If we run deficits now, it means cuts in the future

Discussion in 'Budget & Taxes' started by kazenatsu, Nov 8, 2017.

  1. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    If you spend now more than you take in in taxes, it means spending cuts in the future.
    You'd have to be brain dead not to realize this.

    Nevertheless many in Greece were surprised and outraged when their government had to start making cuts to pay back years of budget deficits. The anger boiled over into riots.

    Well, what did these people think would happen?

    I've encountered a lot of people here who seem to think running up debt is a free source of money, and aren't the slightest bit concerned about budget deficits. "Free money", seems this is the same type of mindset that has caused many governments to go into hyperinflation.

    The two are linked. If you spend money now, it's going to mean not spending that money in the future. If you don't pay for it now, you're going to pay for it in the future, plus interest.
    That's going to mean cuts to areas of government spending.

    And if you don't pay it back, it's going to ruin the country's credit rating, and that will mean very high interest rates if the government borrows money. (It will also make it very difficult to be able to borrow money if there's ever an emergency)
     
    Last edited: Nov 8, 2017
  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Some conservatives have justified tax cuts (paid for by deficit spending) by claiming that a lower tax rate will help economic growth and have a multiplier effect. Well, if that's the case, there's a flipside to the coin they don't mention. If for some reason things don't go as planned, when that debt has to be paid back it's going to stifle economic growth.

    And we might not have so much control over when we pay it back. If there are rising interest rates, there's going to be a lot of pressure to start trying to pay down that debt as fast as possible. You see, once these debts reach their maturity date they have to be renewed, you have to find some other investor to lend the money to pay back the first. If you don't pay off that debt with tax revenue you're going to be stuck with higher interest rates, and it could be hard to find enough investors willing to lend the money.

    If the country's central bank is used as the lender of last resort, that is essentially the same as paying the interest on the loan with inflation. (It's a little too complicated to explain the reasoning and math for that here)
    In the end it mostly just cuts into the spending power of the government's tax revenue, and you don't really achieve anything.

    This was the very problem the Greek government faced in the Greek Debt Crisis, only they couldn't inflate their way out of the debt because the other countries in the Eurozone didn't want the burden of inflation shifted on them.
     
    Last edited: Nov 8, 2017
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  3. Lil Mike

    Lil Mike Well-Known Member

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    The problem is that the Bush tax cuts didn't give the promised economic boom that was promised. That suggests that unlike the tax rates in the Reagan era, in an economic sense taxes are not high enough to stifle economic growth. So I do have an issue with the current tax bill on that account. We need tax reform more than we need tax cuts. I would rather they reform the tax system but keep it revenue neutral.
     
  4. Iriemon

    Iriemon Well-Known Member Past Donor

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    Not necessarily. It could also mean more taxes in the future. Or more inflation.

    Do you not understand the huge difference between Greece, which does not control its own currency, and the US, which does?

    No beef there. It would be irresponsible to run up more debt now. Now, when the economy is doing well, we should raise taxes and pay down our huge debt, like we did in the 1990s.

    But the conservatives seem to have completely forgotten about the deficit and debt. As of Jan 20, 2017. Hypocrites.
     
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  5. Iriemon

    Iriemon Well-Known Member Past Donor

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    With the economy growing at about 3% real and unemployment at 4.1%, now is precisely the wrong time to have more stimulus (and more debt) with a tax cut. That would put the economy in danger of overheating and causing inflation, with the predictable negative consequences.

    We are doing fine without cutting taxes and revenues. The m/billionaires don't need a tax cut. Please donald/Republicans, don't **** things up.
     
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  6. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I personally believe a country using inflation to slip out of their debt obligations will hurt their credit rating as well.
     
    Last edited: Nov 8, 2017
  7. Iriemon

    Iriemon Well-Known Member Past Donor

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    I don't disagree.
     
  8. wgabrie

    wgabrie Well-Known Member Donor

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    Cut spending? Does that mean cuts, or "reform," to the Social Security, Medicare, Medicaid programs??? Because those are the ones eating the budget, and other programs are just a drop in the bucket. You can't just cut your way to a balanced budget by cutting discretionary spending.


    Anyway, I seem to remember that Pence said if the Trump tax cuts don't stimulate 5% economic growth we are never going to pay off the debt. I guess we aren't going to pay the debt off then, because there's no way tax cuts are going to stimulate the economy that much.


    The Greek thing was such a tragedy. They never saw it coming because the books didn't show a problem, but that was due to faulty accounting. When the problem was discovered everyone lost their benefits. They had no idea things were bad and then the people paid the awful price.
     
  9. Reiver

    Reiver Well-Known Member

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    You'll be telling me that you've never heard of the multiplier next...
     
  10. FreshAir

    FreshAir Well-Known Member Past Donor

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    agree, tax cuts for the rich are a mistake... it will just raise the deficit, just like the Bush Tax cuts did

    bottom up is the proper way to increase the economy, as the rich will create jobs to get that money, give the money to the rich and they already have it

    also we have to address foreign imports, if all that bottom up money goes overseas, it also doesn't help the economy
     
    Last edited: Nov 10, 2017
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  11. Reiver

    Reiver Well-Known Member

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    The trade imbalance reflects imbalance of consumption and savings (Macro 101).
     
  12. FreshAir

    FreshAir Well-Known Member Past Donor

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    agree, which is why we need the government to step in with a import tax on goods to even out the playing field
     
  13. Reiver

    Reiver Well-Known Member

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    No we don't. That just encourages protectionism. And the real victims of an unlevel playing field are the "poor South" countries. America blaming the world because of their own consumption levels takes the biscuit really
     
    Last edited: Nov 10, 2017
  14. Old Man Fred

    Old Man Fred Well-Known Member

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    Consumption is a discussion that should be at the forefront but sadly is not.

    Numbers obviously aren't as easy to track, but the individual production(such as cooking meals, gardening, preserving food, woodworking, etc) of the American household has dropped off dramatically, consumption has soared, and we wonder why we have a problem with a shrinking middle class.
     
  15. Reiver

    Reiver Well-Known Member

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    Its the nature of 'free market economics' I'm afraid. Once corrupted by such folly, any notion of optimal industrial policy is ignored. The economy becomes skewed towards short term profiteering, leading to structural flaws and over-reliance on consumption to maintain demand.
     
  16. Old Man Fred

    Old Man Fred Well-Known Member

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    I do a lot of work in sustainability, specifically waste management, and while it was a horrid affair you can't help by admire the sheer boldness and brilliance of the media campaign that got us here. At every societal shift of the 50's, the 60's, and the 70's they were there to prey on the fears and guilt of people for abandoning traditional roles. Particularly the prepared food/ready made dinner campaigns that targeted working women. "If you're at work, who's feeding your children? Kraft Dinner".
     
  17. CourtJester

    CourtJester Well-Known Member

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    Actually try looking at the history of American spending and the defecit snd you will figure out your hypothesis is nonsense. America spends more each year and the deficit kerps going up. Yes perhaps someday it may catch up with us but the pattern has held through both political parties and shows no sign of changing.
     
  18. Ndividual

    Ndividual Well-Known Member

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    FY 1988 ended with a debt of $2,602,337,712,041.16 and a debt interest payment of $214,145,028,847.73 or about 8.23%
    FY 1998 ended with a debt of $5,526,193,008,897.62 and a debt interest payment of $363,823,722,920.26 or about 6.58% (10 years later)
    FY 2008 ended with a debt of $10,024,724,896,912.50 and a debt interest payment of $451,154,049,950.63 or about 4.50% (10 years later)
    FY 2017 ended with a debt of $20,244,900,016,053.50 and a debt interest payment of $458,542,287,311.80 or about 2.26% (9 years later)

    Imagine having to pay an additional 2%, 4%, or 6% interest on our carried debt?
    To make matters even worse, I'm unable to ascertain that the interest payment applies to the total debt owed or simply to that portion held by the Public. Perhaps someone can provide a link to a government source providing an answer to that question?

    Regardless of who might be claimed to be the source of the phrase, "Nothing is certain but death and taxes" I feel it should be updated to include a number of additional certainties of increase, among them 'inflation', 'pollution', 'poverty', 'depravity' to name but a few.
     
  19. Ndividual

    Ndividual Well-Known Member

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    Social Security and Medicare are not eating the budget at all. They have their own funding mechanism, and by law cannot pay out more than they take in. They have provided government with an additional source of revenue to spend as a result of the surplus revenue they have provided in the past which must be repaid with interest, and were not shown on budget until added them to be shown in 1968.
     
  20. Ndividual

    Ndividual Well-Known Member

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    Actually it is the debt owed which keeps going up, while the deficits only grow more/less rapidly.
    The actual total debt owed by the Federal government (taxpayers actually) had occasionally seen decreases up until 1957. A list of fiscal years when the debt was decreased, the amount in $ and the % decrease from the previous fiscal year is shown below.

    ___FY_______Debt in $____% decrease
    01/01/1794 78,427,404.77 -2.4
    01/01/1797 82,064,479.33 -2.0
    01/01/1798 79,228,529.12 -3.5
    01/01/1799 78,408,669.77 -1.0
    01/01/1802 80,712,632.25 -2.8
    01/01/1803 77,054,686.40 -4.5
    01/01/1805 82,312,150.50 -4.8
    01/01/1806 75,723,270.66 -8.0
    01/01/1807 69,218,398.64 -8.6
    01/01/1808 65,196,317.97 -5.8
    01/01/1809 57,023,192.09 -12.5
    01/01/1810 53,173,217.52 -6.8
    01/01/1811 48,005,587.76 -9.7
    01/01/1812 45,209,737.90 -5.8
    01/01/1817 123,491,965.16 -3.0
    01/01/1818 103,466,633.83 -16.2
    01/01/1819 95,529,648.28 -7.7
    01/01/1820 91,015,566.15 -4.7
    01/01/1821 89,987,427.66 -1.1
    01/01/1823 90,875,877.28 -2.9
    01/01/1824 90,269,777.77 -0.7
    01/01/1825 83,788,432.71 -7.2
    01/01/1826 81,054,059.99 -3.3
    01/01/1827 73,987,357.20 -8.7
    01/01/1828 67,475,043.87 -8.8
    01/01/1829 58,421,413.67 -13.4
    01/01/1830 48,565,406.50 -16.9
    01/01/1831 39,123,191.68 -19.4
    01/01/1832 24,322,235.18 -37.8
    01/01/1833 7,001,698.83 -71.2
    01/01/1834 4,760,082.08 -32.0
    01/01/1835 33,733.05 -99.3
    01/01/1840 3,573,343.82 -65.8
    07/01/1844 23,461,652.50 -28.3
    07/01/1845 15,925,303.01 -32.1
    07/01/1846 15,550,202.97 -2.4
    07/01/1852 66,199,341.71 -3.1
    07/01/1853 59,803,117.70 -9.7
    07/01/1854 42,242,222.42 -29.4
    07/01/1855 35,586,956.56 -15.8
    07/01/1856 31,972,537.90 -10.2
    07/01/1857 28,699,831.85 -10.2
    07/01/1867 2,678,126,103.87 -3.4
    07/01/1868 2,611,687,851.19 -2.5
    07/01/1869 2,588,452,213.94 -0.9
    07/01/1870 2,480,672,427.81 -4.2
    07/01/1871 2,353,211,332.32 -5.1
    07/01/1872 2,253,251,328.78 -4.2
    07/01/1873 2,234,482,993.20 -0.8
    07/01/1876 2,180,395,067.15 -2.3
    07/01/1880 2,120,415,370.63 -9.8
    07/01/1881 2,069,013,569.58 -2.4
    07/01/1882 1,918,312,994.03 -7.3
    07/01/1883 1,884,171,728.07 -1.8
    07/01/1884 1,830,528,923.57 -2.8
    07/01/1886 1,775,063,013.78 -4.8
    07/01/1887 1,657,602,592.63 -6.6
    07/01/1889 1,619,052,922.23 -4.4
    07/01/1890 1,552,140,204.73 -4.1
    07/01/1891 1,545,996,591.61 -0.4
    07/01/1893 1,545,985,686.13 -2.7
    07/01/1898 1,796,531,995.90 -1.2
    07/01/1914 2,912,499,269.16 -0.1
    07/01/1920 25,952,456,406.16 -5.3
    06/30/1921 23,977,450,552.54 -7.6
    06/30/1922 22,963,381,708.31 -4.2
    06/30/1923 22,349,707,365.36 -2.7
    06/30/1924 21,250,812,989.49 -4.9
    06/30/1925 20,516,193,887.90 -3.5
    06/30/1926 19,643,216,315.19 -4.3
    06/30/1927 18,511,906,931.85 -5.8
    06/30/1928 17,604,293,201.43 -4.9
    06/29/1929 16,931,088,484.10 -3.8
    06/30/1930 16,185,309,831.43 -4.4
    06/30/1947 258,286,383,108.67 -4.1
    06/30/1948 252,292,246,512.99 -2.3
    06/29/1951 255,221,976,814.93 -0.8
    06/30/1956 272,750,813,649.32 -0.6
    06/30/1957 270,527,171,896.43 -0.8
     
    Last edited: Nov 21, 2017
  21. CourtJester

    CourtJester Well-Known Member

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    You are correct. That said the premise of the OP is still belied by the facts.
     
  22. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Good point. A two income household isn't necessarily better if there's not someone in the home to prepare the food and the family has to hire a childcare service, all the while the price of housing has doubled.

    If problems in society create additional costs and burdens, that just gets counted as more consumption.
     
    Last edited: Dec 5, 2017
  23. Ndividual

    Ndividual Well-Known Member

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    Please, enlighten us with the facts which you appear to feel proves the OP to be nonsense.
    Note that we accept as fact that the debt keeps going up. The deficit is easily seen as having varied upward/downward perpetually since 1958. With that out of the way what are the additional/remaining facts which prove the OP to be nonsense?
     
  24. CourtJester

    CourtJester Well-Known Member

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    Here is the first sentence of the OP:

    " If you spend now more than you take in in taxes, it means spending cuts in the future.
    You'd have to be brain dead not to realize this."

    Anyone who can find a single example of where the defecit has resulted in spending cuts is welcome to post the data.
     
  25. Ndividual

    Ndividual Well-Known Member

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    So you're saying that because spending cuts have not occurred in the past because of deficit spending, proves it cannot happen in the future?

    Suppose interest rates on our debt were to rise to what they were in the past, 5% or more?

    Someone claims they have always exceeded the speed limit by 20 or more mph and have never been ticketed. Proves they can continue to do so in the future and avoid being ticketed?
     

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