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Holman Jenkins

Here comes default

A few years ago, when the economy was humming, a common estimate held that federal taxes would have to rise 50% immediately to fully fund entitlement programs. Today, a 50% tax increase would be needed just to meet the government’s current spending, never mind its future obligations.

One way or another, then, entitlements will be cut. Don’t call it default. The correct term is entitlement reform.

You saw this day coming and saved for your own retirement. Don’t call it default when Washington inevitably confiscates some of your savings, say, by raising taxes on dividends and capital gains. Taxpayers accept the risk of future tax hikes that may make the decision to save seem foolish in retrospect.

According to economists Robert Novy-Marx and Josh Rauh, state and local taxes would have to increase by $1,385 per household immediately to make good the pension promises to state and local workers, including firefighters and cops. That’s not going to happen given all the other demands on taxpayers. Default, in this case, is the proper word for cities and states using bankruptcy to repudiate their pension obligations.

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Ho Ho HNNNNNNNGGGGGGHHH

Sekhmet on November 24, 2012 at 8:29 AM

You saw this day coming and saved for your own retirement. Don’t call it default when Washington inevitably confiscates some of your savings, say, by raising taxes on dividends and capital gains. Taxpayers accept the risk of future tax hikes that may make the decision to save seem foolish in retrospect.

Spend it now or give it away.

The money we are saving is going to be worth what? After QE Infinity? And then they will come and take it away from those that planned ahead? A liberal’s wet dream.

CW on November 24, 2012 at 8:47 AM

Not to worry…they are figuring out how to raid our various private retirement accounts (401k, etc.) as soon as they raise the tax rates.

It will be claimed that it is not “Fair” that some people actually plan and save when others just buy 50 inch TVs. Of course, it is is not “Fair” that we didn’t get that 50 inch TV because we decided to save for our future needs…that won’t show in the equation.

ProfShadow on November 24, 2012 at 8:48 AM

The endgame will probably be like Greece; the government raises taxes and cuts benefits simultaneously.

Result: total collapse in economic growth, flight of capital, and an even greater budget shortfall.

Only 2 solutions to this:

1. Cut entitlements now, maintain a low tax environment and let economic growth balance the budget over time.

2. Monetize the debt through inflation/ increased money supply.

Option 2 is course a non-solution as it will devastate standard of living and destroy wealth. It will however have a “redistribution” effect (almost everyone will be dirt poor) , so we rest assures this is the option the libs will prefer.

Norwegian on November 24, 2012 at 8:51 AM

And who will get the blame when the gravy train jumps the tracks?

A. The wealthy
B. Republicans
C. The Tea Party
D. All of the above

Odysseus on November 24, 2012 at 8:51 AM

We need to default on Social Security. The free lunches must end.

astonerii on November 24, 2012 at 9:10 AM

This is what happens when we look the other way as Republicans raise the debt ceiling, vote yes on more endless wars and useless entitlements and redistribution via foreign aid. I expect this crap from dems but the GOP rhetoric implies that we are different but we are not.

The reality is the establishment is all the same, and our government is one huge monolithic beast that will only stop when it collapses upon itself because of its own sheer weight. You can’t stop it, neither can congress or the President – of either party. They know it, and so should you. Enjoy the one party system.

MoreLiberty on November 24, 2012 at 9:20 AM

The politicians won’t do anything until its too late. Stockpile food and get out of the stock market if it looks like Nancy is going to get the gavel again.

txhsmom on November 24, 2012 at 9:22 AM

What is the point of this article? It reads like a whine…

Anyway, yes, ObamaCare does help set up a clash between young & old over the allocation of scarce entitlement resources. Don’t forget the racial element, too: I would not be shocked if blacks and hispanics (who tend to be younger and less well off) would not want to support a bunch of old white people through continued full funding of social security ad Medicare.

Outlander on November 24, 2012 at 9:35 AM

2. Monetize the debt through inflation/ increased money supply.

Option 2 is course a non-solution as it will devastate standard of living and destroy wealth. It will however have a “redistribution” effect (almost everyone will be dirt poor) , so we rest assures this is the option the libs will prefer.

Norwegian on November 24, 2012 at 8:51 AM

More importantly, you CANNOT monetize a continually increasing debt. Monetization only works (so much as it does work) when you have a stable debt. Since we are still deficit spending to the sky and look to continue doing so as far as the eye can see there is nothing to be gained by monetization, at all. In fact, the monetization we are now doing (while continuing to build greater debt) not only has no effect on reducing the overall debt burden in real money, but just accelerates the destruction and obliteration of the whole monetary system.

Monetization is only ever a solution (and not even a decent one) for a static debt. The idea that people can monetize while continuing to deficit spend (the great modern fable that most of the world seems convinced of, for some truly unknown reason) is laughable, at best, and leads to nothing less than a total disintegration of the nation-state and society.

ThePrimordialOrderedPair on November 24, 2012 at 9:59 AM

Here comes default

It can’t get here quick enough.

bgibbs1000 on November 24, 2012 at 10:29 AM

Option 2 is course a non-solution as it will devastate standard of living and destroy wealth. It will however have a “redistribution” effect (almost everyone will be dirt poor) , so we rest assures this is the option the libs will prefer.

Norwegian on November 24, 2012 at 8:51 AM

But Option 2 is the path that will be chosen, sooner rather than later. Remember who runs the country: an entitled class of Baby Boomers who couldn’t get jobs rearranging the deck chairs if the Chinese decided to build a replica of the Titanic.

Remember, it’s not as if we were choosing between FDR and Eisenhower in the last election.

victor82 on November 24, 2012 at 10:34 AM

I love Mark Steyn’s take on our current fiscal situation: if $16 trillion were to magically appear in the federal government’s coffers — not to mention the over $200 trillion necessary to pay for unfunded liabilities — what would that then make us?

Well, we’d essentially at that point be BROKE!

ShainS on November 24, 2012 at 10:40 AM