Best estimates are that American debt cannot be fixed with taxes on capital

D’Erasmo, Mendoza, and Zhang have a new NBER working paper on this question.  It is the most serious and scientific approach to American debt sustainability I have seen, ever.  Here are two key sentences:

The dynamic Laffer curves for these taxes [capital taxes in the U.S., labor taxes in Europe] peak below the level required to make the higher post-2008 debts sustainable.


The results of the applications of the empirical and structural approaches paint a bleak picture of the prospects for fiscal adjustment in advanced economies to restore fiscal solvency and make the post-2008 surge in public debt ratios sustainable.

One point the authors emphasize is that, unlike after earlier episodes of American debt binges, America today has not reestablished a comparable primary surplus.  The authors suggest taxes on labor or consumption can restore fiscal solvency, but higher taxes on capital won’t work, given dynamic and Laffer curve considerations.  They do not devote comparable attention to changes in the trajectory of government spending.

It is wrong to call this “science” outright, but it is the closest to science we have on these questions.  There is a possibly different ungated copy here (pdf).

And along related lines, consider this new Brookings study of boosting the top tax rate to fifty percent, by Gale, Kearney, and Orszag:

We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

You will not hear everyone shouting that one from the rooftops.  And of course it does not all get redistributed to the bottom twenty percent, believe it or not.


Inequality is a wealth problem so how would we expect to "fix" it with a tax on income?

There are multiple causes of inequality. So, calling it a wealth problem isn't accurate, though it's certainly not just an income problem either. And it's questionable whether it's a "problem" in any case.

Well, giving tax exemptions for building capital with American labor from high tax rates on corporate and those in the top 50% of incomes.

Milton Friedman complained in the late 60s early 70s about all the wasteful wages and benefits paid to build excess capital assets and the structure of utility regulation that led to paying way too many workers too much to build electric and telephone and water and sewer and natural gas that was too robust and served way too many people, all to dodge taxes and to increase returns on capital by building what Friedman considered too much unneeded capital assets.

The result of policies that drove too much building of productive capital assets was too much demand for labor which resulted in too much wage and benefit increases. Not to mention, giving labor too much power over the economy by giving them money to vote with to decide what businesses needed to produce, often forcing businesses to invest way too much in new technology and designs and factories which meant they could not sit back and rake in high profits on old monopoly assets.

He noted that the high tax rates did not, after the tax dodges, lead to a high percentage of GDP paid in taxes. In fact, the tax dodges in the 60s led to taxes being about the same share of GDP back then as is raised today, but the tax dodging was driving wage and price inflation before the OPEC oil embargo. He advocated fewer tax dodges and lower tax rates to reduce demand for labor, obviously to drive down wages and ensure ownership of productive capital was much more limited.

Milton Friedman taught me to understand that high corporate tax rates, especially on high profits, means that higher workers in excess becomes cheap because "the IRS pays more than half the wages and benefits". In other words, eliminating the corporate tax rates as some propose would make hiring a new worker come 100% out of profits, so hiring new workers is really expensive.

Republicans are calling for making hiring new workers really expensive to business profits. That the lesson I got from Milton Friedman who sought to limit the number of workers offered jobs circa 1970.

Inequality is a productivity problem

Higher GDP growth would be a prerequisite to debt sustainability. However, that is unlikely in the world's administered economies, crony capitalism or crony socialism.

So, inflation (repaying debt with "cheaper" fiat money) seems the only solution. Ergo, the great dread of deflation.

Isn't inflation really a tax on capital?

BTW, which countries have successfully solved their sovereign debt problem through inflation?

Mr. Econotarian.

The US and the UK largely inflated away their WW2 debts. In 1946, the US debt ratio was 108.6 percent. Inflation reduced this ratio about 40 percent within a decade.

People forget this but the 1940s actually had pretty high inflation rates (average 4.86%/year for the decade, only lower than the 1970s) and negative real interest rates. With nowhere else to invest, America was able to lock in very cheap financing during the immediate postwar years and then ran roughly balanced budgets throughout the 1950s/60s.

A large fraction of the debt was in long term, fixed rate war bonds.

It was easy to rob those investors with inflation. It will be much harder to do the same with today's much shorter term financing.

Untrue. The US and UK largely grew away their WWII debts with RGDP growth. Though it's true the debt-GDP ratio in the 1970s stayed constant in these countries largely due to inflation.

Inflation is the cruelest tax (even including the Affordable Care Tax) of all. It hardest hits (mostly older) people on fixed incomes.

The unsustainable debt load also incentivizes the government and its agent the Fed to keep close-to-zero interest rates.

Is that a bad thing? Maybe the mostly older people should be back at work? With life expectancy what it is today some of these retired people should probably still be producing something for the economy. As a millennial dealing with the world's problems handed to me by the mostly older generation, I have no sympathy that some of them might have to put down the golf clubs and join me in the miserable economy their policies have produced.

Who is on fixed income? Not SS recipients. Not stock holder? Not bond holders with a mix of terms? Some insurance annuities, maybe, some with the reverse mortgages , some holding only long term bonds maybe, but those folks also get SS.

Inflation is a tax on money holdings, not capital. Key difference. Within any particular capital structure it's a transfer from debtholders to equityholders, but with the longterm neutrality of money on real rates of exchange it doesn't change the value of or return on capital

In a recent study, the author determined that almost $8 trillion is hidden in tax haven countries. Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens. $8 trillion! That's $8 trillion that is not in the tax base. How did that happen? By tax avoidance schemes (tax evasion is more accurate) that are encouraged by those with an ax to grind when it comes to government and taxes. Forget the diversionary tactics as reflected in the study by D’Erasmo, Mendoza, and Zhang, who describe a mere pinhole of tax preferences enjoyed by owners of capital. Achieving tax equity (and financial and economic stability) is more complex than a sound bite.

$8 trillion.

* Assume 25% belongs to Americans.
* Assume it generates a 8% annual investment return in taxable capital gains/dividends.
* That's $160 billion/year in income.

Tax it at 50% and you generate $80 billion/year in income for the government.

That's a decent chunk of change. It's almost as much as what the federal government spends on transportation projects.

The question is, how much would slip through the cracks even if we managed to assign a quarter of the wealth to American taxpayers? How many people would renounce their citizenship or find yet another tax loophole?

Also, what would the impact be on economic growth of taxing this capital more heavily? If we lose a quarter point of economic growth, the cost would swamp the benefits of taxing this hidden cash.

Nicely done, agent Cooper.

I suspect that a lot of that 8 Trillion is actually owed to other people as accounts receivable in taxing countries and not just "idle wealth" sitting around.


I know this from actual personal experience. Many Taiwanese investments in China are run through an OBU. When customers pay for orders, they go to the OBU, but then most of that then goes to China to cover expenses.

This is done for several reasons:

1) Investing from Taiwan used to have political risk.
2) Repatriating profit from China is very hard.
3) Avoiding taxation in Taiwan for transactions that don't even relate to Taiwan (Shipments from China to the US don't even touch Taiwan, so why not have the investment vehicle located elsewhere?)

Now, I'm sure there are other, dirty money in those islands, but I know that I am correct that some of it is as I say, actually owed to other people. If you went in grabbed my company's BVI account, you'd be making suppliers in China not get paid, not just grabbing drug money or whatever.

It's complicated. If Apple makes a phone in China for $200, books the import price at $500, and sells it here for $600, they are hiding income. On the other hand, if they make the phone in China and sell it in China, is that US income at all?

Foreign earnings of entities incorporated in the United States are taxable when the earnings are repatriated. By the way, U.S. citizens are taxed on all foreign earnings (with a ~$100,000 exemption for wage income earned abroad) whether or not the money they earn enters the U.S. banking system or is physically brought into the United States.

I am not sure this is the best way to structure taxes but the first part of your comment hints at one reason. Under a territorial tax system, a U.S. company could outsource production or back-office support for its U.S. operations to low-tax countries and overstate the cost of those operations. The current system takes for granted the fact that U.S. corporations will do this but ensures that they will get hit with a tax bill once the money that accumulates overseas is sent back to the U.S. Under a territorial system, there would need to be much stricter auditing of overseas expenses and transfer prices.

Income inequality will be much lower after deporting illegal immigrants and removing birthright citizenship. If you care about income inequality, you must vote for Trump early and often.

It would be nice to have a "Shout if from the rooftops" category to filter by. Many of those posts seem important, and I think I'd gain from re-reading them later, but I've found it difficult to find old posts here unless I know exactly what I'm searching for.


Just type that phrase into the MR search function, voila...

MR blogging software is the greatest stagnation

>It is wrong to call this “science” outright, but it is the closest to science we have on these questions.

Really? Its better than looking at treasury yields?

There is probably more to it than this, but I think we never have taxed at the Laffer peak, so why is it a requirement now?

"but I think we never have taxed at the Laffer peak, so why is it a requirement now?"

Well since taxing close to the Laffer peak is bad for the economy, hopefully we aren't getting even close to it.

Your model sir, has too few variables.

"Your model sir, has too few variables."

In addition to this, "my model" is vague, poorly defined and not properly house trained.

California is pretty high. 39.6%, 13.3% for California, plus self-employment tax though currently capped, plus special medicare tax in the ACA, etc., its getting pretty high up there.

Bernie would make the self-employment tax for all wage levels, and if wages were taxed at 50% top rate, we'd at Hollande's 75% rate.

Remember though, California is a model of success. High and growing GDP, relatively low obesity as well.

California has a net loss of income tax paying workers:

"The IRS data show a pattern of movement over the past decade from California mainly to states in the western and southern United States. Texas, Nevada, and Arizona, in that order, are the top magnet states on the basis of the net migration (measured by tax exemptions) that they drew from California between 2000 to 2010. Oregon, Washington, Colorado, Idaho, and Utah follow. Rounding out the top ten are two southern states, Georgia and South Carolina."

And if you use a factor in transfers and costs California doesn't look particularly good. Per the US Census Bureau:

"The Los Angeles Times explained that the 23.8 percent poverty figure arose from the Census Bureau's “supplemental poverty measure,” which differs from the official poverty rate yardstick by, among other factors, including tax credits and government benefits, while counting expenses for such items as child care, out-of-pocket medical costs as well as housing costs (which tend to be quite high in California). Regardless of the measuring method, poverty rates in California now exceed even those of such endemically deprived states as Mississippi and Louisiana. "

So, California used to be the model of success, but hasn't been for over a decade.

" well as housing costs (which tend to be quite high in California) "

Because nobody wants to live there...

Those are just self-deporting ZMPers.

California also has an unemployment rate than has been higher than the national average since Bush I.

More importantly, the current tax rates in CA are fairly new. How they impact the ability of the state to raise funds is yet to be determined.

The idea that higher taxes will result in lower obesity is almost as bizarre as the introduction of obesity into this conversation.

That 13.3% Calfornia personal income tax rate is deductible from federal taxes (limited by the AMT) because high income folks in California are super special people that deserve it.

I'm seeing a nice rise in real GDP for CA since the 2008 recession:

If it also is the case that CA is 'losing taxpayers', that only goes to demonstrate the fact that CA is very successful as an economy over the last decade. It's been losing taxpayers (presumably high earners) and yet real GDP continues to grow.

I believe based on recent currency moves that puts California (if it were a country) as the 7th largest economy in the world.

Overall, pragmatic lawmakers have very few wheels to turn. Few pragmatists and few wheels.

Does anyone think the US federal and state debts will be repaid ever? If so, can you please leave a comment answering this one? I just don't see how it is possible, but maybe I am missing something.

We will repay our debts in threats to free you and be greeted as liberators.

We never have to pay back debts and we should not try. The US is too big of an economy to run extended surpluses.

We just need to run a primary surplus over the course of the business cycle and let nominal GDP growth reduce debt/GDP slowly over the long term.

What happens if GDP growth slows down? Look at Japan. This is our future.

The key is whether nominal bond yields are higher or lower than GDP growth. The Japanese government can borrow for 10 years on the bond market paying an interest rate of only 0.35%. That's not a bad future to have as long as your economy grows faster than 0.35% in nominal terms.

Slowing GDP growth is bad for all sorts of reasons but we need to have a handle on nominal interest rates to say whether or not the debt will become unsustainable.

That is what most people mean by "paying back debt." We do not want to eliminate the entire market cap of Treasury bonds. We want to reduce the debt-to-GDP ratio, substantially, leaving room for debt growth in some future emergency.

Keith's comments certainly indicate that isn't the way he thinks about it. If the question is about how to reduce the debt-to-GDP ratio, the CBO's most recent long-term budget outlook (Chapter 6) provides two scenarios in which the debt-to-GDP will stabilize or decrease.

The US has never defaulted, and US States have never gone into bankruptcy - of course the debts will be repaid.
Will the deficit ever be zero? Probably not (since the last time we had a surplus there were immediate tax cuts for the rich). But the debt of the US has always been paid, and always will be as long as it is denominated in dollars - the US can simply print money to pay it.
As for the states, almost all require balanced budgets; their debts are much lower than the national debt. California has an $8 billion surplus this year, for example.
Think of it like a family buying a house and taking out a 30 year mortgage - except it is 100 families, and so each year someone is always buying a house and taking out a 30 year mortgage. The 100 families are the most prosperous around (US being the richest nation), so they make their mortgage payments, but there is always some debt being retired, maintained, and begun.

Agra, your response reeks of looking at past performance. There is a first time for everything. If the US tries to print money to pay back the trillions and trillions of dollars we owe, no one will want the money. We will have runaway inflation. Right? What am I missing?

"no one will want the money"

Why would someone stop wanting money because of inflation? What matters is alternatives. Investors still strictly prefer holding bonds to holding cash for any fixed maturity. They might prefer holding foreign bonds, but all other large sovereigns have debt levels comparable to the US. They all have positive-inflation monetary policies as well. Moreover the USA's trade deficit means many exporter countries have excess USD. If they would convert to domestic currency the uptick in exchange rates would hurt their precious exports.

"We will have runaway inflation"

All else being equal we would expect rates of inflation to be somewhat higher, but why "runaway"?

If you to think about this situation in a serious way, you need to, at the very least, account for interest rates.

US states have never gone into bankruptcy because there is no code for bankruptcy of US states.

In the early 1840s, nine US states defaulted on their debts, four ultimately repudiated all or part of their debts, and three went through substantial renegotiations. These included Florida, Mississippi, Arkansas, Indiana, Illinois, Maryland, Michigan, Pennsylvania, and Louisiana. Mississippi, Florida, Arkansas and Michigan repudiates $13,770,000 of their debts. Illinois and Indiana resumes payments later in the decade after renegotiation, and only Maryland and Pennsylvania ultimately repaid their obligations with minor adjustments.

False. The US has defaulted, when FDR abbrogated the gold clause during the depression ('34 or '35 I believe). US Treasury debt pre-depression came in two flavors, one which was repayment in dollars, period. The other ("gold clause bonds") flavor were bonds that had a clause giving the holder the option to receive payment in gold at the (legislatively set) dollar/gold rate at the time of the issuance of the debt. The two kinds of debt traded at different value, as gold clause bonds provided protection against a legislative change in the gold price that non-gold-clause bonds did not. FDR refused to honor the gold clauses after the Gold Reserve Act (which among other things devalued the dollar relative to gold by ~40%). Under any reasonable definition this was a default (it would be considered unambiguously so today). This wasn't some kind of "technicality" default either (like in the late 70s when a systems glitch delayed a set of coupon payments by a couple days) but a real one, where the bondholders took a ~40% haircut relative to what they were contractually entitled. When the issue came before the Supreme Court, the court ruled against the bondholders on the grounds that they had not suffered harm. It was probably a top-10 worst all-time decision, and it's hard to imagine a decision being resolved that way after the law-and-econ movement.

States have defaulted as well. While states haven't "gone through bankruptcy" that's only technically true because the defaults occured when there was no such thing a as a legal procedure called "bankrupcty" for states to go through. As Econotarian details, during the 19th century there were widespread state-level defaults due to debt-bingeing to build canals. The state-constitution provisions banning debt and requiring balanced budgets date from the reforms those incidents provoked. That hasn't entirely prevented state-level defaults though. During the depression Arkansas defaulted, eventually repaying principal sometime in the 50s.

Why doesn't the market take this seriously?

The market has different priorities and incentives.

Because as long as the US doesn't default, its debt is totally safe.

It's sophistry to claim that prior debt is 'totally safe' because the debtor can unilaterally enforce a haircut through inflation. Sophistry, ponzi-scheme thinking, and it's endemic among those who ideologically desire more spending for its own sake.

Why just 50%? No doubt many progressives would want a 95% top marginal tax rate "because that's what it was in the Eisenhower administration, and he was a Republican, so any conservatives that argue for a lower rate are just greedy".

A pragmatist might think about effective rates.

Bingo. The 1950's tax codes had huge exemptions and the effective rates weren't anywhere near the marginal rates.

But the effective rates were still far above today's highest on paper marginal rate. For example, according to this tax tool ( A person earning 500k in today's money had an effective rate of between around 58%-60% during the 50s. So a pragmatist might say looking at the effective rates in the 50s we could raise taxes today.

Assuming they engage in no tax-avoiding strategies whatsoever. Pro tip; they did.

That tool doesn't use the common definition of effective tax rate. Click the highest category ($10M) and you'll see that the "effective" tax rate mirrors the highest marginal tax rate.

From the article: "The effective tax rate shown is what you pay in federal income taxes divided by your taxable income." That's certainly not the common definition of the term.

Effective tax rate: The effective tax rate is the average rate at which an individual is taxed on earned income.

As Urso says, tax avoidance was ripe in the post WW2 years. Howard Hughes was not paying a 90% tax rate in the 1950's.

"From the article: “The effective tax rate shown is what you pay in federal income taxes divided by your taxable income.” That’s certainly not the common definition of the term."

The question - has he updated his priors?

Could you please go on the internet and tell the hordes of people who go around using this argument that they are wrong?

Seriously, we won't end these arguments until we have enough Fabian Socialism to convince people. And that usually takes 10-20 years: see Venezuela.

You literally have to run out of toilet paper before some people start to have doubts.

If you think Venezuela is "America with a different tax rate," then you are probably not the rational moderate I seek.

Moderate is always in the eye of the beholder. Everyone who advocates "Returning to 95%" thinks they are a moderate and not in effect a slaver.

You literally have to get Pippi Longstocking's author to write a book on taxes or get the Beattle to play songs about taxes before people figure it out...

Venezuela is not just a tax percent difference but a point that we've already seen socialism fail before and yet, once again, there are enough people who want to try it again, and only after the toilet paper is being rationed do you see these people wake up.

75% taxes on income or capital gains above $10 million a year does not lead to toilet paper shortages.

Maybe it doesn't, but I suspect the road to toilet paper shortages passes upward through the 75% tax rate more often than not.

The predictable path is: high taxation/regulation -> reduced economic activity -> shortages -> high prices -> price controls -> complete lack of resource.

I think I've summed up the left's strategy here.

I think I was not clear that the Venezuela comment was more about the point that people have economic beliefs that do not go away until they are tried.

So, we could have 75% taxes until we figure out that, wow, they don't work very well. See Hollande.

Its analogous to Venezuela's flirtation with socialism.

Thomas is correct that sometimes these beliefs are connected more directly. I'm sure many people who are disappointed at 75% not working to their hearts desire will look to other methods of control.

Because the Brooking Institution needs wealthy donors, too.

Perhaps you could name some of the "many" progressives who favor a 95% rate. Unless you are too busy chasing unicorns.

"Bernie Sanders Would Tax The Income Of The Wealthiest Americans At 90 Percent"

The headline is sensationalist. "Harwood followed up by asking, 'When you think about something like 90 percent, you don’t think that’s obviously too high?' to which Sanders replied, 'No.'"

I've never heard anyone calling for 95% top marginal rates.

Perhaps 70% would get a hearing?

"Why just 50%?" The article writers don't tells about all the simulations they ran. I assume they published the three that gave them the best results, even though they were disappointing. I'm sure they ran the results with higher marginal rates and with different redistribution targets, all of which are fantasies, as Professor Cowen points out. It would be nice to see all the simulations they ran. Perhaps someone can reconstruct the algorithms and show they variety of outcomes.

The message of these two papers is that the Golden Age from the 1940s to the '70s could not have happened.

Obviously those damn New Dealers manipulated all the economic data to make things look so good. The nerve !

"The message of these two papers is that the Golden Age from the 1940s to the ’70s could not have happened."

I don't think that's an accurate summary at all. Most tellingly marginal tax rates are not the same as effective tax rates. The very high marginal rates of 1945-46 were due to some highly specific events of the time and not sustainable in the long run. And the effective tax rates were always much lower than the marginal tax rates.

The year after the "JFK tax cut", income taxes increased despite a decrease in marginal rates of the highest brackets. This makes me think that there was a great deal of income being sheltered from the very high marginal brackets that was able to come out into the light.

But TC does not understand the 'European' mentality of the middling and lower classes: they don't care about whether something will work, but they care about the optics and shafting their neighbors. So a tax on the rich is good in this regard.

Analogy: 'an eye of an eye and tooth for a tooth' is not always good justice, as it has a mixed record for deterrence, but for retribution and catharsis it's great, and consequently the US will not abolish the death penalty anytime soon. Likewise for the tax code: tax the rich was popular in post-WWII times, and will make a comeback now.

Maybe we should have shouted from the rooftops during the Bush years not to give tax cuts to the wealthy.

Only 1/4 of the revenue loss from those cuts was "to the wealthy" (meaning people earning over 250K). Do we care about the other 3/4?

What an odd way to look at the Brookings paper. Unless I'm reading Tyler incorrectly,it seems like he is promoting the paper to show that large income tax increases are useless for reducing inequality therefore undesirable. What I think the paper actually shows is the gap between the highest income earners and the middle and bottom is so enormous middling efforts like a 50% marginal rate won't be enough. That's how bad the problem has become.

Wait, these guys have reliable Laffer Curves? I smell a memorial Nobel Prize coming. *sarcasm*

See, the thing with the Laffer curve is that we're always to the right of the hump. At least that's what I'm told.

Presumably, your preferred economics research organization is a great deal more accomplished. Would you kindly link to it for the benefit of people who wish to see where we can find proof that raising taxes won't ever impede our ability to collect the most revenue possible through said taxation scheme. Such would be an extremely valuable finding.

Thank you in advance.

Color me deeply skeptical. Lots of very well meaning economists have opined that taxes on capital won't raise as much money as a naive expectation would suggest and over and over and over again they have been wrong.

Also, modeling a chance in capital gain tax rates alone is not the right way to go. The key observation is that huge amounts of capital gains are indefinitely deferred and then ultimately usually forgiven at death, something that is likely to dramatically increase now the estate tax exclusions have rise (which made trading a carry over basis for capital gains a price worth paying to avoid), indeed, I have taught lawyers and accountants about just how they can and should going about doing so to advocate for the clients. But, the step up in capital gains at death was already a $30 billion tax break and will likely dramatically increase in the near future, and IRC 1031 is another huge break that basically makes paying taxes on sales of investment real estate optional. Add in exclusion from gain in Roths, and special treatment of educational savings, and the loopholes have much more of an effect than the tax rates on capital gains themselves.

Yet, the experience of sales within pensions and IRAs show that people are not at all undeterred by having to pay ordinary income tax rates on what would otherwise have been capital gains tax income that is deferred.

Economists are also dreadfully prone to conflate the economic ideas of investment and savings, with the tax ideas of investment and savings, which actually aren't that similar, especially when it comes to investments in human capital.

"Yet, the experience of sales within pensions and IRAs show that people are not at all undeterred by having to pay ordinary income tax rates on what would otherwise have been capital gains tax income that is deferred"

Someone might argue that taxable sales in investments are likely the result of serious financial need. Your claim is like advocating a $50 surcharge per gallon of tap water because your experience is that people in the desert are willing to pay it.

There is nothing wrong that needs to be fixed. Because the dollar is a fiat currency, and the national debt is denominated fully in a currency the government controls, the “debt” is not really debt. It is really equity, shares of stock in USG. A dollar is just a piece of paper backed by the United States Government. A US Treasury Bill (T-Bill) is just a piece of paper backed by USG. A T-Bill is simply a dollar with a not-valid date. A dollar is analogous to stock in a corporation (except that instead of providing a dividend, it has the feature of extinguishing tax debt). A treasury bill is therefore analogous to restricted stock, stock that cannot be sold until a future date.

In other words, the national debt in a fiat currency should really just be considered as part of the fully diluted money supply. There is no reason to worry about the absolute quantity, only the rate of growth relative to GDP. I wrote an extended explanation here:

Can someone give me a good, serious critique of MMT?

Or any and every thing written about money by Milton Friedman.

My opinion is fiscal conservatives won in 2011 and there's just not nearly so much to worry about anymore.

There is no primary surplus, but interest costs are quite reasonable especially if you net Fed profits from them as I think you should. Will come in around $325b or so this fiscal year. The Fed owns a lot of the highest-interest debt. The deficit will be under 3% of GDP again. As long as it's less than the NGDP growth rate, the debt/GDP ratio shrinks.

To see the situation as worrisome you have to believe that interest rates will rise a lot and stay there, or that no cost-cutting will be done as retiree costs rise. I'm not saying go to sleep and forget about it. But I think it already was fixed. and now we just have to be alert and not let it deteriorate.

Krugman assures us that high tax rates don't matter and that Republicans are fools. Tyler must be anti-science.

No need to read past the words "dynamic Laffer curves"

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