Issue discussion: Deficit and national debt

[UNCatTech]

The other board got so bad with the name calling and disinformation that the good discussions about actual issues seemed to fall to the side.

I would like to discuss the deficit and the debt. It seems to me that even if we can print money, we still need to address this issue.

I understand that COVID is a reason it increased substantially in the last 5 years, but it's been steadily going up since Reagan.

How are corporate taxes involved here? It seems like reducing the corporate tax rate from 35% to 20% reduces revenues, but did those companies produce more and have increased taxable income? (Is that the right word?)

How much is owed to Americans?
How can we balance the budget and start to reduce the debt, or does it matter?
It seems like we could do a lot of things for people with the money that is used to service the debt.
Would it be worth cutting defense spending to balance the budget and lower the debt?
Should we reduce money that goes out to other countries until we can get the budget and debt back to a manageable place?

What are your opinions?

 

[mpaer]

Should we reduce money that goes out to other countries until we can get the budget and debt back to a manageable place?
Less than 1% of the budget consisitently is Foreign Aid (Bloomberg)
Given the nature of the world-my goodness we need some friends everywhere
And I would add a lot of our For Aid requires American Steel, American engineers etc

 

[05C40]

. . ., but it's been steadily going up since Reagan. . . ..

No. It dropped during the Clinton Administration. Since then, both Democratic Presidents had to pull the country out of the catastrophes their Republican predecessors created and had to focus on stabilizing the country. My recommendation would be to elect a Democratic President and give her a Democratic Senate and House. Then we will see progress towards balancing the budget.

 

[mpaer]

21.8% of the public debt, or $6.87 trillion, is owned by another arm of the federal government itself. That includes Medicare; specialized trust funds, such as those for highways and bank deposit insurance; and civil service and military retirement programs. But the biggest chunk of those “intragovernmental holdings” belongs to Social Security. As of the end of January, the program’s retirement and disability trust funds together held more than $2.8 trillion in special non-traded Treasury securities, or 9% of the total debt. (For many years, Social Security collected more in payroll taxes than it paid out in benefits; the surplus was required by law to be invested in Treasuries. That made Social Security, for a time, the federal government’s single biggest creditor.)

 

[SmilingJack]

Democrats are the only ones that seem to embrace my dad's macro/micro economic theory that "If your out-go exceeds your income your upkeep will be your downfall!"
Simple theory based on reality.

 

[mpaer]

Democrats are the only ones that seem to embrace my dad's macro/micro economic theory that "If your out-go exceeds your income your upkeep will be your downfall!"
Simple theory based on reality.

Flashbacks to my Ex wife

 

[superrific]

No. It dropped during the Clinton Administration. Since then, both Democratic Presidents had to pull the country out of the catastrophes their Republican predecessors created and had to focus on stabilizing the country. My recommendation would be to elect a Democratic President and give her a Democratic Senate and House. Then we will see progress towards balancing the budget.

The deficit declined under Clinton. The debt did not. Not even close. The debt can't decline in nominal terms without running a surplus, which we haven't done for a very long time. There was a projected surplus in 2000 but it did not materialize because the economy slowed down.

In real terms, the debt can decline without running a surplus. The importance of the debt -- i.e. GDP : Debt ratio -- can decline without a surplus. The debt itself cannot.

Edit to add: this entire post is mistaken. The debt did decline, because the budget was in surplus multiple years in a row. I cannot believe I misremembered this so badly. I'm not even sure how it happened, but the facts are the facts.

 

[superrific]

Democrats are the only ones that seem to embrace my dad's macro/micro economic theory that "If your out-go exceeds your income your upkeep will be your downfall!"
Simple theory based on reality.

To be honest, this sounds more like GOP-style derp. "We need a balanced budget 'cause that's how my household lives." Of course, most households do not; most households have debt but whatever.

The country does not need a balanced budget. We just need to make sure the finances don't spiral out of control. You are correct that the Dems are the only party interested in actually doing that right now, though the GOP talks a big game about it.

 

[Zoo_View]

To be honest, this sounds more like GOP-style derp. "We need a balanced budget 'cause that's how my household lives." Of course, most households do not; most households have debt but whatever.

The country does not need a balanced budget. We just need to make sure the finances don't spiral out of control. You are correct that the Dems are the only party interested in actually doing that right now, though the GOP talks a big game about it.

Minor “correction” - the GOP talks a big game about the deficit when a Democrat is in the White House.

 

[mpaer]

How can we balance the budget and start to reduce the debt, or does it matter?
Well the whole tax system. Folks can increase their wealth , by say 100 billion dollars-and if they don't sell their stock they have Zero taxes on that wealth accumulation.

 

[SmilingJack]

Super I so appreciate you and your didactics. Your ability to be both educational and empathetic is a rare trait. I know it's kind of like you thinking perhaps you're high on the spectrum when at 66 years old I found out I was ADD. You are absolutely correct and I'm remiss by not also saying his other line he followed it up with was "If the tenant farmer's are stealing from you you're not paying them enough!"
He was a yellow dog democrat who I climbed telephone poles to put Galifinkis signs up well before the Hangover! That said I'm hoping to see Kamala between the ferns.

 

[farce©]

I can still hear that campaign song:

N is for Nick, Nick Galafianakis
I is for his Integrity
C is “Come Join Us”
K he knows how

Put Nick in the Senate in Washington DC

 

[UNCatTech]

No. It dropped during the Clinton Administration. Since then, both Democratic Presidents had to pull the country out of the catastrophes their Republican predecessors created and had to focus on stabilizing the country. My recommendation would be to elect a Democratic President and give her a Democratic Senate and House. Then we will see progress towards balancing the budget.

I thought that they balanced the budget for a short period of time, but that the debt never fell? I know there was a surplus projected, but I thought when W took over it went back to increasing.

Well never mind, guess I was mistaken. A quick google shows that it did fall at the end of the Clinton years.

Fiscal Data Explains the National Debt

Check out @FiscalService Fiscal Data’s new national debt page! #NationalDebt

fiscaldata.treasury.gov

 

[UNCatTech]

21.8% of the public debt, or $6.87 trillion, is owned by another arm of the federal government itself. That includes Medicare; specialized trust funds, such as those for highways and bank deposit insurance; and civil service and military retirement programs. But the biggest chunk of those “intragovernmental holdings” belongs to Social Security. As of the end of January, the program’s retirement and disability trust funds together held more than $2.8 trillion in special non-traded Treasury securities, or 9% of the total debt. (For many years, Social Security collected more in payroll taxes than it paid out in benefits; the surplus was required by law to be invested in Treasuries. That made Social Security, for a time, the federal government’s single biggest creditor.)

Thanks, I'll have to read some more about this.
This is what also makes some of the debt harder to understand, at least for me. We're basically saying here that the government owes itself. So, if the government didn't pay itself here would that tank SS or would it just push the SS cost into another bucket?

 

[UNCatTech]

Democrats are the only ones that seem to embrace my dad's macro/micro economic theory that "If your out-go exceeds your income your upkeep will be your downfall!"
Simple theory based on reality.

But, I've read several economic articles that say the government budget is not like our household budgets. Being able to print money changes that. I've also read one economic theory that basically disregards debt. I know it's more nuanced that that, but I can't recall enough details. I'll have to look it up after work.

 

[heelinhell]

Last time I checked over 70% of our national debt is owed to ourselves...

 

[UNCatTech]

To be honest, this sounds more like GOP-style derp. "We need a balanced budget 'cause that's how my household lives." Of course, most households do not; most households have debt but whatever.

The country does not need a balanced budget. We just need to make sure the finances don't spiral out of control. You are correct that the Dems are the only party interested in actually doing that right now, though the GOP talks a big game about it.

And as discussed previously, there's good and bad debt. I believe a common misconception is that the government budget is just like a household budget. Even my minimal knowledge understands that there are considerable differences.

How can we balance the budget and start to reduce the debt, or does it matter?
Well the whole tax system. Folks can increase their wealth , by say 100 billion dollars-and if they don't sell their stock they have Zero taxes on that wealth accumulation.

We can discuss more, but in general why would we pay taxes on the purchase of stocks before we sell them and receive the benefit?

 

[superrific]

I thought that they balanced the budget for a short period of time, but that the debt never fell? I know there was a surplus projected, but I thought when W took over it went back to increasing.

Well never mind, guess I was mistaken. A quick google shows that it did fall at the end of the Clinton years.

Fiscal Data Explains the National Debt

Check out @FiscalService Fiscal Data’s new national debt page! #NationalDebt

fiscaldata.treasury.gov

You might have gotten that incorrect info from me. I've been messed up on this point for a while now. Not sure where it went wrong.

 

[CLT Heel]

Last time I checked over 70% of our national debt is owed to ourselves...

I vaguely remember this as well. In one of the classes I took for my mba, the prof made a point to correct misperceptions about the national debt, and why it is not nearly the problem that people try to make it out to be.

I also remember that a point was made that a lot of our foreign debt is owed to countries who also in turn owe US a lot of money as well. While it may not completely cancel each other out, it would result in me giving you $10 that I owe you, and then you giving me $7 back that you owed me. Those debts don’t come off the books just because they cancel each other. But people only look at the debt side, not the total back and forth.

Now, it’s been a looong time since that class, so I may not have everything exactly right, but I distinctly remember walking away from class with my mind blown that the National debt is really not a problem.

 

[superrific]

We can discuss more, but in general why would we pay taxes on the purchase of stocks before we sell them and receive the benefit?

Well, a few reasons.

1. First, often stocks are never sold. When you pass the stock to your heirs, it's not considered a realization event. In fact, the heir gets a stepped up basis. So let's say you buy a stock for $10 and when you're on your deathbed it's $100. If you sell it, you'd need to pay cap gains tax on $90. But if you die and leave it to your kids, not only do they not have to pay, they get a cost basis of $100. So if then goes up to $200, they only pay cap gains on the $100.

This particular issue could be solved, in part, by eliminating stepped-up basis.

2. Second, there's a way really rich people can turn stocks into cash without paying tax: namely, they can borrow money and pledge their stock as collateral. This is what Larry Ellison does -- he has like $40B or some crazy amount of Oracle stock, and then he borrows money from Oracle secured by some of that stock. So he gets to live like a king tax-free (and he does!). Eventually Ellison will just default on his loan and the company will seize back his stock, but you see, he's never sold it. He got all the cash.

Now maybe the tax code recognizes that gain when the company kept the collateral upon a default and there is tax due at that point. I don't know. That's a question for tax pros. But he will have gotten 30, 40 years of enjoying cash pulled from his equity without paying a dime in taxes.

This problem could be rectified by my pet tax provision (I came up with this myself but I would be utterly shocked if I was the first; there's probably a small literature on it), which is to treat a pledge of securities as a realization event. So if you borrow against your stock, first you have to make the government right. Now, maybe you only want this rule for certain income or asset classes -- maybe it's only a thing if the amount of stock pledged is greater than a million or something like that.

3. Or, we could just kill lots of these issues by taxing gains on year to year based on stock appreciation. It doesn't have to be yearly; maybe the appreciation would be measured every three years, or on a rolling basis, to smooth out the gains and not create situations where someone pays a lot of tax in a year when the stock shoots up, and then has to claim the tax back if the stock depreciates. But these are details and weeds that can be worked out.

It would also be applicable only to large stock holdings. And if we did that, then the stockholders could raise the cash needed to pay the tax by borrowing against the stock. You know, what they do now, except instead of buying the largest yachts ever made (like Ellison), they could contribute a little to the federal budget.