U.S. Debt, Today and Tomorrow

[Haggis@wk]

...not much actual cutting.

Too true, sadly. There is a reckoning coming one way or another. We will get responsible or we will pass the buck to our children, there is no other option that I am aware of.

[Giant Communist Robot]

Altoid's children's childrens will live poorer than we do now paying for that debt.

I've covered this before. Economists would disagree because debt is deferred tax. Future generations will benefit from legacies not taxed and all the interest they would earn. On a balance sheet they cancel each other. Yes, they'll have to pay the tax in the future but assets passed down to them will have been free of that tax.

[Haggis@wk]

I've covered this before. Economists would disagree because debt is deferred tax. Future generations will benefit from legacies not taxed and all the interest they would earn. On a balance sheet they cancel each other. Yes, they'll have to pay the tax in the future but assets passed down to them will have been free of that tax.

But if we are not paying the tax to pay down the debt then that debt will pass to those children.We currently, and will contine, to borrow $0.40 cents of every dollar our government spends. Eventually, as demostrated in Greece, that debt comes due. What can't last forever, won't

[Shapley]

Our children's legacy will include interest on those deferred taxes, as well as a higher tax rate.

Also, as you noted earlier, that is true for such things as schools and roads and bridges, which are tangible assets passed down, but Grannies prescription medicine is consumed or flushed down the toilet, and Pop's unemployment compensation and Cousin Fred's welfare checque are spent with little to nothing to show for them. Those future generations will pay the tax on them as if they were tangible assets, but will not benefit therefrom.

[Giant Communist Robot]

But if we are not paying the tax to pay down the debt then that debt will pass to those children

true, and....

Our children's legacy will include interest on those deferred taxes

...also true.

[Shapley]

I'm somehow reminded of those people with massive credit card debt which they roll over into a 'home equity loan'. It all seems nice until you start thinking about what kind of debt you're refinanced. Does it really make sense to finance last weeks dinner-and-a-movie for twenty years?

So it is with our national debt. Methinks most of our economic models were written at a time during which governments were financing 'needful things', such as roads, bridges, railways, etc. Governments have been financing those long-term for ages, through bond issues, etc. However, the 30s and then the 60s brought a major shift in the things that our government funds, and thus the things we finance through our long-term debt - entitlements and medical expenses.

Regardless of whether one thinks the government should provide such things, they most certainly should not finance them long-term, for the same reason one shouldn't finance a dinner bill or groceries long-term. The payments continue long after the assets, and the benefits therefrom, have passed.

[dai bread]

Well said, Shap.

[Haggis@wk]

Inflation-adjusted federal spending per capita.

“A hundred years ago, federal spending for each person was the equivalent of $200 in today’s dollars. After FDR, with all of his massive public spending, it was $1,000. This year, it’s over $12,000. How long can this continue?”

Not much longer. Something can’t go on forever, it won’t.

[Giant Communist Robot]

Regardless of whether one thinks the government should provide such things, they most certainly should not finance them long-term, for the same reason one shouldn't finance a dinner bill or groceries long-term

With dinner bills and groceries you pay interest on the balance; it compounds. That pizza you charged last week could cost thousands over 20 years. Government debt does not compound; a three year treasury at 1.15% will pay only that amount. The alternative is a tax increase. And remember, inflation nibbles away at that debt.

[Giant Communist Robot]

Let me try this again: that credit card has say, 13% interest on it, compounded. Even after inflation, that 13%, which is a typical current figure, grows really fast in real terms. The figure I gave for the 3 year Treasury, 1.15%, was the yield Thursday. Current inflation as measured by the CPI (and I know some of you think inflation is much higher) is about 2.7%. So in nominal numbers the Treasury is a superior deal over the credit card; in real terms the Treasury is being paid to borrow money. Did you get that? This is happening right now. I'm not making things up or putting some weird spin on things. Check it out for yourself.

You borrow 99 dollars and promise to pay back 100 dollars in three years. Meanwhile, inflation raging at 2% per year, means in real terms you pay back about 95 dollars.

You buy a pizza for 20 dollars with a credit card, intending to pay it off after three years. After inflation (real terms) you pay back about 27 dollars.

[Haggis@wk]

51% of Households Pay No Income Tax; Share of Taxes Paid by Rich Growing Faster Than Income.

We need to broaden the tax base to include all voters then everyone will have some skin in the game.

[piqaboo]

Along those lines - can anyone explain how the EIC works?
I know at least one person who earned < threshold one year, therefore no income tax, AND got EIC money.
In other words, they were given money.
I dont get it.

[Giant Communist Robot]

can anyone explain how the EIC works?

Here's the principle: below a level no tax is paid and money is given--that money comes from those above the level. Democrats think of this as fairness, as the people above the level have incurred a social obligation; Republicans think of this as redistribution of wealth, the foundation of socialism.

[Giant Communist Robot]

But if we are not paying the tax to pay down the debt

Haggis, check your tax returns. Did you pay?

[BigJon]

Along those lines - can anyone explain how the EIC works?
I know at least one person who earned < threshold one year, therefore no income tax, AND got EIC money.
In other words, they were given money.
I dont get it.

It's a reverse income tax to help the working poor have a better standard of living. None other than Friedman thought it was a great idea. It's in my new tax plan.

[Haggis@wk]

Haggis, check your tax returns. Did you pay?

I, and Shapley I suspect, pay taxes four times a year. I haven't had a tax refund since I worked in Thailand in the 90's. In those days expats got the first $80K tax free.

Piq,

EIC is simply wealth redistribution, another form of socialism

[Shapley]

I occassionally have a refund due, but usually just apply it to the following year's taxes, since the government will be insisting on their estimated taxes within three months anyway.

I did get a nice refund one year, because we overpaid considerably. That was because we had an exceptional year the year prior, and the government insisted on estimated taxes consistent with that income. In essense, I loaned the government money for several months, until my taxes were complete and the sent me the excess I had paid. The government did not pay me any interest on the money I loaned them, though.

[Shapley]

I agree with Haggis, the EIC is nothing but wealth distribution. I have nothing against permitting people whose income falls below a certain threshold having any and all tax payments returned to them (0% tax for those below the poverty threshold). However, giving them excess monies simply because they don't make enough is not consistent with the purpose of the Income Tax System.

The Income Tax is supposed to raise revenue, period. It is not supposed to be used to provide welfare. There are other programmes for that purpose.

[Giant Communist Robot]

I, and Shapley I suspect, pay taxes

...and this pays the debt

[Giant Communist Robot]

EIC is simply wealth redistribution

the EIC is nothing but wealth distribution

See? Two Republicans.