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 Posted: Fri Apr 14, 2006 12:58 pm Post subject: Tax Cuts, anyone ? |
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t worries me, on occasion, that I may be the only person left in this forum who thinks it worthwhile to raise the alarm about our national debt. You could attribute it to rampant senility, I suppose, since I appear to be the oldest active enthusiast, but I would like to hear some reassuring facts concerning fiscal responsibility from anyone with greater economic expertise. Being a great-grandfather to two fututre voter/taxpayers, I am concerned about the following facts:
A national debt of $ 7,349,252,011,039.00 (That's 7 trillion, 349 billion, 252 million, 11 thousand and 39 dollars. or seven thousand billion.) A fair sized bit of change. Of course, that's just this moment in time. It is going up at the rate of whatever the current deficit happens to be, plus whatever tax cuts are used to enhance electability, since they are unlikely to be offset by spending cuts
If we could divide it equally between all of our 293 million citizens, every man, woman and child would own a debt of $25,000. In addition to any credit card debt they happen to have accumulated along with their mortgages, etc.
Think $100,000 for a family of four.
Obviously, we don't divide anything equally, especially debt. If we don't pay our debts, we pass them on to those who inherit them. That is what bothers me. My conscience tells me that it is irresponsible to run up bills and pass them on to our children and grandchildren. But we can't just ignore the debt and it will just sit there and grow by whatever deficit our government incurs. No, we have to pay the interest on that debt, so we have to collect enough taxes to make the interest payments. Collectively, we pay $309 billion in interest per year at the present rate.
That constitutes a rather sizeable chunk of the National budget. So what happens when we give our taxpayers a 'so-called' tax break? We add to the National debt, that increases the interest on that debt, and we pay it back in higher taxes. Well, we either pay down the debt by eliminating the budget deficit, as we had started doing during the previous administration, or we pass our selfish stupidity and its consequences on to our children, ad infinitum.
I don't think it is accidental that one seldom hears the word "posterity" used in this country any more.  |
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Mo Jo
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Cash Points ££ 15.00
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| Posted: Wed Apr 19, 2006 1:19 am Post subject: |
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Democrats are described as "tax and spend." Logically, you would conclude that those doing the labeling (Republicans) don't tax or spend (or at least do less of it). The problem is, Republicans, like Democrats, have discovered that only one side of that equation is politically feasible. The Republicans think they have found a loophole in the equation, a third term with no constraints. You can spend more than you take in (a deficit) if you borrow the difference.
Now, don't get me wrong, I would love lower taxes. I even like the core principle of the Republican Party: smaller, less intrusive government. The problem is, cutting taxes hasn't made the government smaller or less intrusive. Part of it is that our government is not so inordinately large to begin with. In fact, we are roughly tied with Japan for the lowest taxes as a share of GDP among the 27 countries defined as developed by the Organization for Economic Cooperation and Development. There's waste that should be cut, but that's not what's happening. Republicans seem more interested in cutting programs that have popular support. How do you convince people to let go of something they want? I'm getting ahead of myself, you'll just have to keep reading for that one.
With the party of small government holding the presidency and majorities in the House and Senate (not to mention the Supreme Court), you would think government would be shrinking. It's not. The federal debt is now $7.3 trillion. That’s four times the government’s income for the year. According to the Congressional Budget Office (the costly Iraq war is not even included in their figures), the deficit has reached 5% of GDP, a quarter of total federal spending, and a third of federal income. The projections for future years are slightly better because many of Bush’s tax cuts are scheduled to expire in a couple years so they aren’t included, even though Bush is pushing hard to make them permanent. The government is also anything but less intrusive, but that's more of a civil liberties issue for another time.
Back to the deficit. Republicans used to rightly speak out about the dangers of deficits. Most of them are strangely silent on the issue now that they hold all the power. Yes, some do speak out, but not nearly enough to hold back the tide.
One explanation for the new lack of concern is they think deficits aren't a problem. This is the explanation arrived at by the Bush administration through a torturous path. During the 2000 campaign, the line was we would pay down the debt at a record rate. "My plan pays down an unprecedented amount of our national debt." Later it was the deficits are small and won't last long. "We can return to a balanced budget, something I want, as early as 2004." Now, it’s 2004, the budget is still unbalanced (in fact, the deficit is at record levels), and no one’s too concerned because it’s “manageable.”
Deficits are a problem. They are sometimes necessary, but not on the scale (either in dollars or decades) that the current economic plan calls for. During his 2003 State of the Union, this president said, "We will not deny, we will not ignore, we will not pass along our problems to other Congresses, other presidents, and other generations." By continuing our current plans, we are passing along more debt to those future Congresses, presidents, and generations than ever before.
I've heard two arguments for the benefits of deficits. The first is that it gives people a stake in the success of the government, making them less likely to revolt and establishes strong credit. These were the primary reasons for Alexander Hamilton's support of a deficit. He once said, "A national debt, if it be not excessive, would be for us a national treasure." Using this argument as justification for the current debt holds several problems.
How likely are the people to revolt against the US government these days? The Hamilton quote predates the US Constitution by six years. The revolutionary war was not yet over. The government that was in effect (under the Articles of the Confederation) would be unsuccessfully revolted against a short time later, and ultimately would be peacefully abolished. Armed revolt against the government by its citizens was a very real threat then. It is not now.
Young adults are advised to get a credit card to establish a line of credit so they might later use that credit for larger loans to finance large purchases. Borrowing establishes credit, provided you make payments and don’t overextend yourself. A debt four times annual income, new loans a third of annual income, and plans to continue borrowing - hardly a formula for strengthening credit.
Two more arguments for the benefits of deficits are that they allow us to pay off higher interest rate debts and give us more cash in hand to spend. What's wrong with this? Nothing, "if it be not excessive." The current and projected debts and deficits are excessive.
It's a case of supply and demand. Money to be loaned is not infinite in supply. The higher the demand for loans, the higher the cost in interest rates. Deficit reduction contributes to lower interest rates, which enables more investment, which leads to more jobs and productivity (which leads to more money for investment and paying down the deficit). Rising deficits increase interest rates, decreasing both personal savings and company capital. Decreased capital leads to less innovation, fewer jobs, and lower pay. Decreased personal savings lead to a lower effective income.
Like other Ponzi schemes, running the government on borrowed money benefits those who get in early at the cost of those who get in late. Unlike other Ponzi schemes, those who get in late need not be suckers lured by greed. These "other Congresses, other presidents, and other generations" need only be born after our greed has locked them into debt.
There is a more cynical explanation for the lack of concern than incompetence or greed at the cost of the future. Peter G. Peterson (a Republican who has held offices as high as the Chair of the Blackstone Group and Secretary of Commerce), among others, has said Republicans have told him the true goal of tax cuts is not supply-sided economics but forcing a reduction in the size of the government. Again, there are Republican politicians who would like to go about this the right way, but most of them have bowed to party pressures (a weakness that is certainly not unique to their party).
While this approach had ethical problems even when Republicans did not control all branches of the federal government, the depth of the deception came to light when Republicans gained control. With the Republicans in control, it cannot be the Democrats who they are trying to make relent. It is the voters. We don't want our programs cut, and the Republicans have realized that they cannot cut them without our consent and expect to remaining office. But, if the deficit gets so large that there is no other choice but to cut programs, they cannot be blamed. This is forcing a policy on future generations that lacks enough support from current generations to pass now. The means to this unsupported end is a lower standard of living for generations. |
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Deborah
Veteran Investor
Joined: 12 Jul 2004
Posts: 418
Cash Points ££ 1730.36
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| Posted: Thu Apr 20, 2006 10:45 pm Post subject: |
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Well
Thats far too heavy for me to get in to 
Just that the USA has big trade and budget deficits, and tax cuts seems to be the wrong thing to do ! |
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