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Forget hypocrisy: the size of the national debt is a real problem. (1 Viewer)

timschochet

Footballguy
Yes it is totally hypocritical of the Republicans to start bringing up the size of the national debt again. They only seem to bring it up when there is a Democratic President or when there are spending proposals they don’t like. Otherwise they cut taxes and spend like crazy on stuff they like (such as the military). In addition, Republicans are good at talking the talk but not walking the walk: they constantly warn that spending needs to be cut but when in power they never actually cut spending; at the most they pass limitations on future spending, amd this ploy never works because when the time comes they just ignore the limitations (as witness this year’s budget which has all kind of “emergency” workarounds to get past previous limits that were set up.) Limitations on future spending does not work and any politician who proposes it is simply trying to kick the can down the road while avoiding doing anything unpopular. 

Meanwhile,  the Democrats seem to behave as if the debt doesn’t exist. It’s not even an issue for them. It could be argued that raising taxes helps to lower the deficit, but the problem is that whenever Democrats raise taxes it’s always accompanied by more spending. (In the case of Obama, he managed to get some of the Bush taxes cuts to expire but by the time he was able to do it a Republican controlled Congress prevented any more spending and like magic, the deficit went down- but that wasn’t something either side planned or should take credit for.) 

And the thing is, it’s a real problem. It was 9 trillion 25 years ago. It’s 29 trillion today and our economic growth has not increased at the same rate, nor has inflation. It goes up every year because we can’t seem to shrink our annual  deficit (much less have a surplus which is the only way to bring the debt down.) At some point our payments on the debt will seriously interfere with our ability to pay for current spending. Amd then what? We’re not one of Trump’s hotels; we don’t get to declare bankruptcy. 
And the other thing is we have huge spending yet to do: climate change, infrastructure. Look how much COVID is costing us. There will likely be foreign and military engagements in the future. 
Anyone got any new ideas? 

 
The one solution to this problem that seems to be the most painless is to simply grow the economy to the point where the debt is no longer a big issue. There are two main problems with this though: 

The first problem is that the two parties have very different philosophies about how to grow the economy. Conservatives want to lower taxes and cut regulations. Liberals want to increase investment on targeted areas of the economy and create jobs through federal spending. Both of these ideas involve actually increasing the deficit in order to eventually lower it. Both ideas may have merit to them- but neither idea is ever given a long enough time to show positive results since the minute the other political party takes over they quickly reverse everything the previous party was doing. 
The second problem is one of futility: even if we manage to grow the economy can we possibly do so large enough and quick enough to catch up to the debt? It’s so huge at this point, and growing at such an exponential rate, it seems doubtful. And what happens if we can’t? 

 
Nothing can be done anymore. Just need to wait for the reckoning at this point. 
yeah, Dubya (or his people) realized that a function of lowering interest rates was that, as long as you could get someone to write the debt you never intend to do any more than service, the govt could fulfill all promises at 3 cents on the dollar. it very quickly became the way things were done on both sides.

 
When you say “it could be argued” about a point that over 99% of economists would agree with, you’re showing your bias.
You’re taking me out of context. Of course raising taxes lowers the deficit, but the problem is that Democrats always accompany raising taxes with increased spending which nullifies any deficit reduction. That was my point. 

 
What will the reckoning be? 
At some point the expense of it will be too much to handle. We wont be able to finance it. We wont be able to create the dollars. 

50 different ways it can play out from there. 

But we cant grow our way out of it. I know that is a popular talking point, but it simply never holds up. Need look no further than local governments. They approve project after project and always talk about expanding the tax base, yet taxes still get raised regularly. Because of course with growth comes extra expense. And also heaven forbid one of those projects fail completely. 

Seeing it in my city over and over. This happens to be a really bad two year stretch. They helped finance a convention center. It was heavily contested, but ultimately passed. Was never going to be a succes regardless, but now it is a monumental failure because of covid. So not only are we seeing zero revenues, they already spent the revenues we didnt have yet. So again, taxes go up. 

We will always be one hurricane, disease, earthquake, etc away from growth cancellation. 

I dont think people realize how many people paying taxes get cancelled out by one big spend. There are always big spends around the bend, all over the country. 

 
At some point the expense of it will be too much to handle. We wont be able to finance it. We wont be able to create the dollars. 

50 different ways it can play out from there. 

But we cant grow our way out of it. I know that is a popular talking point, but it simply never holds up. Need look no further than local governments. They approve project after project and always talk about expanding the tax base, yet taxes still get raised regularly. Because of course with growth comes extra expense. And also heaven forbid one of those projects fail completely. 

Seeing it in my city over and over. This happens to be a really bad two year stretch. They helped finance a convention center. It was heavily contested, but ultimately passed. Was never going to be a succes regardless, but now it is a monumental failure because of covid. So not only are we seeing zero revenues, they already spent the revenues we didnt have yet. So again, taxes go up. 

We will always be one hurricane, disease, earthquake, etc away from growth cancellation. 

I dont think people realize how many people paying taxes get cancelled out by one big spend. There are always big spends around the bend, all over the country. 
You make good points here but I’m not certain that issues of local government spending and taxation, for good or ill, have much bearing on federal spending and taxation. Seems like a whole different ballgame. 

 
At this point, the plan pretty much has to be that the military is in the insurance policy against anyone ever calling us out on our debt. 

 
You’re taking me out of context. Of course raising taxes lowers the deficit, but the problem is that Democrats always accompany raising taxes with increased spending which nullifies any deficit reduction. That was my point. 
Then you should have written “raising taxes lowers the deficit” not “it could be argued that raising taxes lowers the deficit.”  

 
Who owns the US national debt

"......Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt....."

 
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The one solution to this problem that seems to be the most painless is to simply grow the economy to the point where the debt is no longer a big issue. There are two main problems with this though: 

The first problem is that the two parties have very different philosophies about how to grow the economy. Conservatives want to lower taxes and cut regulations. Liberals want to increase investment on targeted areas of the economy and create jobs through federal spending. Both of these ideas involve actually increasing the deficit in order to eventually lower it. Both ideas may have merit to them- but neither idea is ever given a long enough time to show positive results since the minute the other political party takes over they quickly reverse everything the previous party was doing. 
The second problem is one of futility: even if we manage to grow the economy can we possibly do so large enough and quick enough to catch up to the debt? It’s so huge at this point, and growing at such an exponential rate, it seems doubtful. And what happens if we can’t? 
I think this post also shows your bias.  The conservative claim that they can lower the deficit while also lowering taxes is a crackpot idea.  Once again, virtually no economists agree that this is actually likely or possible.  The problem is much less "two different philosophies" than "one party deliberately pushing a false narrative."

Also, for what it's worth, I disagree that growing the economy is necessarily the "most painless" way to address debts and deficits.  And I think that our single-minded focus on growth as the solution to economic problems has served us very poorly.

 
I think this post also shows your bias.  The conservative claim that they can lower the deficit while also lowering taxes is a crackpot idea.  Once again, virtually no economists agree that this is actually likely or possible.  The problem is much less "two different philosophies" than "one party deliberately pushing a false narrative."

Also, for what it's worth, I disagree that growing the economy is necessarily the "most painless" way to address debts and deficits.  And I think that our single-minded focus on growth as the solution to economic problems has served us very poorly.
I think that your comment about "growth" is because we now confuse growth with profits.  Putting relatively high taxes on profits is how this nation's glory days fueled the reinvestment that lead to the growth.  That reinvestment included investing in employees that created a middle class.   The false narrative is that lowering taxes leads to growth (which leads to lower deficits).

 
Meanwhile,  the Democrats seem to behave as if the debt doesn’t exist.
Maybe some of the newer "if you can run deficits for tax cuts for the wealthy you can run deficits to help people" wave of democrats who are tired of democrats using "paygo" rules which the GOP ignore for tax cuts.  But the structural deficits as in the deficits that are in this year's contribution to the debt, and will be in next year's, and then the year after that, etc. always come from tax cuts.  These one time stimulus bills run up the debt, run up this year's deficit but aren't the problem.  Ultimately the real problem is we have written IOUs against Social Security and Medicare to fund tax cuts since 1982 that we show no willingness to ever repay.

 
We live in a confidence based economy.  There is no economic calculus here that says "At X amount of money, we're in big trouble".  It's more "At X point, confidence goes away and everything comes crashing down"....yes amount of money will be part of that, but it seems like we are probably 4-5 fold away from that amount having an impact.  It's a weird world we live in now.  At some point the world economy will collapse, but I'm not sure that happens in my lifetime or my kids' or my grandkids' lifetimes.

 
The one solution to this problem that seems to be the most painless is to simply grow the economy to the point where the debt is no longer a big issue. There are two main problems with this though: 

The first problem is that the two parties have very different philosophies about how to grow the economy. Conservatives want to lower taxes and cut regulations. Liberals want to increase investment on targeted areas of the economy and create jobs through federal spending. Both of these ideas involve actually increasing the deficit in order to eventually lower it. Both ideas may have merit to them- but neither idea is ever given a long enough time to show positive results since the minute the other political party takes over they quickly reverse everything the previous party was doing. 
The second problem is one of futility: even if we manage to grow the economy can we possibly do so large enough and quick enough to catch up to the debt? It’s so huge at this point, and growing at such an exponential rate, it seems doubtful. And what happens if we can’t? 
How does "grow the economy" solve the problem?  Are you using "grow the economy" as a synonym for "increase tax revenues"?  Or do you mean simply that increasing GDP would lower the deficit/debt to GDP ratio?

 
Look, we just need to cut taxes again.

And when that doesn't work, another round of tax cuts ought to do the trick.

And when that doesn't work, maybe we should look into cutting taxes or something?

And when hyperinflation destroys the economy, don't blame the anti-taxers. Because everyone knows that taxes are what prevents an economy from flourishing.

 
I think what we need is a team of economists to figure out an incremental tax on revenue - corporate and personal - that cuts the debt in half over the next 8 years.

 
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How does "grow the economy" solve the problem?  Are you using "grow the economy" as a synonym for "increase tax revenues"?  Or do you mean simply that increasing GDP would lower the deficit/debt to GDP ratio?
Well the latter. But maybe @fatguyinalittlecoat is correct that I need to rethink my biases about this. I’m open to that, I’m open to ANYTHING at this point other than “we’re all totally screwed, nothing can be done.” I don’t want to accept that answer for this or climate change.  

 
Dont focus on the debt, focus on spending.  If you cant get spending under control nothing else matters.
One of the greatest things that came out of the covid bill being tied to the spending bill is people got to see how dumb it all is. If we cant even short change the dalai lama during a pandemic, we are so doomed. 

 
Dont focus on the debt, focus on spending.  If you cant get spending under control nothing else matters.
One of the greatest things that came out of the covid bill being tied to the spending bill is people got to see how dumb it all is. If we cant even short change the dalai lama during a pandemic, we are so doomed. 
Dont forget about the wall in Jordan

 
Dont forget about the wall in Jordan
:lmao:  so many things. I always think of the movie Dave. Because it is just so realistic.

SECRETARY OF COMMERCE: Yes, it’s designed to bolster individual confidence in a previous domestic automotive purchase.

DAVE: Why?

SECRETARY OF COMMERCE: Well… to shore up product identification and preserve market share.

DAVE: So we’re spending forty-seven million dollars to make people feel better about a car they’ve already bought?

 
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Dont focus on the debt, focus on spending.  If you cant get spending under control nothing else matters.
I know it is a popular claim that spending is the problem, and I know the legend of @Yankee23Fanonce cut a trillion is spending in fifteen minutes in a thread around here (yes there was such a post as I - never mind) but spending is only the problem if you believe that the promise of SS and Medicare can be broken.  If those pieces of "spending" are untouchable third rails then you can reduce all other spending to zero (including defense) except for interest on the debt and Medicaid and in a couple of decades at most we are still running annual deficits with our current tax revenues.  Maybe you get an extra decade or two by scrapping Medicaid also (you won't).

Now maybe SS and Medicare are not third rails. Maybe the hopes and dreams of the "Starve the beast" crowd will finally be fulfilled and we can bankrupt the nation to get out from under these underfunded liabilities.  But for the vast majority of Americans these are untouchable and thus there is no mechanism to "focus on spending" to fix the projected future deficits that will cause run away debt.  

 
I know it is a popular claim that spending is the problem, and I know the legend of @Yankee23Fanonce cut a trillion is spending in fifteen minutes in a thread around here (yes there was such a post as I - never mind) but spending is only the problem if you believe that the promise of SS and Medicare can be broken.  If those pieces of "spending" are untouchable third rails then you can reduce all other spending to zero (including defense) except for interest on the debt and Medicaid and in a couple of decades at most we are still running annual deficits with our current tax revenues.  Maybe you get an extra decade or two by scrapping Medicaid also (you won't).

Now maybe SS and Medicare are not third rails. Maybe the hopes and dreams of the "Starve the beast" crowd will finally be fulfilled and we can bankrupt the nation to get out from under these underfunded liabilities.  But for the vast majority of Americans these are untouchable and thus there is no mechanism to "focus on spending" to fix the projected future deficits that will cause run away debt.  
SS is the most efficient business in our govt.  Its an incredibly well run organization and shouldn't be touched by anyone.  Ever.

 
Well the latter. But maybe @fatguyinalittlecoat is correct that I need to rethink my biases about this. I’m open to that, I’m open to ANYTHING at this point other than “we’re all totally screwed, nothing can be done.” I don’t want to accept that answer for this or climate change.  
If "debt" is bad, then lowering the ratio only postpones the problem, doesn't it?  I'm not a great macroeconomist, but it seems to me that either "debt doesn't matter" or "eventually debt is a real problem", and "eventually" is most likely when the dollar is no longer the world's reserve currency, at which point the debt suddenly becomes a really big problem.

To start lowering the debt, the only option at this point is to increase revenues (i.e. taxes).  There is no other alternative.  Cutting spending alone simply won't make enough of a dent, and certainly won't lead to a surplus.  We're definitely not on the correct side of the Laffer Curve such that lowering taxes will increase revenue.  In fact, we're nowhere near that side of the curve.  Cutting spending + increasing taxes would be effective, but that will be a tough sell politically.  The reality is, we're left with two choices: 1) run up the deficit and debt and hope it never becomes an issue, or 2) increase taxes fairly significantly.

If you want to combine either of those two options with "cut spending", that's certainly possible.  But "cutting spending" alone is the same as option 1.

 
At some point the expense of it will be too much to handle. We wont be able to finance it. We wont be able to create the dollars. 

50 different ways it can play out from there. 

But we cant grow our way out of it. I know that is a popular talking point, but it simply never holds up. Need look no further than local governments. They approve project after project and always talk about expanding the tax base, yet taxes still get raised regularly. Because of course with growth comes extra expense. And also heaven forbid one of those projects fail completely. 

Seeing it in my city over and over. This happens to be a really bad two year stretch. They helped finance a convention center. It was heavily contested, but ultimately passed. Was never going to be a succes regardless, but now it is a monumental failure because of covid. So not only are we seeing zero revenues, they already spent the revenues we didnt have yet. So again, taxes go up. 

We will always be one hurricane, disease, earthquake, etc away from growth cancellation. 

I dont think people realize how many people paying taxes get cancelled out by one big spend. There are always big spends around the bend, all over the country. 
and only about 50% of the population actually paying taxes doesn't help either.  If we could get that other 50% to chip in it might help.  Probably not, but we should try.

 
and only about 50% of the population actually paying taxes doesn't help either.  If we could get that other 50% to chip in it might help.  Probably not, but we should try.
This simply isn't a true statement.   About 50% of income earners don't pay federal income taxes.  That is not the same as don't pay taxes.  And the payroll taxes they pay had been paying for tax cuts for that other 50%  for decades with the surpluses. 

But yes this 50% will need to pay more whether in increased taxes or in having their SS reduced to 80% (or whatever the 2034 number is now)

 
I know it is a popular claim that spending is the problem, and I know the legend of @Yankee23Fanonce cut a trillion is spending in fifteen minutes in a thread around here (yes there was such a post as I - never mind) but spending is only the problem if you believe that the promise of SS and Medicare can be broken.  If those pieces of "spending" are untouchable third rails then you can reduce all other spending to zero (including defense) except for interest on the debt and Medicaid and in a couple of decades at most we are still running annual deficits with our current tax revenues.  Maybe you get an extra decade or two by scrapping Medicaid also (you won't).

Now maybe SS and Medicare are not third rails. Maybe the hopes and dreams of the "Starve the beast" crowd will finally be fulfilled and we can bankrupt the nation to get out from under these underfunded liabilities.  But for the vast majority of Americans these are untouchable and thus there is no mechanism to "focus on spending" to fix the projected future deficits that will cause run away debt.  
Have “austerity measures” ever not made the problem worse ever?  Actively shrinking your economy is just a weird way to fight deficits., IMO. 

 
What’s the argument for the social security income limit? How much potential FICA tax are we missing out on by not collecting above that limit?

 
What’s the argument for the social security income limit? How much potential FICA tax are we missing out on by not collecting above that limit?
I guess that since benefits are capped, contributions are too? I think it is way past time to lift the limit, as much as I enjoy the paycheck after I hit it each year.

 
What’s the argument for the social security income limit? How much potential FICA tax are we missing out on by not collecting above that limit?
Social Security is based on the principle that you put money into the system when you’re working and then you get the money back when you retire.*

Right now there’s a maximum amount that a person can receive in benefits.  So they also cap the amount they tax.  They could lift both caps, but that wouldn’t really help Social Security’s solvency because the government would be taking in way more but also paying out way more to rich people.  We could lift the cap on taxes while keeping a maximum benefit, but then that erodes the connection between paying in and getting out.  Which is totally fine with me but some people are against it.
 

*But not really

 
Everyone wants their cut: Link

“Federal checks salvage otherwise dreadful 2020 for US farms  - Thanks to the government paying nearly 40% of their income, U.S. farmers are expected to end 2020 with higher profit than 2019 and the best net income in seven years, the Department of Agriculture said in its latest farm income forecast”

 
In my view, deficits and debt don't matter, spending doesn't matter, and taxes don't matter, but each of those things are, in some cases, proxies for things that matter.

Spending doesn't matter, but what the spending is on matters. Tax revenues don't matter, but the ability to collect tax revenues without screwing everything up through high marginal rates on productive activities matters.

Deficits and debts don't matter.

People often make erroneous comparisons between governments and private businesses. They're very different. Businesses don't get to decide what portion of its customers' wealth they are entitled to: what they can charge is limited by what its customers are willing to voluntarily pay, which is constrained by competition. So if a business undercharges its customers one year, it can't make up the difference by overcharging them the next year (or the customers will buy from its competitors the next year). But governments have much more freedom to decide how much of the country's tax base it should collect as taxes in any given year. If it has a shortfall (i.e., a deficit) this year, the foregone revenues don't just disappear. They remain part of the country's tax base, which even grows from year to year with the economy. If a government leaves $10 on the table in 2020, that $10 doesn't evaporate: it becomes $11 in 2021, and can be collected then (or deferred again).

Consider a country's tax base to be its bank account, and its tax revenues to be the amount withdrawn at the ATM. What determines whether or not some government program is affordable is the size of the government's bank account -- not the amount it withdraws from the ATM in a given year. Whether it makes the withdrawal this year or puts it off until next year isn't all that consequential, at least directly.

Taxing and spending don't matter.

Let's say the government decides that all restaurants should have wheelchair ramps installed to make their premises accessible to handicapped people. Building a wheelchair ramp costs $1,000. There are two ways the government can make this happen. First, it could tax restaurants $1,000 each and use the proceeds to build wheelchair ramps. Second, it could order restaurants to build their own wheelchair ramps.

Assuming that restaurants and governments would hire the same contractors on the same terms to build the ramps, there's no practical difference between these two plans. But there's a big accounting difference. The first one increases the government budget by a large amount ($1,000 per restaurant). The second one does not impact the government budget at all.

Pretty much all government spending is like this: whether it becomes part of the Official Government Budget or not -- and therefore whether tax revenues are required to fund it -- is really just an arbitrary accounting thing. If we look past the accounting to the underlying real-world activity, what matters is not where certain numbers go in the bookkeeping, but whether the activity itself is desirable.

In other words, if the wheelchair ramps are worth putting in, they're worth putting in regardless of whether or not the cost shows up as part of the government budget. If the wheelchair ramps are not worth putting in, it is likewise irrelevant how the accounting is done. Anything worth building because the benefits outweigh the cost, is worth building regardless of whether it's paid for by mandates or by taxes or by deficits. Deficits aren't the issue.

What matters.

Instead of worrying about whether tax revenues exceed government spending or vice versa, we should worry about whether the spending (or off-budget mandates) are on sensible things or stupid things.

And this is where proxy relationships come in. Where private incentives are aligned with public goals, government involvement may be a sign of bad policy (usually driven by special interest politics -- think coal subsidies). Where private incentives are misaligned with public goals, the absence of government involvement may be a sign of bad policy (again, usually driven by special interests -- think, perhaps, deregulation of carbon emissions). (Note that where the absence of government involvement is a sign of bad policy, that doesn't mean that government involvement is necessarily a sign of good policy -- it depends on the specifics of the involvement.)

I'm not saying that the national debt doesn't matter in any way at all. It matters because in the long run, servicing the debt requires collecting taxes. And taxes are bad especially when marginal rates are high (causing more dead-weight loss). And when we put off collecting taxes now because we'd rather defer to collecting them later, and keep doing that until we have to collect a whole bunch at once, we'll have to collect them using higher marginal rates than if we'd smoothed the collection out more over time.

So deficits can be a sign of bad things -- unproductive spending and high future tax rates. But they are only a sign, and as such, are subject to Goodhart's law. What we should care about in a direct sense are not government debt or taxing or spending in and of themselves, but rather we should make sure that government is doing its spending (and its off-budget mandates) wisely instead of stupidly ... and that can't be gleaned from budget numbers.

 
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Not to mention America's long & proud history of equivocating its way thru the worst difficulties...
Like Normandy?

Like calling the Soviet Union the "Evil Empire" and overseeing its destruction through a million cuts at its backbone?

It seems we did pretty well in the 20th Century. The 21st remains to be seen. 

 
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Like Normandy?

Like calling the Soviet Union the "Evil Empire" and overseeing its destruction through a million cuts at its backbone?

It seems we did pretty well in the 20th Century. The 21st remains to be seen. 
i never expected to shoot sarcasm over your head, old friend, but.....

 
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i never expected to shoot sarcasm over your head, old friend, but.....
Totally missed it, GB. I beg your pardon, then. I was surprised but then thought about the latter half of the 20th Century and the beginning of this one. We haven't covered ourselves in glory aside from stiffening up against the Soviets. Perhaps there's a little more truth in what you said than my reply would otherwise give credence to.

Oh well, we've had some shining examples, so not so good. 

 
Dont focus on the debt, focus on spending.  If you cant get spending under control nothing else matters.
Is this true? Isn’t there an option for citizens to pay for all the things they demand via higher taxes?

 

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