Astronuc said:
I should have been more careful in my wording. I was referring to going beyond eliminating the deficit (stopping at a balanced budget) and actually reducing the debt, which means generating a surplus and pay off the principal, not just the interest. At this point, it would have to be over decades.
Paying off the debt isn't really a problem unless the debt is large enough to the point that it literally starts hamstringing the growth of the economy (which at this point it may be). But otherwise, to shrink the debt, all one needs to do is maintain a balanced budget, achieve healthy economic growth, and the debt, as a percentage of the GDP, will shrink over time. For example, a $15 trillion debt with a $15 trillion economy is a problem. But a $15 trillion debt with say a $25 trillion economy, would be fine.
Some folks think that reducing taxes will some how free up investment which will be used to generate more jobs, and more jobs means paying more taxes while reducing unemployment payments. However, that magical thinking hasn't been working very well. It seems to me that a lot of capital has gone off-shore from where is loaned back to the US economy. Similarly the US trade balance is still in a huge deficit.
This policy could work if taxes were at restrictively high rates, but they aren't right now, so it probably wouldn't. I do wonder if reducing, or even eliminating, the capital gains and corporate tax rates could work however, as the U.S. has among the highest corporate tax rates and capital gains tax rates in the world. Since income tax rates are really incredibly low when you take in the various credits that result in 50% of the country ultimately paying no federal income tax and various write-offs and so forth, we could maybe reduce the corporate and capital gains tax rates while increasing the income tax rates back to what they were in the Clinton years. Unfortunately, this would appear as "cutting taxes for the rich while raising them for everyone else," and thus wouldn't be politically popular.
The trade deficit I do not see as a problem. A trade "deficit" is not the same as a budget deficit, no more so than a "strong" dollar is better than a "weak" dollar. Remember, during the Great Depression, we ran very small trade deficits and even a trade surplus for some of the years!
We need a strong leader who will have to change the way it's done in Washington, and frankly I don't see either presidential candidate being a strong leader or changing/fixing how Washington works. I don't this we got the 'change' we expected from the current president, hence the disillusion among many of those who were Obama supporters 4 years ago.
Most people didn't realize that Obama was not really any change from Bush in terms of government and spending, he was just Bush taken up to a new level. Real change would have been a president who implemented fiscal responsibility to our government in the form of some kind of long-term plan that would be workable. Instead we got a blatant attempt at stimulus and a big healthcare bill and thus far no serious addressing of the debt issue, which I find really shocking.
The way I see, either we change course to fiscal responsibility, or we crash at the point that the government defaults on debt/interest payments. Either we adopt austerity voluntarily, or it will be imposed exogenously. Perhaps that's a topic for another thread.
I don't think our government will ever default on our debt/interest payments, I think we will end up seeing a combo of three things:
1) Higher taxes out of necessity
2) Large cuts (that would be unthinkable and politically not doable right now) to various aspects of government
3) Inflation (which acts as a tax)
The middle income will get pounded but that's what would/will occur to prevent the country from going over a cliff.
