‘Aftershock’ Economy – Jan 2012 perspectives on confronting US debt

Aftershock’ Economy – Jan 2012 perspectives on confronting US debt

In https://economics501.wordpress.com/2011/11/25/aftershock-economy-book-review/ I summarized Robert Wiedemer analyses of the pending government debt and US dollar bubble collapses, from his perspective. Per Wiedemer these bubbles will devastate the US economy, perhaps as severe as ever in our history. Wiedemer thiugh predicts that after several or many years of pain and adjustment the US will strongly prosper again.
Can we prevent this pending doom? Wiedemer believes the US does not have the political will to address our significant economic problems. One is right in front of us – approving another debt ceiling increase. Hence, let us revisit this scenario and determine a proposal to try to solve this problem, or at least limit pending economic damage given our debt and possibility of inflation.

Total debt has been growing almost 10% a year since 2008 while our GDP in 2011 Q4 just recovered to level prior to recession. Projections are our GDP will only grow 2% a year while spending and debt grow at almost 10% a year. Sooner or later our creditors will realize that financing our debt is not a great way to preserve capital. All hell will then break loose. So what can US do?

1 – across board 30% cut from our 3.8 trillion budget over 2 years or 15% per year. This will cut 1.2 trillion annually from 1.6 trillion projected annual debt increase. Bring spending back to 2007 levels adjusted for inflation.

2 – implement Fair Tax for at least 2 reasons — A- reward success, grow economy, improve GDP to debt ratio. B– save 430 billion per year with replacement of IRS. Use this to reduce debt. This added to 1.2 trillion above reaches target projected annual deficit increase of 1.6 Trillion.

3 — use Canada as an economic best practice. They safely drill for energy (oil, shale, gas, coal, frac, etc) and have a 6.5% unemployment rate. Our economic growth depends on energy. Greater domestic supply will decrease imports adding to our GDP.

** Let’s keep this debate going and search for most optimal solutions. Please add to this by listing your own proposals even if they are at odds with mine. Let’s try to address our serious economic issues with open minds. We can all learn from each other.


About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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2 Responses to ‘Aftershock’ Economy – Jan 2012 perspectives on confronting US debt

  1. Linda Little says:

    I certainly share your concern over the future of the US, but I do not agree with one of your suggested solutions. For years, AFFT has grossly overestimated income tax compliance costs. The source of their data is the 2005 Tax Foundation report which can be found here: http://www.taxfoundation.org/files/sr138.pdf
    On page 2, you will see that the 2012 estimate is pretty close to your $430 billion, particularly when you add in the $12 billion operating cost of the IRS. But, if you turn to page 7, Table 4, you can begin to understand just how much the Tax Foundation overestimated compliance costs. Their hourly estimates for Record Keeping, Education, Form preparation, and Packaging and Sending is for each piece of paper/form an individual might use. But, for example, the packaging and sending hours should not have been for each form, but for the entire return. And, the education stage seems to assume everyone is starting from scratch each year, which just isn’t true. And, of course, no credit for the 3 million free returns prepared by AARP Tax Volunteers. Nor is any credit given to the rapid rise of online software. But, the real clanger is when the Tax Foundation decided to value the hours spent in complying at an average of $37+. Is your free time in the evening really worth $37/hour? I don’t think so!
    All of which led to the scrapping of the TF model in 2006, and the IRS adoption of an IBM model which produces one collective estimate. Read all about it on page 16 of the TF report.

    The new model produces much lower compliance cost estimates. You need to check out page 95 in your 2010 1040 Instruction booklet. For instance, the compliance costs for the 143 million individual tax returns for 2010 were $34 billion, not the $110.6 billion for 2005 shown in Table 4.
    Similar comparisons for Businesses and Non profits can also be shown.

    The bottom line is that the AFFT compliance costs are grossly overstated, and no effort has ever been made to correct their data. Your $430 billion total is actually more like $100 billion for 2010. That is still a lot of wasted money, but not nearly as much as claimed by AFFT.

    I hope you will take the time to review the compliance cost issue. Let me know if you have any questions.
    By the way, Linda Little is my wife, and I haven’t been able to get a Facebook page of my own.

    Best regards,

    Hank Van Gieson
    Hendersonville, NC

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