A "Debt Tax"

[BrianFromWA]

In part of my thinking about debt, revenue and long-term solutions for the country, I'm thinking more about the idea that's been floated here about a national "debt tax". Currently, interest alone on the debt is ~$200B, or about 20% of income tax revenue. (I'm separating out revenue that's earmarked for SS/M/M) It's relatively easy to say that with around a 2% tax (whether sales or added to income) you could probably cover the interest payments...but how long would you have to set up an amortization for for the $16T balance (assuming no more ceiling increases)? 10 years? 30? What approximate rates of interest do we have to pay on it, and how much does it fluctuate based on AAA ratings or not?

For instance, if you assumed $16T at 1% on a 30yr schedule, that's ~$600B a year to pay down the debt (basically, another Department of Defense or almost all of the Medicare overruns). On a 10yr schedule that's 1.6T a year. I don't know if 1% is likely, or if we can wait 30 years, but that's what we're looking at...and if we needed to cough up 600B a year, then that's a big chunk of paycheck to have to ask for.

 

[BLAZER PROPHET]

If we can balance the budget, I'd support a 2 or 3% national sales tax with 100% of the money to go against the national debt. I don't know how long it would take to eliminate it, but it's better than nothing.

 

[maxiep]

I think you can do a 50 year am, but the key is the interest rate. If it's 3%, then the annual payment (in 12 monthly payments) is $618B. If it's 4%, that numbers goes up to $740B.

At our current GDP, it's not realistic to pull that much money out of the economy to pay down our debt. If you increase the GDP, it would be possible. I don't think you can make the debt tax greater than 2% of every transaction. The best scenario would be to find concomitant savings in the Federal Government and lower tax rates by that amount.

In reality, we just need to pull down our debt to 40% of GDP, somthing akin to a corporation. At current projections of a 2011 GDP of $13.5T, it would be $5.4T. If we do that, we're in much better shape.

The answer isn't higher taxes, but rather limiting expenses and growing the economy. If you grow GDP to $16T, you're up to $6.4T.

 

[MrJayremmie]

Wouldn't taxing consumer spending have the opposite effect? Taxing something makes less people do it, no?

Which is why taxing income is better, because people are still going to work.

 

[julius]

If we can balance the budget, I'd support a 2 or 3% national sales tax with 100% of the money to go against the national debt. I don't know how long it would take to eliminate it, but it's better than nothing.

You must spread some Reputation around before giving it to BLAZER PROPHET again.

 

[BLAZER PROPHET]

Wouldn't taxing consumer spending have the opposite effect? Taxing something makes less people do it, no?

Which is why taxing income is better, because people are still going to work.

I do see your point, but here is my thinking:

1) If we simply raise the income tax it becomes a political hot potato (it should only be raised on the rich...)...

2) It would be very difficult to quantify what was revenue for the debt and what wasn't.

3) A raise in income tax = raise in spending to liberal politicians and imagine the problems there.

4) A 2-3% sales tax seems pretty darn small to me. It wouldn't be for groceries or some other essentials so it further lessens the burden on the poor.

5) It's fair. At least to me as this is a national problem and we're all solving it together. Builds character.

6) It's easy to dedicate the revenue from it.

 

[Draco]

A 2% national sales tax is a horrible idea. You want to go to all the expense of regulating, enforcing, educating, collecting an entirely new tax system for only 2% of non-excluded sales? The overhead is way too high. If we are going to add a national sales tax it should be 5% or we shouldn't do it. Basically think of the overhead as "fees", there would be far to high of fees as a percentage of the new tax revenue to make it worth it at 2%.

I'm not necessarly opposed to a sales tax but I think it would need to replace part of the income tax, be at least 5%, and have a small exemption, such as every individual receiving a flat $1000 credit for the tax annually. The sales tax should apply to all end user consumer just like sales taxes apply to a business that is the final user of property but a business is exempt from tax if the item is for resell.

I wonder what the rate would need to be to eliminate all income and payroll taxes?

 

[Draco]

Wouldn't taxing consumer spending have the opposite effect? Taxing something makes less people do it, no?

Which is why taxing income is better, because people are still going to work.

Yes that is interesting. A sales tax encourages savings, which shounds good except if people are saving money they arn't spending money. This would lower the GDP and decreases the multiplier of GDP from compounded spending.