The Devil’s in the Deficit

Eat your spinach.

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Finally back from his escapades in the Midwest, Jonah invites Brian Riedl, a senior fellow at the Manhattan Institute and resident “debts and deficits” wonk, back on The Remnant. They discuss the necessity of raising taxes on the middle class, how much weed it would take to balance the budget, and the extinction of fiscally conservative Republicans. What can be done about the debt? What would happen if the IRS is abolished? Why is Jonah so afraid of monetary policy?

Show Notes:

— Brian’s page at the Manhattan Institute

— Brian: The Rich Aren’t Rich Enough to Balance the Federal Budget

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Comments (66)
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  1. Avatar photo
    CynthiaW

    I was surprised at Jonah's misunderstanding of "entitlement" and pleased that Mr. Riedl quickly gave the definition.

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  2. Mark Holmlund

    Making the tax code simpler in order to narrow/eliminate the tax gap makes a lot of sense. How about a constitutional amendment that limits the personal income tax code to 250 characters (the proverbial single page)?

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  3. Beckola

    Comment and question. In discussions about Social Security with those bearing the "it's not an Entitlement but I'm entitled to it" mentality, based on their having paid into it all their working lives, I've pointed out that it's actually a wealth-redistribution program (one that I support, FWIW), and most people will get more out of it than the put in. Riedl confirms this.

    Now the question part. Some will point out that if they could have kept the money they paid into SS and invested it themselves they would have more to show for it. I assume that for the financially savvy who have been paying top tier SS taxes this is the case. Is that a slam dunk? Would that apply to most middle class people who would be salting it away into some type of retirement account from which its managers would be extracting fees? Thoughts?

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      C C Writer

      for sure i would have added the $ to my ira

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  4. Stevewinn56

    I never mind spinach.
    Keep serving it up.

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  5. Ken Motamed

    Mr. Reidl made the claim (toward the end of the podcast) that almost everyone gets more out of Social Security than he puts in, even adjusted for inflation AND present value. I strongly doubt that, unless the inflation-adjusted discount rate he's using is extremely low.

    Here's a recipe for people who don't like spinach. Mix cooked, shredded spinach with plain low-fat yogurt. Add some sour cream, grated fresh garlic, salt, and pepper, and enjoy. It also makes a delicious dip.

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  6. Gsalas72

    The GOP's fiscal prudence died when they invented the Laffer Curve - which is a theory in permanent search of evidence - which allowed them to cut taxes without cutting spending on the hogwash premise that "leaving more money in the private sector will stimulate growth, and that growth will balance the budget."
    As GHW Bush said, that is "voodoo economics."
    Deficits - or, more precisely, the budget - is always funded by the private sector, whether through taxes or debt. When the government carries a deficit, it has to go to the private sector to borrow money, competing with private sector borrowers and increasing rates for everybody.
    But Republicans surrender the policy in favour of the politics of "dont worry, we will cut taxes and the problem will solve itself out."
    With a budget fully funded by taxes, the people (i.e., the voter) feels the cost of the federal budget which in turn stimulates politicians to stop building dumb walls, subsidizing flood insurance for houses build in hurricane zones, and writing cheques to wealthy bulk-crop farmers in the Midwest. And sending fat cheques to boomers perfectly able to work a couple more years.
    End of rant.

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    1. Brett

      The Laffer Curve is fine. I actually saw him draw it on a cocktail napkin. The problem with Rs is they forget it is a Curve and think it is a rule. It's only on a small part of the Curve where lowering taxes brings in more revenues. That part of the curve is where more building of more capacity would get used. We aren't at that point.

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    2. Ken Motamed

      The idea behind the Laffer Curve is "the existence of an optimum tax rate that maximizes tax revenue." It says nothing about mindlessly cutting taxes.

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    Paul Schmidt

    I agree the tax gap is a thing but what do we know about the actual number? I mostly hear about it when the IRS is asking for more money. They recently said they were able to get $500 million back from increase audits but that's a rounding error in the federal budget.

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  8. Placid Paddler

    The tax gap is a lie.

    The IRS has been inflating this number on purpose for years. I’ve talked to more than one victim of IRS mistakes where the IRS employees will more or less agree they have done nothing wrong, but they still will not agree to close the matter. They are obviously and carefully avoiding saying that the tax payer does not owe, and saying some manager must approve the decision. That manager, if you can get them, then says they’ll get back to you some weeks later. They will keep putting it off until they move out of the job and it’s the next person’s problem or the time limit they can collect expires.

    We’ve been assuming it was a pass the buck situation having to do with some statistic they get measured on, and it might still be. However, the result is the tax gap is chocked full of mistakes they will not admit.

    Congress, even if it had the will cannot fix the IRS because it’s just going to take more than 2 years to figure out how to change the mindset in these bureaucrats.

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    Todd T

    Isn’t there a way we can calculate the deficit using base twelve and kick this can down the road?

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  10. Pat.Bowne

    Stupid but sincere question: your guest says we could end up paying taxes like Sweden's without getting the social services they get in Sweden. What's your explanation for how Sweden's able to fund those social services when we can't?

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      JohnF

      Sweden's tax rates are similar tax rates to those in the US, but these rates kick in at much lower levels. Whereas the US top rate doesn't kick in until a taxpayers' income rises above $400K (approximately, that's off the top of my head, it might even be higher), the Swedish top tax rate kicks in around $70K. As a result, they have a lot more people paying a lot more taxes. However, they also have a lot more people who benefit from those taxes.

      Sweden is also populated by Swedes, who have grown up in Swedish society and who accept the "higher taxes in exchange for higher services" philosophy that underlies their economy. America is populated by Americans.

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      George.Skinner

      He’s referring to the service costs of the debt already accumulated. If you’re spending 30% of your revenue servicing debt that accumulated because you previously borrowed for spending that exceeded your revenue, you can’t spend that on something else. It’s kind of like binging on vacations and dining out using your credit card, then having to tightly budget your groceries because the minimum payment on the credit card balance is now $500 per month.

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      1. Pat.Bowne

        I realize that's the issue the US would be facing, but I am curious about how other countries without that issue manage to fund their social safety nets.

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