How do you lose weight? Easy: eat less, eat healthier, exercise more. Everybody knows those are the three steps, and everybody knows there’s no getting around it, but no one actually wants to do those three steps because it’s really unpleasant to do so. That’s why diet books fly off the shelves with promises of eating whatever you want, as much as you want, and never exercising, because their special secret sauce will make you lose weight anyway. We know it isn’t true, but the tiniest part of our brains thinks that maybe, just maybe, somebody finally found the golden ticket (spoiler: they didn’t).
The current US deficit is a spot on analogy for dieting. How do we fix the deficit? Easy: cut spending, raise taxes, and stop going to war. Everybody knows those are the three steps, and everybody knows there’s no getting around it, but no one actually wants to do those three steps because it’s really unpleasant to do so. That’s why politicians always run on the platform that we can cut spending without cutting any government services, that we can raise taxes on somebody else who is not you, and that we won’t go to war, we’ll just have “military actions.” Let’s take these one at a time.
If you don’t believe in raising taxes, check out this infographic:
The number one contributor to the US debt over the past 10 years is the Bush tax cuts. No, I’m not kidding. Not even raising taxes on the rich, but simply leaving them as they were before cutting them, would have saved us nearly $2 trillion. Damn.
And in second place we have the Iraq and Afghanistan wars which cost roughly $1.5 trillion. All we have to do is not kill people and we will save bank. Funny how that works.
Here’s another infographic of the budget itself and where we spend our money:
Bottom line? If we want to cut spending we have to reform Social Security, Medicare, and Medicaid. We can cut libraries and education and police forces and PBS and NASA and whatever else we want, but that’s not going to work since that’s not where the money is going in the first place. (I could also point out that other countries with universal healthcare spend far less per person than we do.)
So what’s the problem, exactly? Why is it so hard to do these three things: cut spending, raise taxes, and stop going to war? Let’s discuss taxes first.
People react negatively to unfairness. I’ll bet that a lot of people would be happy to pay more taxes if it was fair. The problem is that it’s completely unfair. As Warren Buffett has said many times, he pays 17.4% of his income in taxes. He’s a billionaire, and the rest of his office, the non-billionaires, the non-rich, the regular people, paid an average of 36% of their income in taxes. So the middle class is paying twice as much percentage-wise as the rich; talk about unfair! As a member of the middle class, I would be happy to pay more taxes, but I’m sure as hell not going to pay more taxes so long as the rich are getting off easy. [NYT]
Moving on to cutting spending. Lots of people depend on Social Security and Medicare/Medicaid for their very survival. With the incredibly low wages that the middle class/poor are earning these days, and the demise of pensions and retirement funds, and the rise of inflation and unemployment and the recession, we can’t cut these things easily without people literally starting to starve. However, these are symptoms of the bigger problem: the rising inequality between rich and poor.
Here’s a third infographic of average income:
The top 0.01% makes 1000 times more than the bottom 90%. It used to be, in the good ol’ days, that a single working man could support his wife, his children, his entire family, and still have money left over to buy a house. Nowadays, the average working man is lucky to get by paycheck to paycheck, let alone support a family. Poor US citizens are relying increasingly more upon the government to keep them alive. Can you imagine any of them managing to save up for retirement? No. This is why it’s hard to cut things like Social Security. This is also why it’s important to fix the income distribution.
Finally, we come to war. I’ll admit, this is one thing I don’t fully understand; the need for people to shed the blood of other people. Ask for $1 trillion to go to war, no problem, but ask for even a single dollar to help someone and you’ll never get it. It flabbergasts me how much we are willing to spend killing people and how little we are willing to spend helping people. It seems we have our priorities backwards.
Although I don’t have a good explanation why, it’s pretty clear that the US loves being an empire, policing the world, sticking its nose where it doesn’t belong, and starting war after war after war after war (hundreds of wars). This really needs to end if we are ever going to fix the deficit.
Oh, and didn’t I start this off by talking about dieting? Eating less, eating healthier, and exercising more actually works — I have proof! Over the past few weeks I’ve lost 7 pounds on that regimen with the help of a cool little site I found called My Fitness Pal. It has great iOS and Android mobile apps that make counting your calories very easy. Take a look at these charts:
Each day I ate less than 1500 calories, walked 3 miles around my local park, and ate healthy foods like salads, wraps, and filet mignon, and voilà, I’m now a thinner, healthier version of me.
So, kids, remember Occam’s Razor: the simple and obvious solution will probably work if you just go out and find the willpower to do it.
Now just convince the Republicans to say something besides NO!
Like your graphics, “a picture is worth…”, they help a lot to clarify this mess we’re in.
Not sure dieting is such a good analogy (although glad you’re healthy and fit), most people can’t seem to diet.
Great stuff! Makes a lot of sense. Graphics are awesome for sure!
I know, the govt just can’t cut taxes and keep spending as much. I think a better analogy is a person who now has a smaller income than he used to have but hasn’t adjusted his lifestyle to accommodate a decrease in extra funds. Either you have to increase your income by getting a better job or you have to tighten your belt.
Phil, you write some great stuff. I’m fairly new to your blog, but I got hooked instantly, specifically when I saw your post and some of the discussions on “What’s Wrong with Bestiality and Polygamy?” or something to that effect. I think you’ve got an open mind and a fresh perspective, established well in facts and logic, and not wishful thinking or mumbo-jumbo. And that’s something I’ve been trying to acquire myself.
Anyway, besides the compliments, I completely agree with this. I don’t think there’s any simpler way to put it. While it seems to me that not all politicians are as dumb or corrupt as the stereotype may suggest, I think it is true that the political system as a whole is; as it has been for centuries. On the news you only seem to hear reining officials, congressmen, electorals and such arguing about the bigger picture regarding the deficit and how to tackle it, when the solution has been obvious and has been sitting in front of everyone since…I don’t know, forever. If they had all agreed on what you said, to cut spending, raise taxes (fairly), and stop wars, then who knows, the economy could’ve been on track within a year of the start of the recession.
There seems to be so much wasted effort among the political elite, not spent on finding solutions as they should, but rather on maintaining position, only taking into account self-interest, covering up lies, impeding positive change on the grounds of tradition, sucking up to lobbyists, protecting pride, and refusing to compromise. I would go so far as to argue that, after fixing the problems at hand, the political system itself should be reformed (Hey, isn’t this kind of like the spirit of the Occupy Wall Street movement?).
I’ve yet to begin to contemplate exactly how this should be done, but I do have an idea of what needs to be done in order to find the optimal solution. First, we need to get rid of incentives for every person running the government to do anything but serve the people to focus their efforts. Second, we need to take away the ability to abuse power, so there’s no chance of deviating from the goal. And third, we need to find a way to better incorporate the thoughts, feelings, opinions, and interests of EVERYONE being governed, not just the majority, so they know how to govern us.
Hi Morgan, welcome to the blog! Thanks for your kind words. Writing sometimes gets depressing what with all the trolls and haters out there. It’s nice when every once in a while reasonable people bother to post thoughtful ideas.
Unfortunately, I think we are heading down a self-propagating downward spiral. What I mean is: our government is pretty much incompetent, and nobody wants to pay higher taxes to fund an incompetent government. I don’t want my tax money going to fund yet another war, for example, or to bail out the Wall Street bankers. Therefore, raising taxes is politically very hard. On the other hand, starving the government of money just makes it all the more incompetent… which then makes people even less willing to pay taxes.
We need something to shock us out of this rut.
I reached this blog for something completely different, but now I must comment on this diet analogy.
Unfortunately public deficits don’t work that way. You’re looking at it like a simple input-output system. Reduce government spending => deficit reduced. Raise taxes => deficit reduced. Eat less=> weight lost.
Let me illustrate by example. If you want to know more, why don’t you go to Paul Krugman’s blog straight away — he’s the Richard Feynman of economics (without the bongos). He’s been trying to kill zombie ideas like the diet analogy idea. (But wait, you can’t kill zombies!)
by example:
reduce education spending => reduce deficit? Not that simple. Less educated workers will earn less and also be more vulnerable to unemployment and therefore pay less in taxes. The more workers there are who are vulnerable to unemployment, the more unemployment there will be (unless policies radically change in response), the more unemployment benefits, food stamps, etc. will cost the government, the more crime there will be, the more police expenditure will be needed, etc. you get the idea. So reducing certain expenditures merely leads to an increase in other kinds of expenditures. (in this example, there will be a delay between the time the deficit is reduced by hacking education expenditures and the time the country becomes a banana republic).
Give me another example of a spending cut, and I can show you that it will not reduce the deficit dollar per dollar. In some cases, the reduction may be worthwhile, in others it may turn out that the deficit will actually increase.
You don’t bail out GM and the rest of them (reported cost 700bn), the result is loss of an industry, mass unemployment, and consequently reduced tax revenue, increased expenditure on the social safety net (expected cost way more than 700bn). The bailout was a good deal for your country, believe me.
As for taxes, similar arguments exist: if you raise taxes on Mitt Romney he will spend more time at home with his kids or on the golf course or at Church, and less time downsizing fat companies or whatever it is that he does for a living, and while his tax payments may well increase, they will not increase one for one.
In other words, you need to think in general equilibrium. Your analysis is partial equilibrium. Rather like not noticing that the more you go on a diet, the more messed up your metabolic rate becomes and the harder it is to lose weight.
I like the other stuff on your blog, thanks for sharing ideas!
Let’s say person A makes $1,000,000 and is taxed at 14%. Person A will pay $140,000 in taxes.
Person B makes $30,000 and pays 28% tax. Person B will pay $8,400 in taxes.
Person A is paying over 16 times more taxes because they make more money.
You are arguing that Person A is paying half the taxes percentage-wise as Person B. You can’t use percentages as a way to argue how much a person is paying in taxes. Dollars speak for that, not percentages.
Person A most likely employees Person B. If Person A was taxed at the same % rate as Person B I can guarantee you that both, A and B will have a lot less money and the government will have more of it. The government will then redistribute the money to projects, infrastructure, etc through all kinds of administration, policies, etc. A lot more waste and redistribution of money. Much higher chance of that money to never make it back into either persons’ pocket. (Actually that is what will happen.)
Look at a country like Mexico. All taxes are federal-level taxes. Tijuana, a city in Mexico generates a huge share of tax income, but since it is up to the federal government to redistribute that income, Tijuana gets barely what it deserves for the work it does.
You are arguing that rich millionaires should be taxed at 14%, and poor people should be taxed at 28%? If you do the math, that works out to be GROSSLY unfair.
$1,000,000 earned by a single rich person taxed at 14% leads to $140,000 in taxes.
$1,000,000 earned by 33 poor people taxed at 28% leads to $280,000 in taxes.
Yes Bradley, using YOUR example the POOR are paying DOUBLE the taxes as the RICH.
Explain to me how this is fair again? Explain to me why “rich” money gets a break from taxes while “poor” money has to pay double?
(Also, do I even have to say it? Person A in your example is paying 16 times more taxes, but is making 33 TIMES AS MUCH MONEY!)