News What is the real reason the US is in so much debt?

[KingNothing]

I would like to talk economics. One thing that is clear to me, at least historically, is that our deficit problem transcends political party. We have been running a deficit (often increasing deficit) through generations of different political rule. Please keep the political finger-pointing out of this discussion.

Is it because of our lack of manufacturing?
Is it because we don't export enough?
Is it an issue of labor? That is, paying non-US-citizens less money than we could pay a US citizen? Is this majorly contributing to the unemployment rate?
Is it partly due to our current political state, of the richest citizens controlling elections?

 

[ParticleGrl]

Lets do some basic macro economics. The equation for GDP of a country is

Y = C+I+G+NX

This says that GDP (Y) is equal to consumption (C), investment (I), government spending(G), and how much we export (NX, net exports).

Now, we can also reason that output has to be equal to

Y = C+S+T.

This says GDP is equal to consumption+ savings(S) + taxes(T). Any dollar not spent on consumption or taxes is saved.

Putting these together, we find

(S-I) + (T-G) = NX.

Now, the US has had a trade deficit for years. This means that NX is a negative number. So, either S-I has to be negative (in which case households are accumulating debt) or G-T is negative, in which case the government is accumulating debt.

Basically, as a country, we have to be borrowing money from somewhere in order to import more than we export.

One way to think about the current explosion of the deficit is that households are saving more money and paying down debt in an attempt to get back above water. Since S is growing, and our trade deficit hasn't moved nearly that much, T-G must be becoming more negative.

Normally, a country can't run a huge trade deficit for long. Eventually the currency devalues relative to some other currencies, and the balance of trade shifts. The US dollar, however, has a unique place in world currencies, as it has been the de facto world reserve currency for decades. This makes it a. incredibly cheap to borrow money, b. hard to devalue our currency relative to others.

 

[Al68]

I would like to talk economics. One thing that is clear to me, at least historically, is that our deficit problem transcends political party. We have been running a deficit (often increasing deficit) through generations of different political rule. Please keep the political finger-pointing out of this discussion.

Is it because of our lack of manufacturing?
Is it because we don't export enough?
Is it an issue of labor? That is, paying non-US-citizens less money than we could pay a US citizen? Is this majorly contributing to the unemployment rate?
Is it partly due to our current political state, of the richest citizens controlling elections?

It's because of both parties habitually referring to massive spending increases as spending cuts. And that habit is in full force in Washington today. By both parties. I hereby point my finger at them.

Political finger pointing is the only solution. We must point at those who are destroying this nation if we have any hope to stop them.

 

[Pengwuino]

Also, keep in mind that debt is not necessarily a bad thing!

For example, up until recently students getting student loans and going into debt so that they can get a college degree has been seen as a good thing. You want to go into debt so that you can make an investment in yourself and have the value of your investment (ie a better job) pay off in a way that the debt and interest on that debt are easily afforded.

That's one reason governments can run deficits without it being a problem. If they invest in, for example, basic research, subsidizing higher education, subsidizing capital investments, then the idea is that the net gain to the country will be positive. Hopefully it'll be positive enough so that the increase in tax revenues will be more than enough to pay for your debt in the long term. The situation we're in at the moment, however, is that we're in debt trying to get more debt simply to pay for things that are not investments such as entitlement programs. No one creates a job because social security or medicare stays afloat (or well, more realistically, far more jobs would be created if the money was put into a better investment)

So we're basically in a lot of debt because historically we have simply invested a lot and more recently, have a lot of entitlements coming due. Even some of the biggest corporations in the world have debt. Check out Microsoft. They have about $8.5B in debt, but no one would claim that Microsoft is falling apart under it's debt load. Also, a large number of people have mortgages which is a form of debt and for the most part, despite the chaos of recent years, mortgage debt is a very safe debt to have.

 

[mugaliens]

The most successful Fortune 500 companies operate debt-free. Apple is a prime example. If you need to incur debt to remain afloat, that's one thing, but if you have cash reserves to cover it, that's a better thing.

 

[WhoWee]

If a married couple wants things they can't pay for out of pocket - they have 3 choices - borrow to make the purchase, do without the purchase, or do something dishonest (lie/cheat/steal). The Government has the same choices.

Now, if the husband wants to go on vacation and the wife wants to buy a car - there is a problem. Debt payments for one of the purchases MIGHT be affordable but financing both is not possible. If the couple compromises and decides to both purchase the car and go on vacation, they risk financial consequences. This happens quite often in Congress - doesn't it?

If a compromise means that both parties agree to a bad decision - who is to blame?

IMO - the real reason the US has so much debt is that WE THE TAXPAYERS have allowed it to happen.

 

[Ryumast3r]

There are a lot of reasons, and it doesn't just come down to "hey we spent too much." I mean, of course we spent more than we're taking in... that much is obvious.

A lot of our debt is because of this... oh... I don't know... TWO TEN YEAR WARS WE HAVE BEEN FIGHTING. The cost of these wars has been $1,291.5 BILLION dollars.

This equals, just for those who don't like seeing a thousand billion 1.2915 TRILLION dollars. Just in the wars alone.

This is not the only reason we have a debt issue. So, on top of the 1.3 trillion dollars from the wars, we have a revenue issue.

Many people tend to forget that many of the large corporations that are multi-billion dollar corporations do not pay a lot of money to taxes. Not even the taxes that the U.S. government says they should be paying.

Basically, it comes down to not just a spending issue, but also a revenue issue. The U.S. is simply not earning as much as it "should." Sure, you can say we need to be more "responsible" but it's also not entirely the gov'ts fault since corporations and many wealthy americans "fail" to pay taxes, or the amount of taxes that they should pay.

I would love to go on about this, but there are also so many little intricacies on top of the two relatively simple issues I brought up that I don't really wish to type it all whilst in class.

Keep in mind I am not saying "TAX EVERYONE" and am not calling for 100% taxes. Not even close. I'm just saying that people often look at this issue as "hey we spent too much, it must be healthcare, or the gov't workers wages" when really there's so many little things that add up, and a lot of big things that add up.

One small thing: The U.S. has 2x as many "supercarriers" as the ENTIRE WORLD has regular carriers. Supercarrier is defined by me as being a carrier that carries 120+ (unclassified) jets, whereas most of the world's carriers do not carry even 40 jets, and a lot of them just carry helicopters, or are dry-docked.

Things like this add up over time, even if they account for less than 1% of the budget.

 

[Triple_D]

"We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Winston Churchill

 

[Pengwuino]

The most successful Fortune 500 companies operate debt-free. Apple is a prime example. If you need to incur debt to remain afloat, that's one thing, but if you have cash reserves to cover it, that's a better thing.

Well there could be other reasons to use debt while still maintaining large cash reserves. Microsoft is the corporation I'm most familiar with and it's my understanding they maintain large cash reserves due to the continuous stream of lawsuits they've had to deal with in the past.

"We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Winston Churchill

Something the student in my physics courses seem to think is actually possible.

 

[Alfi]

A lot of our debt is because of this... oh... I don't know... TWO TEN YEAR WARS WE HAVE BEEN FIGHTING. The cost of these wars has been $1,291.5 BILLION dollars.

This equals, just for those who don't like seeing a thousand billion 1.2915 TRILLION dollars. Just in the wars alone.

This is not the only reason we have a debt issue. So, on top of the 1.3 trillion dollars from the wars, we have a revenue issue.
...

One small thing: The U.S. has 2x as many "supercarriers" as the ENTIRE WORLD has regular carriers. Supercarrier is defined by me as being a carrier that carries 120+ (unclassified) jets,
...

I don't think many American politicians are willing to talk about reducing Military budgets.
At least I haven't heard a lot of them talking about it.

well, just a bit :)
http://www.reuters.com/article/2011/01/07/us-pentagon-cuts-idUSTRE7053IR20110107

 

[talk2glenn]

The stubborn pervasiveness of myth over fact in political debate is disheartening.

A lot of our debt is because of this... oh... I don't know... TWO TEN YEAR WARS WE HAVE BEEN FIGHTING. The cost of these wars has been $1,291.5 BILLION dollars.

The total appropriation for the wars in Iraq and Afghanistan is approximately $150B per year. The deficit stands now at $1,700B. Ending these operations would reduce the deficit by ~8.8%.

This is not the only reason we have a debt issue. So, on top of the 1.3 trillion dollars from the wars, we have a revenue issue.

There is no revenue problem.

Basically, it comes down to not just a spending issue, but also a revenue issue. The U.S. is simply not earning as much as it "should." Sure, you can say we need to be more "responsible" but it's also not entirely the gov'ts fault since corporations and many wealthy americans "fail" to pay taxes, or the amount of taxes that they should pay.

How much "should" the wealthy pay? Keep in mind when looking at this graph that the highest quintile earn about 58% of the nations income. When adjusted for total share of federal taxes paid (not just the income tax), the wealthy still pay ~70%.

[PLAIN]http://www.heritage.org/static/reportimages/D1107F34466573C7624A737258E13A24.jpg

 

[AlephZero]

So far as I can make sense of economics (i.e. from practical experience) there are two basic ways that you can get economic benefit from debt.

1. Rely on inflation to wipe out the debt's value. That was the basic premise behind lending to finance home ownership (what the financial institutions did in swapping the debt between each other is a different issue). Take out the biggest loan you can afford, and after a few years the value of the debt in real terms drops by an order or magnitude

2. Continue on the path of taking out ever more debt. That works fine for people, so long as they die before they have to repay it, but it doesn't work so well for organizations with an "infinte" life, like countries. But countries can fix that by printing money and switching to option 1.

Both of these are essentially Ponzi schemes that work by creating more money from nothing. Or if you prefer, they rely on continuous exponential economic growth. Which would be a great idea, except we only have a finite size planet to live on...

 

[CAC1001]

One thing on your OMB chart though talk2glenn, keep in mind that the receipts for the years 2009 to 2011 are at what looks to be a historical low-point not seen since 1949 and 1950. The chart goes back up for the years 2011 through 2016, but those are the OMB's estimates of where tax revenues as a % of GDP should be, we don't know for sure yet.

 

[ParticleGrl]

is no revenue problem.

Look at your chart- tax receipts as a percentage of GDP has dropped to 1950s level- that's a substantial drop. If GDP remained constant (it didn't), that drop alone would increase the deficit by 3/4% of GDP.

Also, you failed to mention that GDP dropped substantially for the 2009 revenue year. The majority of the explosion of the deficit under Obama is on the revenue end.

 

[Pengwuino]

Look at your chart- tax receipts as a percentage of GDP has dropped to 1950s level- that's a substantial drop. If GDP remained constant (it didn't), that drop alone would increase the deficit by 3/4% of GDP.

Wait, are you implying that tax revenue as a % of GPD should go up as time goes on?

 

[Ryumast3r]

The stubborn pervasiveness of myth over fact in political debate is disheartening.

The total appropriation for the wars in Iraq and Afghanistan is approximately $150B per year. The deficit stands now at $1,700B. Ending these operations would reduce the deficit by ~8.8%.

There is no revenue problem.

http://upload.wikimedia.org/wikiped...Receipts_as_a_Percentage_of_GDP_1945–2015.jpg

How much "should" the wealthy pay? Keep in mind when looking at this graph that the highest quintile earn about 58% of the nations income. When adjusted for total share of federal taxes paid (not just the income tax), the wealthy still pay ~70%.

http://www.heritage.org/static/reportimages/D1107F34466573C7624A737258E13A24.jpg

(Note: Deleted img tags and a few spaces to save on space)

It's not necessarily the wealthiest single americans that need to pay more. It's the wealthy corporations and extremely large businesses.

from http://americawhatwentwrong.org/story/taxes-and-corporations/

During the 1950s, the decade in which more people joined the middle class than at any time in history — before or since — corporations paid 49 percent of their profits in taxes. Last year, it was about half that rate, a decidedly more modest 26 percent. In 2010, corporate tax collections totaled $191 billion — down 8 percent from $207 billion as recently as 2000.

Perhaps a more telling yardstick, corporate tax revenue in 2009 came to just 1 percent of gross domestic product — the lowest collection level since 1936, or three-quarters of a century ago. In 2010, it edged up to a puny 1.3 percent — the second lowest since 1940.

One thing on your OMB chart though talk2glenn, keep in mind that the receipts for the years 2009 to 2011 are at what looks to be a historical low-point not seen since 1949 and 1950. The chart goes back up for the years 2011 through 2016, but those are the OMB's estimates of where tax revenues as a % of GDP should be, we don't know for sure yet.

Also this, and the quote below.

Look at your chart- tax receipts as a percentage of GDP has dropped to 1950s level- that's a substantial drop. If GDP remained constant (it didn't), that drop alone would increase the deficit by 3/4% of GDP.

Also, you failed to mention that GDP dropped substantially for the 2009 revenue year. The majority of the explosion of the deficit under Obama is on the revenue end.

We are suffering from a revenue issue. Maybe we won't in 2014, but... this is not 2014, and those are predicted numbers. Yes, sometimes you have to cut revenue and deficit spend (see: Great Depression) in order to stimulate the economy, but that comes down to one thing that I personally believe that we are not in as horrible of a situation as some would like us to believe (doomsday/China-backed economy).

 

[ParticleGrl]

Wait, are you implying that tax revenue as a % of GPD should go up as time goes on?

No, look at his chart. Tax revenue as a % of GDP right now dropped to the lowest levels since 1949-1950. I'm implying that a sudden drop of 3-4% tax receipts/GDP is a revenue problem, especially if GDP declines at the same time, because spending is somewhat fixed.

 

[talk2glenn]

One thing on your OMB chart though talk2glenn, keep in mind that the receipts for the years 2009 to 2011 are at what looks to be a historical low-point not seen since 1949 and 1950. The chart goes back up for the years 2011 through 2016, but those are the OMB's estimates of where tax revenues as a % of GDP should be, we don't know for sure yet.

These "historical low rates" are within one standard deviation of the post-war average and are short-run outliers. Smoothing the curve (by adjusting the y-axis scale or using statistical smoothing like the elimination of outliers) will make this more clear. Further, under existing tax policy (post-Bush tax cuts) revenues have trended towards and achieved their post-war average. There is no revenue problem.

It's not necessarily the wealthiest single americans that need to pay more. It's the wealthy corporations and extremely large businesses.

I'm curious were you thing corporate income goes when it isn't taxed. Government tax policy - on businesses and individuals - has varied dramatically during the post-war period, but collections have remained basically constant.

This is because of the income and substitution effects. Changes in particular marginal rates are unlikely to have any substantial effect on federal collections, because the economy will respond by moving wealth from where it is relatively highly taxed to where it is relatively lowly taxed.

[PLAIN]http://www.ohiomm.com/blogs/da_kings_men/wp-content/uploads/2011/04/top-tax-rates-revenue.bmp

We are suffering from a revenue issue.

Pretending this can be solved by revenue, or is a due to Defense or military operations spending, requires one divorce belief from reality.

 

[ParticleGrl]

These "historical low rates" are within one standard deviation of the post-war average and are short-run outliers. Smoothing the curve (by adjusting the y-axis scale or using statistical smoothing like the elimination of outliers) will make this more clear.

What now? 'Elimination of outliers' eliminates the point you are talking about! Also, assuming that revenue as a percentage of GDP is a gaussian variable that fluctuates around some norm is silly- the major swings in the curve are changes in tax policy.

Further, under existing tax policy (post-Bush tax cuts) revenues have trended towards and achieved their post-war average. There is no revenue problem.

Even if tax revenue as a percentage of GDP hadn't declined in 2008, there would be a revenue problem JUST FROM THE RECESSION. If spending has grown at trend (as you argued with your chart), why has the deficit exploded? Because revenue is low!

Pretending this can be solved by revenue, or is a due to Defense or military operations spending, requires one divorce belief from reality.

The way to solve it is to figure out why it is growing- the answer is healthcare. Luckily, a health care reform act was recently enacted which hopes to change the trend line on health care cost growth, which will also change the trend line in spending (since the fastest growing entitlement spending is medicare)

 

[m k]

Deficit is wealth shipping out but what is its value today compared to say 80's.
My feeling is that practically everything is cheaper today.

So I'd say that US has so much debt because deficit is(or was) not showing.

 

[Ryumast3r]

These "historical low rates" are within one standard deviation of the post-war average and are short-run outliers. Smoothing the curve (by adjusting the y-axis scale or using statistical smoothing like the elimination of outliers) will make this more clear. Further, under existing tax policy (post-Bush tax cuts) revenues have trended towards and achieved their post-war average. There is no revenue problem.

What I believe me and the others who are agreeing with me are saying, is this:

The GDP declined SIGNIFICANTLY in this recession: http://www.google.com/publicdata?ds...dim=country:USA&dl=en&hl=en&q=gdp+of+us+graph

It might not look like "a lot" but a trillion dollars is 1/15 of the entire GDP, so I'd say it's significant enough.

On top of this drop in GDP (which affects income GDP, even if revenue as a percentage of GDP doesn't change it means the government earns less), the revenue as a percentage of GDP dropped by about 4%.

This is significant.

Now, NO WHERE DID I SAY THAT THIS IS ONLY A REVENUE ISSUE. I said "ON TOP OF THESE OTHER THINGS (War, one-time spending like bailouts, increasing cost of healthcare, etc), THERE IS A REVENUE ISSUE." (Caps to emphasize)

I'm curious were you thing corporate income goes when it isn't taxed. Government tax policy - on businesses and individuals - has varied dramatically during the post-war period, but collections have remained basically constant.

Corporate income tax, when not taxed, goes where it has been for the last couple years (if you look at top major corps, not a lot of them pay a dime to the gov't), which is basically back into the pockets of the CEOs, CFOs, etc.

Some links showing the intelligence of avoiding taxes or not paying as much as they "should" on the part of corporations:

http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html

This is because of the income and substitution effects. Changes in particular marginal rates are unlikely to have any substantial effect on federal collections, because the economy will respond by moving wealth from where it is relatively highly taxed to where it is relatively lowly taxed.

Mostly because the U.S. tax system is "retarded" and doesn't just outright tax. There's a lot of loopholes that people tend to exploit.

http://www.ohiomm.com/blogs/da_kings_men/wp-content/uploads/2011/04/top-tax-rates-revenue.bmp

Two things: One, this graph is only on individuals, not on corporations as well. Two: This graph fails to show that there were a lot of loophole closures between 1930 and 2010. Basically: A 90% tax rate back then didn't do anything because it was easier to get away with not paying hardly any of it than it is now with our 35% tax rate.

http://static2.businessinsider.com/...t-spending-has-soared-from-3-of-gdp-to-24.jpg

(graph about % of GPD spending going up)

Yes, spending as a percent of GDP has gone up since the 1700s. I'm not surprised since now we have things like... Roads, firefighters, policemen, a dedicated military, healthcare (which is a huge part of it, and a good reason to pass reform), education especially (which does cost a lot, but is very important).

So yeah, spending has increased, but I'd say a lot of it is for the better.

http://static3.businessinsider.com/...overnment-revenue-by-2025-freaked-out-yet.jpg

Pretending this can be solved by revenue, or is a due to Defense or military operations spending, requires one divorce belief from reality.

Like I said, it is not JUST defense or JUST revenue. I said it is a huge combination of things INCLUDING DEFENSE and INCLUDING REVENUE. It includes Healthcare. It includes government workers (I mean senators, not the lowly IRS guy who earns $10.00 an hour), it includes all these things, and yes, 1% at a time does add up, eventually, to 100%.

 

[WhoWee]

What I believe me and the others who are agreeing with me are saying, is this:

The GDP declined SIGNIFICANTLY in this recession: http://www.google.com/publicdata?ds...dim=country:USA&dl=en&hl=en&q=gdp+of+us+graph

It might not look like "a lot" but a trillion dollars is 1/15 of the entire GDP, so I'd say it's significant enough.

On top of this drop in GDP (which affects income GDP, even if revenue as a percentage of GDP doesn't change it means the government earns less), the revenue as a percentage of GDP dropped by about 4%.

This is significant.

Now, NO WHERE DID I SAY THAT THIS IS ONLY A REVENUE ISSUE. I said "ON TOP OF THESE OTHER THINGS (War, one-time spending like bailouts, increasing cost of healthcare, etc), THERE IS A REVENUE ISSUE." (Caps to emphasize)





Corporate income tax, when not taxed, goes where it has been for the last couple years (if you look at top major corps, not a lot of them pay a dime to the gov't), which is basically back into the pockets of the CEOs, CFOs, etc.

Some links showing the intelligence of avoiding taxes or not paying as much as they "should" on the part of corporations:

http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html



Mostly because the U.S. tax system is "retarded" and doesn't just outright tax. There's a lot of loopholes that people tend to exploit.



Two things: One, this graph is only on individuals, not on corporations as well. Two: This graph fails to show that there were a lot of loophole closures between 1930 and 2010. Basically: A 90% tax rate back then didn't do anything because it was easier to get away with not paying hardly any of it than it is now with our 35% tax rate.





(graph about % of GPD spending going up)

Yes, spending as a percent of GDP has gone up since the 1700s. I'm not surprised since now we have things like... Roads, firefighters, policemen, a dedicated military, healthcare (which is a huge part of it, and a good reason to pass reform), education especially (which does cost a lot, but is very important).

So yeah, spending has increased, but I'd say a lot of it is for the better.



Like I said, it is not JUST defense or JUST revenue. I said it is a huge combination of things INCLUDING DEFENSE and INCLUDING REVENUE. It includes Healthcare. It includes government workers (I mean senators, not the lowly IRS guy who earns $10.00 an hour), it includes all these things, and yes, 1% at a time does add up, eventually, to 100%.

Does your chart show public companies only, or are private corporations, LLC's and other business entities included?

 

[Vanadium 50]

An interesting feature is that the corporate rate has been constant since 1986 at 35%. (And 46% for much of the time before that)

 

[talk2glenn]

The GDP declined SIGNIFICANTLY in this recession: http://www.google.com/publicdata?ds...dim=country:USA&dl=en&hl=en&q=gdp+of+us+graph

It might not look like "a lot" but a trillion dollars is 1/15 of the entire GDP, so I'd say it's significant enough.

You're missing the point. This is not a recessionary phenomena - this is a long term spending problem.

On top of this drop in GDP (which affects income GDP, even if revenue as a percentage of GDP doesn't change it means the government earns less), the revenue as a percentage of GDP dropped by about 4%.

For two years. The decline in revenue was not ahistorical. It is insignificant, statistical noise.

Now, NO WHERE DID I SAY THAT THIS IS ONLY A REVENUE ISSUE. I said "ON TOP OF THESE OTHER THINGS (War, one-time spending like bailouts, increasing cost of healthcare, etc), THERE IS A REVENUE ISSUE." (Caps to emphasize)

This is simply not true. The Treasury is earning the same, as a percentage of GDP, today and going forward that it has always earned during the post-war period, and Defense and military spending as a percentage of GDP has been trending down since 1980.

The long-run deficits are being driven entirely by the growth in entitlement and interest spending.

Corporate income tax, when not taxed, goes where it has been for the last couple years (if you look at top major corps, not a lot of them pay a dime to the gov't), which is basically back into the pockets of the CEOs, CFOs, etc.

Forget that this hyperbolic nonsense. Give or take, 2/3 of corporate earnings are returned to households as wages, and 1/3 as profits. Those households then pay taxes on their earnings.

Historical changes in the corporate income tax rate have not been correlated with any change, up or down, in federal revenues. Overlay the sources you linked, showing declining corporate tax revenues, with the sources showing constant receipts (over GDP), and reconcile the pair. This is elementary stuff.

Two things: One, this graph is only on individuals, not on corporations as well. Two: This graph fails to show that there were a lot of loophole closures between 1930 and 2010. Basically: A 90% tax rate back then didn't do anything because it was easier to get away with not paying hardly any of it than it is now with our 35% tax rate.

Quite false. The code has in fact grown more complex over time. People simply sheltered wealth in relatively lower taxed places. Economies respond to rising marginal tax on particular forms of wealth by moving money to wherever it was cheaper; historically the wealthy held their assets on corporate balance sheets and the corporation payed for luxury benefits (avoiding personal and corporate income taxes). The Europeans had this problem; they could not achieve sustained revenues higher than 30% of GDP using traditional tax systems. That's why they have a VAT, which just taxes every activity possible in an economy. No room for optimizing.

Yes, spending as a percent of GDP has gone up since the 1700s. I'm not surprised since now we have things like... Roads, firefighters, policemen, a dedicated military, healthcare (which is a huge part of it, and a good reason to pass reform), education especially (which does cost a lot, but is very important).

So yeah, spending has increased, but I'd say a lot of it is for the better.

Reading comprehension fail. The trend line between 1790 and 1930 was constant at 3% of GDP. Between 1930 and 2010, spending has increased by 800%, and the CBO cannot predict any scenario where it does not continue to increase going forward. This is not because of roads, firefighters, cops, or soldiers (you realize that cops and firemen and about two-thirds of roadways are paid for by the states, right?). This is entirely due to the growth in entitlement spending. Every other category of federal spending (discretionary spending) has been declining over time as a share of GDP, excluding the Obama administration.

 

[Ryumast3r]

You're missing the point. This is not a recessionary phenomena - this is a long term spending problem.

I think you keep taking what I'm saying, and simplifying it down to one line of "this is only a revenue issue." That is not the case. I'm saying that this current problem is not just ONE problem. I am saying it is a conglomerate of problems, including discretionary spending (something we can agree on), and other entitlements.

I am not sure if you are saying this, but it seems more and more as we post, that you are simply saying that this is only a spending issue and that none of it could possibly be helped by finding a way to increase revenue (meaning the increased revenue would not eventually decrease revenue due to corps. moving away, etc, I mean long-term increase in revenue).

For two years. The decline in revenue was not ahistorical. It is insignificant, statistical noise.

Yes, two years. Two years in which the debt and deficit-spending has increased significantly and caused a lot of the "jump" in debt and deficit. It may be a statistical noise in the long-term, but factors like interest and things make it so that it is not so much of a statistically insignificant piece.

This is simply not true. The Treasury is earning the same, as a percentage of GDP, today and going forward that it has always earned during the post-war period, and Defense and military spending as a percentage of GDP has been trending down since 1980.

No, THIS is simply not true. Between 2000 and 2008 this is true, yes, and AFTER 2011 it is predicted to be true, but currently it is NOT true. The treasury is not earning the same as a percentage of GDP as it was 5 years ago, and on top of that, the GDP went down, so you are losing percentage of GDP and GDP.

And yes, Defense and Military spending have trended downward, and I'm happy about that, but the problem is that there was a war that wasn't included on the Defense budget that hides the numbers actually accumulated for "defense" and "security."

The long-run deficits are being driven entirely by the growth in entitlement and interest spending.

I don't think I ever disagreed with this.

Forget that this hyperbolic nonsense. Give or take, 2/3 of corporate earnings are returned to households as wages, and 1/3 as profits. Those households then pay taxes on their earnings.

I'm talking about the profits that the corporations make, profits being what they make after they pay their workers... since that is normally considered an expense, not a part of profit.

So yeah, 2/3 goes to households let's say... 1/3 of $150 billion is still $50 billion, of which the corporations could stand to actually pay to taxes (and yes, I realize some do. In fact, a lot do, but a lot also pay little/none).

Historical changes in the corporate income tax rate have not been correlated with any change, up or down, in federal revenues. Overlay the sources you linked, showing declining corporate tax revenues, with the sources showing constant receipts (over GDP), and reconcile the pair. This is elementary stuff.

I'm not talking about changing the income tax on corporations, I'm talking about them actually paying the tax. This is elementary stuff.

Quite false. The code has in fact grown more complex over time. People simply sheltered wealth in relatively lower taxed places. Economies respond to rising marginal tax on particular forms of wealth by moving money to wherever it was cheaper; historically the wealthy held their assets on corporate balance sheets and the corporation payed for luxury benefits (avoiding personal and corporate income taxes). The Europeans had this problem; they could not achieve sustained revenues higher than 30% of GDP using traditional tax systems. That's why they have a VAT, which just taxes every activity possible in an economy. No room for optimizing.

Yes, it has grown more complex, but a lot of the big loopholes have been closed. That's part of the complexity. Complexity does not just mean "how many loopholes exist" it also means "how many pages do they spend closing abstract loopholes" and "how many pages of lawyer-speak do I have to go through to get to a part I can use."

Reading comprehension fail. The trend line between 1790 and 1930 was constant at 3% of GDP. Between 1930 and 2010, spending has increased by 800%, and the CBO cannot predict any scenario where it does not continue to increase going forward. This is not because of roads, firefighters, cops, or soldiers (you realize that cops and firemen and about two-thirds of roadways are paid for by the states, right?). This is entirely due to the growth in entitlement spending. Every other category of federal spending (discretionary spending) has been declining over time as a share of GDP, excluding the Obama administration.

You say reading comprehension fail here but I've seen a lot on your part, and I believe I did not make a reading comprehension fail, just read what you wanted me to a bit differently than you thought I would. Your "fail" statement is merely you telling me that you are looking less at educating yourself and more at insulting and flaming.

Yes I do know that most roads, firefighters, police, etc are paid for by the state. That was not my point (reading comprehension fail on your part?). My point was and has always been that there is not just one issue, there are many. This includes building inefficiencies (using multiple buildings when one could be used). This includes the entitlement spending (which I believe I have not said anything about you being incorrect that it is growing... so... I don't see why you keep telling me things that I never disagreed with in the first place). This includes inefficient balance-sheet keeping (like putting the wars "off the record" so to speak).

And it also includes a revenue issue.

 

[KingNothing]

I have read everything and I would like to take a moment to thank ParticleGrl, Ryumast3r, and talk2glenn for their well-thought-out input.

So far I have learned:
-A country cannot tax themselves out of a depression
-The status of our currency on the world scene keeps it from devaluing, which would usually encourage our trade receipts to go positive again
-Interest and entitlement spending is hurting us bigtime. Eventually we will have more obligatory spending than revenue, and the world will end at that point.
-There is a revenue problem
-There is not a revenue problem

 

[Al68]

-There is a revenue problem
-There is not a revenue problem

If the goal is government power and control over people, then there is a revenue problem: there is never, ever enough.

If the goal is liberty and prosperity of the people, then there is a revenue problem: government receives far too much.

 

[Tosh5457]

The real reason for US's debt? If you're talking about private sector debt:

Households declining real wages and financial sector's heavy use of debt. The cause for declining real wages and financial's sector excessive growth is the stagnating economy, which only "grows" with debt and bubbles.

As for government's debt, it's just a matter of looking at receipts and spending, no discussion possible...

 

[WhoWee]

If the goal is government power and control over people, then there is a revenue problem: there is never, ever enough.

If the goal is liberty and prosperity of the people, then there is a revenue problem: government receives far too much.

Do we all agree short-term political decisions are a problem? A recent example - please consider in the context of current (March/April 2011 discussions of long term problems in Social Security, Medicare, and Medicaid). my bold

http://www.irs.gov/newsroom/article/0,,id=232590,00.html

"WASHINGTON ― The Internal Revenue Service today released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011.

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits."

IMO - this is insane.

 

[BobG]

Procrastination?

Of course, on the bright side, if Bill Clinton hadn't implemented policies that http://clinton4.nara.gov/WH/new/html/Fri_Dec_29_151111_2000.html , we'd be in a real tight spot right now.

Equally positive, thanks to electing Al Gore President in 2000, the national debt will be eliminated by 2012. Had we foolishly elected George Bush, the national debt wouldn't be eliminated until 2016.

Unfortunately, we made the mistake of electing Barrack Obama. Under him, we get no promises to eliminate the national debt - only to reduce the national debt by $4 trillion dollars over the next 12 years.

Putting all four promises into perspective, Obama's promise is practically equivalent to admitting our government is doomed to financial collapse.

 

[Alfi]

Re: What is the real reason the US is in so much debt?

The answer seems to be ... spend more than you make and you will be in debt. Grafts and charts and all the rest ... You seem to be arguing the 'why', and the 'how'
but the simple truth is, ( imo.. and yes .. it's simplistic. ) more out than in ... will result in debt.
My answer works for individuals, and I can't see why it doesn't work for any level up from there.

 

[ParticleGrl]

The answer seems to be ... spend more than you make and you will be in debt...My answer works for individuals, and I can't see why it doesn't work for any level up from there.

It doesn't scale up from individuals because sovereign governments have a printing press. One can imagine a world where the government doesn't tax at all, and simply prints money to pay for services. In such a world, managing the central bank would probably be more difficult (and treasuries wouldn't exist as bench marks for safe investment), but its certainly possible. On some level, we run a deficit because we choose to- we've decided its a better way to manage an economy.

Further, even if it did scale up, the analogy implies the wrong things. For an individual, increasing income is hard, decreasing spending is easy. Therefore, the obvious way to decrease a deficit is to lower your spending.

A government on the other hand can increase income easily (printing money and adjusting taxation), but cutting spending is hard- unless we can somehow reverse an aging population, medicare and social security benefits will continue to increase.

 

[KingNothing]

The answer seems to be ... spend more than you make and you will be in debt.

Thanks for breaking that down. This thread is intended to go beyond that and investigate why this is happening.

 

[WhoWee]

Procrastination?

Of course, on the bright side, if Bill Clinton hadn't implemented policies that http://clinton4.nara.gov/WH/new/html/Fri_Dec_29_151111_2000.html , we'd be in a real tight spot right now.

Equally positive, thanks to electing Al Gore President in 2000, the national debt will be eliminated by 2012. Had we foolishly elected George Bush, the national debt wouldn't be eliminated until 2016.

Unfortunately, we made the mistake of electing Barrack Obama. Under him, we get no promises to eliminate the national debt - only to reduce the national debt by $4 trillion dollars over the next 12 years.

Putting all four promises into perspective, Obama's promise is practically equivalent to admitting our government is doomed to financial collapse.

I maintain that it is OUR fault - WE The People - allow this irresponsible behavior to continue.

 

[Ryumast3r]

I maintain that it is OUR fault - WE The People - allow this irresponsible behavior to continue.

I whole-heartedly agree with this statement.

Since only like 1/2 people in the U.S. vote it's clearly a lack of will-power on our part. Admittedly, politicians could do more... but it's our responsibility as voters to make sure they do more.

(Admittedly 2004's polling numbers were 58% of the electorate that voted, but, that was also the highest percentage it has ever hit)

Re: What is the real reason the US is in so much debt?

The answer seems to be ... spend more than you make and you will be in debt. Grafts and charts and all the rest ... You seem to be arguing the 'why', and the 'how'
but the simple truth is, ( imo.. and yes .. it's simplistic. ) more out than in ... will result in debt.
My answer works for individuals, and I can't see why it doesn't work for any level up from there.

This thread was to discuss the "why" and "how." And no, for governments (see: Macro-economics, where you are thinking Micro-economics), it is not simply as easy as "cut spending, receive bacon."

Procrastination?

Of course, on the bright side, if Bill Clinton hadn't implemented policies that http://clinton4.nara.gov/WH/new/html/Fri_Dec_29_151111_2000.html , we'd be in a real tight spot right now.

Equally positive, thanks to electing Al Gore President in 2000, the national debt will be eliminated by 2012. Had we foolishly elected George Bush, the national debt wouldn't be eliminated until 2016.

Unfortunately, we made the mistake of electing Barrack Obama. Under him, we get no promises to eliminate the national debt - only to reduce the national debt by $4 trillion dollars over the next 12 years.

Putting all four promises into perspective, Obama's promise is practically equivalent to admitting our government is doomed to financial collapse.

Clinton's plan would have eliminated the debt, or at least a good part of it (taking the housing bubble and subsequent crash into account it might not have been entirely gone, but a good bit of it would've been), Al Gore didn't get elected, Bush did, and Bush caused a lot of the debt/deficit as well. People forget the two very very costly wars and the 700 billion bailout that bush made and like to put it on Obama (not saying you are, just happens to be your post that brought this one out, don't worry. :P ).

The fact is: **** happens. We got a couple towers blown up, got into a few wars, then the housing bubble collapsed. A lot of people saw the debt coming, and a lot didn't. I think Obama's viewpoint is about as reasonable as it can get in terms of how much crap we've gotten ourselves into in the last decade.

 

[Al68]

People forget the two very very costly wars and the 700 billion bailout that bush made and like to put it on Obama (not saying you are, just happens to be your post that brought this one out, don't worry. :P ).

The fact is: **** happens. We got a couple towers blown up, got into a few wars, then the housing bubble collapsed. A lot of people saw the debt coming, and a lot didn't. I think Obama's viewpoint is about as reasonable as it can get in terms of how much crap we've gotten ourselves into in the last decade.

Wanting to spend even more than Bush is a reasonable viewpoint? I say nay. I say the spending under Bush was very unreasonable, and advocating spending even more is preposterous.

 

[DrClapeyron]

Spending more is the reason. If you think it's a problem then I will tell you that a pound of gold being worth more than a pound of food is foolish!

 

[KingNothing]

I say the spending under Bush was very unreasonable

Here we go again.

 

[Al68]

Spending more is the reason. If you think it's a problem then I will tell you that a pound of gold being worth more than a pound of food is foolish!

The word "foolish" is gibberish in this context, since you're not referring to anyone's choice or decision, unless you are calling God foolish.

A pound of gold is worth more than a pound of food as a result of nature, not human choice.

 

[Office_Shredder]

A pound of gold is worth more than a pound of food as a result of nature, not human choice.

The relative value of goods is entirely a human choice. Especially something like gold over food.

If tomorrow we collectively decided gold wasn't a valuable metal, its price would plummet precipitously

 

[Al68]

The relative value of goods is entirely a human choice. Especially something like gold over food.

If tomorrow we collectively decided gold wasn't a valuable metal, its price would plummet precipitously

Nonsense. We determined, not decided, that gold is valuable. And human determinations of value are necessarily not collective. And collective determinations of price, such as by government price-setting, do not reflect the actual value of a commodity.

Of course we could collectively choose to ignore its value, possibly as a result of some epidemic mental disorder, and its price would plummet, but we were referring to what gold is worth, not necessarily its price. Gold is intrinsically worth more than food, pound for pound, regardless of its price.

 

[KingNothing]

Gold is intrinsically worth more than food, pound for pound, regardless of its price.

I disagree.

 

[Al68]

Gold is intrinsically worth more than food, pound for pound, regardless of its price.

I disagree.

Then let's make a deal. I'll trade you food for gold at a ten to one ratio, all you want.

In fact, I'll even do the same for silver.

 

[Office_Shredder]

When I said it's valuable because we say it is, I mean that it doesn't do anything. Gold doesn't get you to work in the morning, gold doesn't feed you, it doesn't house you, it doesn't help you communicate with other people. Yes, it can be used in electronics but gold is not valued because of any utility that it has, rather it's valued mostly on the basis of being rare.

Similar to how a baseball with Babe Ruth's signature is valued because it's rare - but that's only because we collectively decided that Babe Ruth is a player whose signature is desirable. It's not like god created his signature better than all others

 

[Al68]

When I said it's valuable because we say it is, I mean that it doesn't do anything. Gold doesn't get you to work in the morning, gold doesn't feed you, it doesn't house you, it doesn't help you communicate with other people. Yes, it can be used in electronics but gold is not valued because of any utility that it has, rather it's valued mostly on the basis of being rare.

Rarity is half the equation, but it does have high utility. It's a ductile, malleable, durable metal that does not rust or tarnish, in addition to being a good electrical conductor. Gold has more practical utility for many uses than any other metal. If it were not scarce, it would be used for everything from building materials to car parts to silverware instead of cheaper, inferior materials. It doesn't "do much" because it's too expensive (scarce and valuable) to use, not because it's not useful.

Do you really think humans have valued gold so highly just because it's pretty?

 

[KingNothing]

Then let's make a deal. I'll trade you food for gold at a ten to one ratio, all you want.

Deal, so long as neither of us can ever sell our products after the trade.

 

[Al68]

Deal, so long as neither of us can ever sell our products after the trade.

LOL. Deal. I'll have it made into spoons and forks and toothpicks. How many pounds you want to trade?

 

[KingNothing]

LOL. Deal. I'll have it made into spoons and forks and toothpicks. How many pounds you want to trade?

Just enough to run your stock of food to nothing, then after you starve, I will raid your place and take my gold back. Boom.

 

[Al68]

Just enough to run your stock of food to nothing, then after you starve, I will raid your place and take my gold back. Boom.

LOL. I think it's safe to say I can spare more pounds of food without starving than you can spare pounds of gold. Could be wrong, though.

But going back to the point, comparing food to gold in pounds is silly. Of course the value of food as a whole is greater than the value of gold as a whole, but you have to divide the value of each as a whole by the total number of pounds available of each to get value per pound. In other words, gold as a whole is much less valuable than food, but it's value is just far more concentrated, and takes up less volume and weight than food.

 

[WhoWee]

Well, I guess it's settled then - the US should borrow Gold and re-pay in canned goods (by weight).