like many Japanese businessmen these days, but particularly as co-chairman of the 21st Century Committee for Japan-China Friendship, Yotaro Kobayashi is worried about the state of affairs between Asia's two most powerful nations.
On one hand, since the committee was formed in October 2003 under an agreement between the countries, Mr. Kobayashi, 71, who is also chairman of Fuji Xerox, has watched political relations fall to their lowest point in years. On the other hand, economic ties have continued to deepen, and China's rise has kept buoying up the Japanese economy.
'Japan Inc.,' the voguish term of the 1980's that described an economic juggernaut in which politicians, businessmen and bureaucrats moved in balletic unison, may have never been completely accurate. But as Japan confronts two realities - the rise of China's economy and its rise as a political and military power - the term may become history once and for all.
In Japan today China has come to be regarded as a partner by the business class and a rival, if not outright adversary, by the political class. Indeed, the dichotomy in Japan's view toward China has widened to such an extent that, in recent months, leading businessmen have begun publicly expressing misgivings about Tokyo's policy toward Beijing: bad politics is hurting business.
Anne
We have a serious structural deficit, and your chart shows clearly why. Politically, however, I perceive no chance of a limiting of debt accumulation in the near term. So, I worry a bit.
ReplyDeleteAnne
I do not understand the relevance of Anne’s comment regarding “The Japan-China Stew”. I guess we should be thankful that Japan and China are buying treasury bills, but how do these countries and their evolving relationship relate to Transfer Payments?
ReplyDeleteI could imagine that one way out of the current budget mess (assuming the deficits are brought under control...by a responsible adult) is to pursue an economic policy that leads to high inflation. This will devalue the debt and actually lead to a loss in real money for the holders of treasury bills with low yields (Japan, China, Pension funds,…). So again it is not really a transfer payment to Japan or China, so I wonder again about the relevance.
Just wondering…
PS- Does Social Security hold actual treasury bills or are the social security deposits truly just an IOU or an entry on a spreadsheet.
WJEV
"Relevance, relevance," she wondered. I could pretend there was a special relevance, but rather thought the article interesting in light of the mixed economic and political implications of Japanese-Chinese relations. There should be a resonance for us. Essentially funding our structural federal deficit has made us increasingly reliant on international capital flows, or on Japan and China and India and Brazil.... What comes of this I can not guess.
ReplyDeleteAnne
The Social Security trust fund is made up of Treasury bonds, but bonds that are not traded. So, the system holds Treasury debt which is an IOU, take your choice. However, the trust fund bonds are as sound as all Treasury debt.
ReplyDeleteAnne
the trust fund bonds are not traded, but they have all the other trappings of a bond. maturity, coupon, etc. right now they pay out a decent coupon too -- the trust fund bought lots of relatively long-term bonds in the 90s that pay more than treasury bonds currently yield. the bureau of public debt and i think the trustees even have an itemized list of the bonds held by the trust fund, with all their details. I ran across it once.
ReplyDeletebrad s
Thanks for the information on social security holdings of treasury debt. Based on the input from others I still wonder about these securities. Does "not traded" mean they cannot be traded, or simply that the social security administration chooses not trade them.
ReplyDeleteI am interested in the distinction because of its bearing on the current SocSec debate. Many right-wing pundits (not to be confused with conservatives) claim the social security investment in treasury bills is lost and can never be realized. If the SocSec holdings are actual treasury bills purchased at auctions along with other investors like central banks and banking firms, then it would be difficult to simply invalidate them without negatively influencing the perceived risk on treasury bills. However, if they are a separate type of security that can be disposed of without influencing financial market's perception of treasury bills, then the argument may have some validity.
I guess a question that would easily resolve this would be, Can the SocSec administration liquidate its treasury bill holdings.
Essentially the Treasury has presicely the same obligation and will honor the obligation bond for bond for all the assets held by the Social Security trust fund. The bonds are to be treated as all Treasury debt. Those who confuse the issue are doing so simply to undermine a sense of the soundness of Social Security. [Phooey.] There is no Social Security crisis; likely there is no problem. There are however those who have wished to finish Social Security for 60 years.
ReplyDeleteAnne
http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html?pagewanted=all&position=
ReplyDeleteA superb article on Social Security. Worth careful reading.
Anne
http://www.nytimes.com/2005/01/16/magazine/16TAXES.html?8br
ReplyDeleteA fine article on the federal tax system. Again, worth careful reading.
Anne