The 1% Solution to the National Debt

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As the national debt in the US approaches $16,400,000,000,000 - we approach the 2012 election season - with the talk of fairness and 1% vs 99% in the air - I realized a solution is at hand when combining all of these ingredients.

The national debt of $16.4 Trillion divided by (approx) 35,000 people (the top 1%) approximates $469 million per person. Accordingly, why not extend a one time offer to these people to "pay their fair share"? Specifically, with a one time payment of $500 million (from personal funds) they would no longer be responsible for any future tax obligations.

The Government in turn would commit to a balanced budget moving forward. Does this sound fair?
 

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  • #2
Mech_Engineer
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The national debt of $16.4 Trillion divided by (approx) 35,000 people (the top 1%) approximates $469 million per person. Accordingly, why not extend a one time offer to these people to "pay their fair share"? Specifically, with a one time payment of $500 million (from personal funds) they would no longer be responsible for any future tax obligations.

The Government in turn would commit to a balanced budget moving forward. Does this sound fair?
The only "fair" solution would be to have all 300 million citizens each pay $55,000. Note the definition of "fair":

Fair:
1) free from bias, dishonesty, or injustice: a fair decision; a fair judge.
2) legitimately sought, pursued, done, given, etc.; proper under the rules: a fair fight.

Of course a person's "fair share" of the debt should really be based on their use of the programs which have perpretrated the debt. I think it's probably obvious the "top 1%" haven't used nearly as much as some other demographics...

Edit- note also that the "top 1%" of income earners is $350,000 and up (according to the 2005 census). That's a far-cry from having a quick $500mil to shell out on rainy days!
 
  • #3
Gokul43201
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Why are there only 35,000 people in the top 1%? I think that number is closer to 1.5M families.

PS: I don't think either of the above two proposals is fair.
 
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  • #4
Pengwuino
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Note the real definition of "fair":

Fair:
1) free from bias, dishonesty, or injustice: a fair decision; a fair judge.
2) legitimately sought, pursued, done, given, etc.; proper under the rules: a fair fight.
Yes, "fair" in a political sense is actually defined as "what makes my side feel better without doing any work". It's almost laughable when people talk about fairness in politics.

The OP's idea is terrible, though. No one has 500 million dollars laying around. Hell, few probably have 50 million dollars just laying around. Most of the wealth that people complain about is purely hypothetical wealth. Bill Gates, for example, probably has a sizable fraction of his money in shares of MS. He can't just pull that money out, just like most people can't just immediately or in a short amount of time liquidate vast amounts of assets.

If everyone simply started dumping these vast amounts of stocks, 1) who would buy them (since one would presume everyone was in this same process of large scale selling) and 2) what kind of effects would that have on the economy? I think the first would have a reasonable answer but the second can probably be summed up as a devastating effect.

To add to this, stocks do not make up all the wealth either. A lot of wealth is simply the worth of a privately owned company. Must they start selling off their companies? You can't have a large portion of the wealth in the world simply change hands in a short period of time.

Personally, I feel like most people have no idea what wealth actually is.
 
  • #5
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The only "fair" solution would be to have all 300 million citizens each pay $55,000. Note the real definition of "fair":

Fair:
1) free from bias, dishonesty, or injustice: a fair decision; a fair judge.
2) legitimately sought, pursued, done, given, etc.; proper under the rules: a fair fight.

Of course a person's "fair share" of the debt should really be based on their use of the programs which have perpretrated the debt. I think it's probably obvious the "top 1%" haven't used nearly as much as some other demographics...
When you consider only about half of the population pays federal income tax - the other half pays nothing or receives re-distributions of federal income taxes - we know that won't happen.

The fairness part of my idea comes in the form of the current problem is addressed (national debt), a continuing solution is put in place (Congress agrees to balanced budget- easier to do with interest reduction), the 1% are called upon to help and in exchange they are rewarded in the future, the 99% are freed from the guilt of the debt and satisfied in the new era of responsible spending.
 
  • #6
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Why are there only 35,000 people in the top 1%? I think that number is closer to 1.5M families.

PS: I don't think either of the above two proposals is fair.
The 35,000 number (albeit less than 1%) narrows the field to people who have an ability to take advantage of the one time deal.
 
  • #7
Gokul43201
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Here's an alternative proposal (or a seed of an idea, perhaps) based on a similar kind of reasoning, and I have no idea if it will be fiscally viable but what the heck:

Every taxpayer is given the opportunity to pay a fed tax equal to n times the average (inflation adjusted) dollar amount paid over the last, say 5 years. In return, they do not have to pay any fed taxes for the following n-1 years. Each taxpayer gets to decide what value of n is likely to be optimal for each of them to maximize their benefit from this opportunity.

Of course, some corrections/exclusions will have to be built in for: people that pay no fed taxes, people just entering the workforce, people nearing retirement, etc. But other than those select groups, I imagine most people will benefit from this deal, and the government will get to make a big dent in the debt. I expect that the optimal n will be 1 or 2 for people in low income groups, but much larger for people with lots of disposable wealth and expecting any significant income growth. This way, everyone gets to choose their multiplier, but the wealthy will naturally want to choose a larger multiplier, and that's a good thing for maximizing the relief to the debt. As for how things will evolve over the succeeding years, I don't have the foggiest.
 
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  • #8
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Here's an alternative proposal (or a seed of an idea, perhaps) based on a similar kind of reasoning, and I have no idea if it will be fiscally viable but what the heck:

Every taxpayer is given the opportunity to pay a fed tax equal to n times the average (inflation adjusted) dollar amount paid over the last, say 5 years. In return, they do not have to pay any fed taxes for the following n-1 years. Each taxpayer gets to decide what value of n is likely to be optimal for each of them to maximize their benefit from this opportunity.

Of course, some corrections/exclusions will have to be built in for: people that pay no fed taxes, people just entering the workforce, people nearing retirement, etc. But other than those select groups, I imagine most people will benefit from this deal, and the government will get to make a big dent in the debt. I expect that the optimal n will be 1 or 2 for people in low income groups, but much larger for people with lots of disposable wealth and expecting any significant income growth. This way, everyone gets to choose their multiplier, but the wealthy will naturally want to choose a larger multiplier, and that's a good thing for maximizing the relief to the debt. As for how things will evolve over the succeeding years, I don't have the foggiest.
Perhaps a flat tax could be implemented after a solution is reached - under any of the scenarios?
 
  • #9
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Only those who could save by opting in would opt in and the end result would be a reduction in taxes collected.
 
  • #10
Gokul43201
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Only those who could save by opting in would opt in and the end result would be a reduction in taxes collected.
Agreed, if this is referring to my proposal above. There would be a near term (5-10 years?) reduction in taxes collected (is that necessarily a bad thing?), but there would be an instantaneous spike that might go a long ways towards lowering the debt to historically average values. Beyond that, the government would be forced to cut spending to stay close to the lower revenues expected in the following years.

PS: A clarification: This proposal is intended as a one-time fix, not a continuing solution. I haven't given any thought yet to implementing it as a permanent option.
 
  • #11
Office_Shredder
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A clarification: This proposal is intended as a one-time fix, not a continuing solution. I haven't given any thought yet to implementing it as a permanent option.
It's only a one-time fix if the government balances the budget for each year after that. At that point you might as well just require the budget always be balanced and call it a day
 
  • #12
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It's only a one-time fix if the government balances the budget for each year after that. At that point you might as well just require the budget always be balanced and call it a day
Exactly - any method of achieving a one time fix through elective incentives would need to be coupled with strict financial management.
 
  • #13
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As the national debt in the US approaches $16,400,000,000,000 - we approach the 2012 election season - with the talk of fairness and 1% vs 99% in the air - I realized a solution is at hand when combining all of these ingredients.

The national debt of $16.4 Trillion divided by (approx) 35,000 people (the top 1%) approximates $469 million per person. Accordingly, why not extend a one time offer to these people to "pay their fair share"? Specifically, with a one time payment of $500 million (from personal funds) they would no longer be responsible for any future tax obligations.

The Government in turn would commit to a balanced budget moving forward. Does this sound fair?
Are you being sarcastic?
 
  • #14
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You vastly overestimate the amount of money the upper class makes. Take a good look at this table. As you can see, 1.5% of the US population has a household(!) income of over 250,000 USD/year.[*] That would mean that for your proposal to work, two-third of this group (= 1.0% of the total population) must have a yearly income that's many, many times that amount of money. That, or you'll have to ask the 0.1% for five billion each, or the 0.01% percent for fifty billion each. As I hope you can see, this is not something likely to work. It's too much money.

Also, I disapprove of this idea for the simple reason that it suggests the national debt is somehow the '1%'s fault, especially when you call it 'their fair share'. While it's true in some cases, you will find that in most cases, it's not.


[*] Granted, that table is from 2005. I assume a bit has changed since then, so let's make an extreme assumption and assume that now 5.0% makes over 250,000 USD/year. This means twenty percent of that group now has to pay 500 million USD. Still not possible.
 
  • #15
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Are you being sarcastic?
If you have another idea - we'd love to hear it.
 
  • #16
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You vastly overestimate the amount of money the upper class makes. Take a good look at this table. As you can see, 1.5% of the US population has a household(!) income of over 250,000 USD/year.[*] That would mean that for your proposal to work, two-third of this group (= 1.0% of the total population) must have a yearly income that's many, many times that amount of money. That, or you'll have to ask the 0.1% for five billion each, or the 0.01% percent for fifty billion each. As I hope you can see, this is not something likely to work. It's too much money.

Also, I disapprove of this idea for the simple reason that it suggests the national debt is somehow the '1%'s fault, especially when you call it 'their fair share'. While it's true in some cases, you will find that in most cases, it's not.


[*] Granted, that table is from 2005. I assume a bit has changed since then, so let's make an extreme assumption and assume that now 5.0% makes over 250,000 USD/year. This means twenty percent of that group now has to pay 500 million USD. Still not possible.
I used the term 1% because it's popular. The reality is a much smaller number of people have the assets (not income) to accomplish such a plan. The basic idea is to offer a proposal to the people with the means to complete the deal. In exchange, they must be offered substantial incentives - such as not future tax obligation for doing their "fair share" (President's slogan) now.
 
  • #17
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If you have another idea - we'd love to hear it.
I have an idea. Cut billions from the budget of the department of defense. Invest one third of the money in education and in means to get most of those soldiers back to school to actually do something that creates wealth. Invest a fourth of the money in medicare and in ways to get the older people to start doing something productive. The rest can then be used to cut the deficit or spend on things likely to create plenty of wealth in the future - alternative energy, nuclear fusion, space research, biotechnology, etc.

[/rant from an European which should probably not be taken seriously]

I used the term 1% because it's popular. The reality is a much smaller number of people have the assets (not income) to accomplish such a plan. The basic idea is to offer a proposal to the people with the means to complete the deal. In exchange, they must be offered substantial incentives - such as not future tax obligation for doing their "fair share" (President's slogan) now.
What I was trying to show you is that it's not possible. The less people you have, the more they would have to contribute to nullify the deficit. In the end, you have too few people with that amount of money, or those few people have too little money, to make this work.

What's far more reasonable is to simply let the rich people pay a higher percentage of their income in taxes. This is pretty much a foolproof method of decreasing the deficit over time. This is quite complex, though, because you don't want to hurt the doctor with a good income but a large family to feed.
 
  • #18
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I have an idea. Cut billions from the budget of the department of defense. Invest one third of the money in education and in means to get most of those soldiers back to school to actually do something that creates wealth. Invest a fourth of the money in medicare and in ways to get the older people to start doing something productive. The rest can then be used to cut the deficit or spend on things likely to create plenty of wealth in the future - alternative energy, nuclear fusion, space research, biotechnology, etc.

[/rant from an European which should probably not be taken seriously]



What I was trying to show you is that it's not possible. The less people you have, the more they would have to contribute to nullify the deficit. In the end, you have too few people with that amount of money, or those few people have too little money, to make this work.

What's far more reasonable is to simply let the rich people pay a higher percentage of their income in taxes. This is pretty much a foolproof method of decreasing the deficit over time. This is quite complex, though, because you don't want to hurt the doctor with a good income but a large family to feed.
I never use Wiki - just want some quick stats - please label as opinion accordingly.

http://en.wikipedia.org/wiki/Wealth_in_the_United_States

"In 2007 the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. Thus, the top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%."

"Household net worth fell from 2007 to 2009 by a total of $17.5 trillion or 25.5%. This was the equivalent loss of one year of GDP.[5] By the fourth quarter of 2010, the household net worth had recovered by a growth of 1.3 percent to a total of $56.8 trillion. An additional growth of 15.7 percent is needed just to bring the value to where it was before the recession started in December 2007.[2]"

The National Debt is approaching $16.4 Trillion and the top 1% own (34% of $56Trillion) - let's make a deal. If the same offer was made to corporations - we could eliminate the debt entirely (along with interest payments).

http://useconomy.about.com/od/fiscalpolicy/p/Budget_Spending.htm
"Interest Payments on the National Debt:
One of the fastest growing sections of the budget is interest payments on the national debt. It was just 6.5% of total spending, but that's $248 billion -- enough to pay for ten Justice Departments. However, by 2022, interest payments on the debt is projected to quadruple to $826 billion, double all non-security discretionary spending. It will also be the fourth largest budget item, after Social Security ($1.361 trillion), Medicare ($908 billion), and defense spending ($856 billion)."
 
  • #19
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I haven't checked your sources, but let's assume for the moment that this is correct. You're comparing wealth, not income. You want the richest people in the USA to sell all their assets (that includes stocks and everything that generates *more* wealth for your country) to pay off the national debt? Such a thing would completely destroy the economy of the USA, not to mention disturb the economies of the entire world by completely shifting the balance of economical power. Basically, it would mean selling 35% of your country,
 
  • #20
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I haven't checked your sources, but let's assume for the moment that this is correct. You're comparing wealth, not income. You want the richest people in the USA to sell all their assets (that includes stocks and everything that generates *more* wealth for your country) to pay off the national debt? Such a thing would completely destroy the economy of the USA, not to mention disturb the economies of the entire world by completely shifting the balance of economical power. Basically, it would mean selling 35% of your country,
I believe in having the freedom to make choices. We are currently borrowing 40% of the money we spend - what will happen to the wealth of the 1% when the credit dries up and the Government (and the people) come knocking? Also, this is why I added the caveat that corporations should be offered the same deal.
 
  • #21
128
2
I believe in having the freedom to make choices. We are currently borrowing 40% of the money we spend - what will happen to the wealth of the 1% when the credit dries up and the Government (and the people) come knocking? Also, this is why I added the caveat that corporations should be offered the same deal.
What will happen to their wealth? The same thing that will happen when those people accept your deal - your country will lose a lot of wealth, which will destroy the economy. The same thing happens when you offer corporations that create a lot of wealth the same deal. The fact that the government currently doesn't offer this option isn't because the people don't have the freedom to choose, but because it's an extremely bad idea that would only disrupt the economy further.

Also, people still have the choice to do this: people can donate to the US government. I don't think the reason the very-rich people don't donate all their wealth to the government is because they're not aware of the option to do so. Thus, the only way to get them to do this is to force them.
 
  • #22
149
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What will happen to their wealth? The same thing that will happen when those people accept your deal - your country will lose a lot of wealth, which will destroy the economy. The same thing happens when you offer corporations that create a lot of wealth the same deal. The fact that the government currently doesn't offer this option isn't because the people don't have the freedom to choose, but because it's an extremely bad idea that would only disrupt the economy further.

Also, people still have the choice to do this: people can donate to the US government. I don't think the reason the very-rich people don't donate all their wealth to the government is because they're not aware of the option to do so. Thus, the only way to get them to do this is to force them.
How will the country lose wealth?
 
  • #23
128
2
How will the country lose wealth?
Assuming that the government insists on paying their debts even when there is no option but to take the wealth of the 1%, it would necessarily mean that the 1% need to sell their assets to nullify the national debt. When this is done, all these assets are now in the hands of people from other countries, and the money gained from selling all this had to be used to pay off the debt. In the future, all the gains from these assets will no longer directly benefit the USA. Thus, the USA would lose an enormous amount of wealth.
 
  • #24
Gokul43201
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It's only a one-time fix if the government balances the budget for each year after that.
I don't expect it to do that immediately. But it will be under greater pressure to not produce the giant deficits (purely for optical reasons) that would come with leaving spending unchanged. And one more thing...

At that point you might as well just require the budget always be balanced and call it a day
... The alternative helps knock down the interest on the debt almost instantaneously. Just requiring balanced budgets won't do that.

What I suspect is the biggest problem with my (or any similar) proposal for a one-time huge shot of revenue is that it could easily trigger a recession or worse by taking a GDP sized bite out of the economy [edit: this now looks to me like a faulty argument as well]. Alternatively, the reality might be that implementing my idea still only takes out no more than say 10% of the debt in one shot, which is not terribly useful.
 
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  • #25
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If you have another idea - we'd love to hear it.
I think the upper 1% can be taxed a bit more without hurting them at all. How much more is a very arguable question. Historically, as the taxes on the very rich decreased the national debt increased.
 

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