Monday, June 22, 2009

Quote of the Day

"A guy from the northeast did a study on generational accounting. Generational accounting says what is the imputed tax for a young person born in America today? And remarkably, that number is 82, which at all ain’t that far from a thing called slavery. If you’re giving away 82% of every dollar you earn every day and every week and every month, A, it’s not a good deal, B, it collapses the capitalistic system because nobody has any initiative to work at that point, and C, it really isn’t that far from slavery. And what the Republic was originally set up was on the notion that was just talked about a moment ago, which is this larger notion of freedom. And economic freedom is a part of the larger notion of freedom."

Mark Sanford, the formerly missing Governor of South Carolina.

Sanford doesn't cite what economist wrote about generational accouting. The answer is Laurence J. Kotlikoff, Alan J. Auerbach, and Jagadeesh Gokhale. A 1995 Congressional Budget Office report predicted future generations will pay 78 percent flat tax rate. The problem with generational accounting is if you project Medicare, Medicaid and the Defense Department budget; each will all take 100 percent of the gross domestic product. That is impossible.

Conservative economist Herbert Stein served under presidents Richard Nixon and Gerald Ford. Stein was also a member of the conservative think tank the American Enterprise Institute. Stein's law is "If something cannot go on forever, it will stop." Stein created his law for trade deficits. Logic dictates the defense and entitlement expenses will not be 100 percent of the GDP and that they will bottom out. The question is are the expenses put under smart fiscal policies are fall from their own weight?

Generational accouting does not take into effect what kind of fiscal policies future political leaders will apply and entitlement and military expenses being controlled. Which is what Obama has been proposing. What political climate does Sanford foresee where politicians expect to be re-elected with an 82 percent tax rate?

Side note: Ezra Klein wrote a post on health care and Stein's law. Klein believes "the day of reckoning is imminent."

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