THE SIZE OF THE PROBLEM
- US economy: $14.4 Trillion (2009)
- US gov’t: revenues $2.14 T
budget $3.52 T (2009)
1. debt as a % of GDP: annual: 10% in 2009 (sustainable 2-3%)
aggregate 60% in 2009 (ideal <40%; meltdown >90%, in 2020)
future: 500% including future obligations
- a reasonable annual goal: 2% (therefore need to derive 4% GDP = $500-750 Billion)
2. growth is compounding (Rule of 72)
- current interest on debt is 2.9%; therefore to cover this, we require growth of >2.9%
- Romer (Obama’s economist): a tax increase of 1% GDP will ↓GDP 2-3%
- current revenue projections = 18% GDP; spending projections = 24%
3. sources of new revenue:
- raise income taxes (end Bush tax cuts: 0.9% rich only, 2.1% all lose them)
- index Social Security to all income
- VAT
4. cut spending
- 33% Medicare/Medicaid, 21% SS, 20% defense, 8% debt, 18% discretionary
CONCEPTS:
- Laffer Curve: effect of taxes on revenues http://en.wikipedia.org/wiki/Laffer_curve
- Woodhill: tax revenue versus decrease in GDP growth (present value) http://www.realclearmarkets.com/articles/2010/09/15/hate_the_laffer_curve__try_woodhills_98671.html
- Hauser’s Law: federal tax revenues have been 20% of GDP, regardless of tax rates
http://en.wikipedia.org/wiki/Hauser's_Law
- Present Value and Rule of 72: to understand the power of exponential change.
http://www.econguru.com/present-value-and-future-value/
http://en.wikipedia.org/wiki/Rule_of_72
- Free market Capitalism: see Milton Friedman’s Free to Choose on Youtube
http://www.youtube.com/watch?v=d6vjrzUplWU
remember that economic freedom is better measured by failure than success (See: Schumpeter: http://en.wikipedia.org/wiki/Creative_destruction
Go to this website and try the simulator: http://crfb.org/stabilizethedebt/
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