The chances of a default are roughly equivalent to an invasion of Florida by the Cuban army. So the Republicans who bring up default or hyperinflation are either stupid or dishonest. Or both.
Now, as for the OP, it is pretty much on the mark. The debt for the most part doesn’t affect the average taxpayer, and is being used as a scare tactic by hypocrites. The perfect illustration is that as important as the deficit is, it is not important enough that letting tax cuts for the rich expire should be allowed to reduce it.
But a word about California. The debt isn’t really the major issue - and our wonderful initiative system, in other words the people, are responsible for most of it. California, like other states, has to balance its budget. The problem is the gigantic dive in tax revenue that is a result of having too large a portion come from income and sales taxes, which decrease a lot in a recession, and less in property taxes, which are more stable. There is also the problem of propositions which limit the flexibility of the government in changing priorities, and the fact that things which should be local, like schools, go to Sacramento and get shipped back to the districts - or held to reduce the state deficit. The state debt is relatively low on the list of things which are screwed up here.
David Johnston lays out a pretty compelling case in his books Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat Everybody Else and Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) that you are wrong.
The income tax scheme in this country has nothing to do with fair, and everything to do with the rich buying votes from politicians.
Look, for example, at Warren Buffet, one of the richest americans: He pointed out that his 17.7% tax rate was considerably lower than the 30% rate his secretary paid.
More notes about this on the freakonomics blog:
I particularly like Buffet’s challenge:
We can argue about what “fair share” means, and you’ll keep pointing that the rich pay a bunch of money – which is absolutely true, they pay a bunch of money since the system is rigged to give them lots of money.
In particular, I’ll claim that the defense budget benefits large shareholders in multinational corporations much more than it benefits the poor. For that “government benefit” alone, they should be footing a bigger share of taxes.
Why the name calling? I didn’t know that “invasion of Florida by the cuban army” was an economic benchmark. So can we just stop worrying about the debt? How about we also stop paying taxes and just simply fund all of our expenditures with debt backed by the full faith and credit of the U.S. Government?
Does the national debt, and continued deficits, have the potential to result in palpable harm to the average tax payer? So those posters mentioning some of the potential outcomes which will have an adverse result on the average taxpayer are untenable in your estimation?
While the chances of default are, in your opinion, are infinitesimal, they still exist, and with them come consequences, and the average taxpayer need not worry about those consequences?
If the average taxpayer is a knowledgeable investor and keeps a close eye on his portfolio, then I would agree that the average tax payer does not like the uncertainty of debt, and his actions would be reflected in the stock market (among other areas). Lack of investment capital (movement) is one of the chains keeping this economy down.
However, I highly disagree with the notions that hyperinflation and default are nothing to worry about. The average investor (and by that, I mean someone who has no real understanding of the economy) will realize that his services aren’t selling as much as he would like, that home prices are deflated, and that he can’t get any loans. If this lack in confidence in the US economy continues, and threat (not actual) of default looms larger, then we will see interest rates spike and inflation. The 1970’s should be a constant reminder of what to expect.
Right, which is why independent bond raters keep talking about lowering the U.S. credit rating.
http://www.nytimes.com/2010/03/16/business/global/16rating.html
http://wallstreet.blogs.fortune.cnn.com/2010/07/13/dagong-show-china-hammers-u-s-credit-rating/
It happened in Greece, it’s happening in Ireland and Portugal, it can happen here. We don’t get exempted from the laws of mathematics or supply and demand because we are Americans.
It’s a democracy.
Sort of.
Anyway, how can you believe that the fact that national debt is abstract, and meaningless to the vast majority of the citizens would imply that it wasn’t politically imperative that we do something about it right away?
Why do you hate freedom?
Tris
The problem with all this is that Warren Buffet (or Bill Gates or Steve Jobs or whoever) make up an infinitesimal percentage of “the rich” whose taxes support this country. Even the Forbes 400 is a tiny percentage.
Things have gotten to the point now where people making $250,000 a year are considered, for tax purposes, rich. This amounts to millions of people being brought under the umbrella of “the rich” and you can safely bet that they aren’t benefitting from tax write-offs and loopholes in the same way that Buffett or the Forbes 400 do.
As I said above, a flat tax (without loopholes and write-offs, which I neglected to mention ablove) is the only truly fair and equitable method of taxation. That way, if Warrent Buffett makes ten thousand times more money than Joe Blow, he pays ten thousand more in taxes than Joe Blow. Easy-peasy, fair and square.
And without write-offs and loopholes (which are created by the government anyway, whether as a result of undue influence by individual wealth or in order to stimulate spending in various areas of the economy) the wealthy would hold no advantage when it comes to the amount of tax they pay. If the tax rate were 15% and Buffett made $100, 000,000, he’d pay $15,000,000 in taxes. Period.
Of course none of this will ever come to pass because the government wants to be able to stimulate investment in various areas of the economy through write-offs and loopholes, and because it would leave politicians without the ability to use class-envy and promises to “soak the rich” in order to provide voters with benefits paid for by somebody else .
Three observations as to why almost all of the preceding discussion is laughable:
(1) Nondiscretionary spending. If you know what it is, you know what I’m talking about. If you don’t, I’m not surprised.
(2) Unfunded mandates. If you know what it is, you know what I’m talking about. If you don’t, I’m not surprised.
(3) Suez crisis. If you know what it is and any details of what happened, then you know what I’m talking about. If you don’t, I’m not surprised.
Rots of ruck, Amelicans.
But you must compare the cost of the deficit in pain to the average taxpayer against the alternative. Say we decide to balance the budget, or at least drastically cut back on spending. That money is going somewhere, and the people getting it, either through jobs or unemployment, will spend even less, and those of us who don’t get money directly from the government will suffer too as demand tanks even more and more private business cuts back. Sure investors will have some more money, but what the hell are they going to invest it in? So you are comparing a small chance of a problem in the future versus a very great chance of a problem today. Remember, Herbert Hoover didn’t let the nation get into debt. That sure helped from 1929 - 1933, didn’t it?
Invasion of Florida is a probabilistic statement, not an economic benchmark. And I used it because there was a movie based on this scenario.
The time to care about the deficit is in times of economic prosperity, when high employment means you can cut back on welfare and such because there will be jobs for people who want them, and a little push doesn’t hurt. Today, when there are five people per job, isn’t that day. If the Republicans had cared more about the deficit when they were in power, we wouldn’t be starting from such a hole.
In any case I assume you support the end of the tax cuts for the wealthy, since you care about the deficit, and it will help. I don’t think nearly as much as gonzomax said, but it will help.
The average taxpayer is not a knowledgeable investor. We all know that when the average investor starts to buy, it is time to sell. However, do you think the lack of investment is from lack of capital, or from lack of good investment opportunities?
I definitely do agree with the importance of confidence. But don’t you think that the uncertainty that those who are still employed are going to stay that way far outweighs concerns about hyperinflation and default - and especially if they are just being brought up by rabble rousers, not impartial economists.
I lived through the '70s, and while I would hardly call that hyperinflation as compared to Germany in the '20s and Zimbabwe today, I did finance the buyer of my house at 12.5% interest because he couldn’t get a loan anywhere near that low. What are mortgage rates today?
FDR said there is nothing to fear but fear itself. I think it behooves the Republicans to stop hurting the economy by fear mongering. If people don’t buy things they can afford because they are afraid that the deficit is going to kill their mamma, that is less demand, fewer jobs, and less need for investment. And all for no reason.
Your first link is from March. And yet the yield on bonds goes down. The second is from some Chinese rating agency. The note said nothing about why these people are credible, what their track record is, and if there is lead in the rating.
Do you have the slightest understanding of what the real problems with Greece were? First, they have a public sector much bigger than ours. so things aren’t comparable. Second, their trade has been badly hurt by being in the Eurozone, which prevents them from devaluating their currency and increasing exports. So Greece doesn’t worry me a lot. Not being Greek, I mean.
Suez crisis? You still pissed that Ike made the Brits go home or something? The other two items I can vaguely see the point of.
Well that’s kind of pointless and even a little bit rude and pretentious isn’t it?
(1) This is Great Debates. If people already truly know what you are talking about, then they probably agree with you and you haven’t contributed anything to the debate. If they don’t know, but you refuse to tell them, you similarly have contributed nothing other than appearing to want to appear clever and mysterious.
(2) This is The Straight Dope. Where we fight ignorance, not contribute to it.
OK spending that is legally mandated. So? Are you saying this portion of the budget is the biggest contributer to the debt? Or the fact that it’s harder to modify is an obstacle to preventing debt?
Is this your solution to debt? That we legally require everyone to provide themselves with their own services without funding?
This one is particularly out of your ass. Are you saying that if we don’t take care of the debt, we’ll have to sell government property and then get involved in a war over it?
Seriously, your point is obscure. You seem to be saying simultaneously that 1) It’s very hard to control debt, 2) It’s very easy to control debt and 3) There will be catastrophic consequences to not controlling the debt.
The deficit is what is going to destroy this nation. How in the hell is this country going to continue servicing a $11 trillion dollar deficit? Each person in the USA owes $37,000 dollars to this deficit.
The dollar is declining rapidly. Remember when a hundred dollars was a lot of money? A dollar is worth only 66% of a dollar from 1993 (the first year of Clinton). Has your salary gone up 2/3rds in the last 15 years or so? If the US Dollar has gone down 1/3rd, someone else’s currency just went up the same. 人民币很好！
The USA is fighting too many wars abroad while our political leaders at home as given away the stores. NAFTA flushed all the working class manufacturing jobs overseas while literally millions of foreign invaders enter the USA, while citizens are chaffing under 15-20% unemployment. Who pays the taxes for all of this? The rich wont pay it, and the “poor” are stealing it, so it is the working, middle class are paying for it.
Ah, but take a gander at how Ike twisted the Brits’ arms into going home . . .
Points taken, jackdavinci, but I truly am convinced that any “Great Debate” over this issue on this board, and probably with the public at large, is futile at this point. Financial illiteracy is just that great. What someone was saying upthread about “how we need to stop spending like a drunken sailor” and everything will be hunky dory illustrates this: they’re laboring under the illusion that discretionary spending has any tangible impact on debt levels at this point, when it doesn’t. The debt will be ballooning on autopilot from now on, with no human intervention whatsoever, and will do so at an accelerating pace until the US government is forced to default on some range of its obligations.
But try telling that to anyone. I’ve tried, and I’m tired of it. So I’ll just be cryptic to anyone who doesn’t follow basic economics.
Did you follow the link I posted? The author had the same question, and shows that the ‘merely well-off’ (top 10%) are doing pretty well (“benefitting from tax write-offs and loopholes”). We all know the poor don’t pay much. Where you really don’t want to be is in the ‘middle class’…