The Future Drag

As noted in today's Wall Street Journal:

The federal government's budget deficit will widen to $1.186 trillion for the current fiscal year, an unprecedented number that will likely only get bigger after Obama's economic package.

Since debt is a "pull forward" of future consumption and investment it means a drag on future economic growth. This is important because the substantial "economic stimulus" is going to have hazardous long term implications for our economy. The effect of debt is particularly gruesome since interest paid is an exponential function.

This adds about $8500 per taxpayer in new obligations. This number is arrived at by the fact there are about 138 million people are in the labor force. It gets a lot uglier when you consider the top 50% of taxpayers pay approximately 97% of all income taxes collected. The fact half the labor force pays less than 3% of the income tax simply doubles the obligation on the "real" taxpayers. The disappointing thing is that the incoming Obama administration is warning of trillion dollar deficits for years to come. Extraordinary borrowing to fix our current problem, which was excessive borrowing, is not a path to affluence for the U.S. economy.

No good will come from this.