George Bush, the Tax cuts and the collapse of American Power

[el freako]

Well 'collapse' is maybe too strong a word, but I think that US power in 10 years time will be severely curtailed due to short-sighted actions now.

Since GWB came to power he has cut taxes with abandon - so much so that the US's structural deficit (i.e. the deficit that would happen if the economy was running at trend) had deteriorated from balance in 2000 to -4% of GDP now.

Now the tax cuts have been 'sold' by using a clever trick to make them seem less costly than they are likely to be, namely that they expire in 2011 - but can anyone seriously imagine that polititians (of any party) will recommend a massive tax hike in the year before the 2012 election?

So either spending has to be cut or taxes raised - the early 2010's is just when the baby boomers start to retire, so the chances of cutting social spending is slim (and what chance is there of reform to the system? - it doesn't seem to be on the politcal agenda).


As well as cutting taxes since 2000 Mr Bush has also lavished money on the military - spending has risen almost 30% in real terms and has gone from 3.8% to 4.8% of GDP.
Much of this flexing of military might has been sold to the american electorate as a needed precaution against international terrorism since 11/9/2001.

I think it's very likely that in 5-10 years time when the american electorate see the masses of red ink streaching into the future and threatening their social security checks they will look at the money spent on the military and see that terrorism has not been stopped by it (to give Mr Bush credit he never said it would, but the impression is certainly in the minds of Amercians that after, say, a decade of 'rooting out terrorism' they will have done it)

The prime candidate for cutting spending then will surely be the defence budget, with cuts of between 25% and 50%.
This would surely lead to a dramatic curtailment of US power around the world (as US power is disproportionately 'hard' power as opposed to the 'soft' power used by the Europeans).


Now maybe the average American will be willing to pay much higher taxes to fund this bigger military - but then again they haven't shown much desire to do that in the past as the only times that the US defence budget has risen significantly (in the Vietnam War and during the Reagan Buildup of the 1980s') it was funded by higher borrowing.


So which will it be Yanks? A strong military, Low taxes or Social Security?

[Whaleboy]

Well 'collapse' is maybe too strong a word, but I think that US power in 10 years time will be severely curtailed due to short-sighted actions now.

Agreed, and also that lil issue called China!

[Nubclear]

Originally posted by elijah


Agreed, and also that lil issue called China!

[el freako]

Yes, China is a (very important) issue.

But the fundamental choice remains - the US can't have low taxes, a strong military and pay for the baby boomers retirement.

Something will have to give - and the military budget will be the least painful in domestic political terms

[The Andy-Man]

alternativley, the US credit rating might bail 'em out

[The Andy-Man]

also i wish to add, britain in between wars was more or less completley broke, but managed to keep a massive army (considering its size).

For the US to fall away, a replacement is needed, and China isn't ready, and won't be till its internal market is full supplied and uissness MUST HAVE overseas markets.

[Whaleboy]

20 years, not 10 for china, but hey I can wait!

Britain's army was pretty lame until the mid-late 30's. Years of disarmament saw to that. Nonetheless, one cannot maintain a large army with a lame economy for very long. Its like a car running on empty.

[The Andy-Man]

Originally posted by elijah
20 years, not 10 for china, but hey I can wait!

Britain's army was pretty lame until the mid-late 30's. Years of disarmament saw to that. Nonetheless, one cannot maintain a large army with a lame economy for very long. Its like a car running on empty.

you negelct the navy.

also, china is a looong way off from full developing its market, it took the US 130yrs, and even then needed 2 wars to bring it out into the open, china is, relativley speaking, and economic baby, and has a very long time till its per capita GDP is anywhere near the US.

[pchang]

Probable solutions

It is very likely that a highly contagious and lethal virus will emerge and spread like wildfire around the globe. A natural result will be higher death rates among the old due to their weaker constitutions. Thus, no more need to pay for baby boomer retirements. You need look no further than the heatwave deaths in France for an example of this.

Tax rates are highly volatile. Tax rates have varied greatly over the years depending upon the current fashion of the government (and to some extent the electorate). Tax rates in the future are likely to go up if there is any serious shortfall.

Americans like guns. For whatever reason, we seem to be really enamored with weapons and killing. In addition, history has shown over and over that might makes right. Notable exceptions like Ghandi only serve to highlight the general ineffectiveness of peaceful approaches to obtain freedom. Thus, it is highly likely that funds will be diverted to maintain a strong military, regardless of the cost.

[el freako]

Originally posted by elijah
Nonetheless, one cannot maintain a large army with a lame economy for very long. Its like a car running on empty.

During the period 1920 to 1960 the US economy accounted for between 27% to 34% of global output - nowday's it's down to 20%.

In the early 1960's the US accounted for 30% of global GDP and nearly half of global defence spending.

Today, with it's share of world output having fallen by a third it still accounts for nearly half of global defence spending.


I would liken the position of the US today to that of Britian in the 1880's or 1890's - it can retain supremacy only untill the up and coming powers start an arms race, as such it has lost some of the global strategic initative.

Originally posted by pchang
Tax rates are highly volatile. Tax rates have varied greatly over the years depending upon the current fashion of the government (and to some extent the electorate).

Tax rates may have changed but the tax take of the government has been pretty stable at 26% to 28% of GDP (although it briefly reached 30% in 2000) since the late 1960's

Originally posted by elijah
also, china is a looong way off from full developing its market, it took the US 130yrs, and even then needed 2 wars to bring it out into the open, china is, relativley speaking, and economic baby, and has a very long time till its per capita GDP is anywhere near the US.

China doesn't need to equal the US's GDP per capita to rival US power as it has far more people.
Belgium had a higher GDP per head than Germany in 1914 and 1939 - did that save it from germany's larger economy?

[Odin]

Democrats: Tax and spend
Republicans: Borrow and spend

Pick your poison, capitalists.

We need to massively cut back on millitary spending and raise taxes, especially for the wealthy, and start taxing stock earnings again and raise the estate tax. Most people in the US are to ignorant to realize what those taxes do so they complain.

"honk if you hate tax hikes!"

*HONK! HONK!*

"THEN GET OFF THIS PUBLICALLY FUNDED HIGHWAY!"

[java4me]

Originally posted by The Andy-Man
also, china is a looong way off from full developing its market, it took the US 130yrs, and even then needed 2 wars to bring it out into the open, china is, relativley speaking, and economic baby, and has a very long time till its per capita GDP is anywhere near the US.

China is a very very long ways off. They may have almost 1/5 of the earth's population, but economically they have a very long way too go.

I hate to say it for those guys who would like to see China become a superpower, China isn't even near having the structure to become a superpower.

Not for atleast 50 years, they are looking for long term not short term.

[David Floyd]

I agree that China is no military threat to the US currently, and it would take decades for it to become one - assuming the US kept military spending at its current level and the Chinese began a MASSIVE arms buildup, especially in the terms of a capable bluewater navy.

If the US decided to keep pace, or even slightly increase, due to our exponential lead in naval power China would probably be behind for MUCH, MUCH longer. To get even MORE hypothetical, pre-emptive strikes could make US naval dominance indefinite, in relation to China.

[PLATO]

1.) Devaluation of debt in relation to GNP. Look for inflationary spikes in 2009 & 2010.

2.) Increase in age for Social Security elgibility. Look for it in 2013

3.) Chinese military dominance. Look for it in your dreams, 'cause that ain't happening.

[DanS]

I don't think you've got the right perspective, ef.

We won't keep this military tempo forever. Certainly not for the next 10 years, unless NK or Iran get heated up. We should settle into a range of 3.5% of GDP for the military. That's what's being bandied about here in Washington. Even among the hawks. By historical standards, that's not a high figure at all and shouldn't be too big of a drag on our economy. Certainly nothing that would create a serious guns or butter trade-off.

As for how much our economy is versus the rest of the world, the reduction in the proportion for the US has been both highly desirable and inevitable. Let's all get rich, OK?

As for taxes, don't forget the drift in the tax brackets. We'll settle into a lower structural deficit. Basically, federal taxes will be raised gradually to about 20% or 21% of the economy.

I think you've mistaken tinkering around the edges with serious overhaul.