scarykitties on 1/1/2013 at 22:46
I'm probably going to regret this.
Since desiring to be an "informed voter" this past year, I've been paying attention to the news and trying to damnedest to understand what is true and what is false, but I often feel like I just don't know which side is correct, with each shouting that the other are a bunch of morons who are ruining the country.
Hopefully I can finally figure out what is what, here.
Okay, so, the American fiscal cliff stuff. There's (
http://money.cnn.com/2013/01/01/news/economy/fiscal-cliff-senate-bill/index.html) a deal at the moment that allows the Bush tax cuts to expire for individuals making over 400,000 or married couples making over 450,000, increasing top rates from 35% to 39.6%. Additionally, capital gains taxes are increasing from 15% to 20% for high-income households (those above the 400,000/450,000 mark).
The intention of these tax increases is to raise an additional $600 billion over the next 10 years in revenue (an additional $60 billion per year) to fight the US deficit (which, according to the (
http://www.usdebtclock.org/) US National Debt Clock, at the time of me writing this, is around 1,087 billion).
This would effectively reduce the deficit from 1.087 trillion to around 1.027 trillion, a decrease of about 6% of the deficit. That is (
http://www.youtube.com/watch?v=ucoP4-06O7M) assuming that increased tax rates actually result in higher income.
In the current form of the bill, there are little to no spending cuts. It seems that the assumption is that the deficit can be taxed away by increasing tax rates on the rich, when (
http://www.youtube.com/watch?v=FC5Gkox-1QY) this doesn't seem to be realistically practical. The only way that it seems possible to truly fight back the deficit (
http://www.youtube.com/watch?v=p0RkWqyn1y4) is through entitlement reform, yet that is shunned.
From news articles I've read and the comments I've glanced at, it seems that most are of the opinion that a 6% (theoretical) increase in revenue through increased taxes on the wealthy is a great deal (in spite of there being little actual revenue gained) and that the demand to reform entitlement and cut spending is an insane request. To me, this seems entirely backwards. What am I missing?
Furthermore, the financial crisis seems like (
http://www.youtube.com/watch?v=ID4xay5RITY) a problem that will balloon over time if the deficit isn't handled now, while interest rates are low, yet I've heard many say that lowering spending now would be insanity. Why is that?
I'm being genuine, here--I'd really like to be educated on this matter, since I hear so much back-and-forth, but the way the majority seems to think seems contrary to what makes sense in my mind. I'd really appreciated an explanation of what I'm missing or why one side is wrong and the other is correct.
Phatose on 1/1/2013 at 23:29
The thing about government spending is that it's actually pretty closely tied to the mechanism for government income. The government makes it's money by having the people in the country spending their money.
If a government were to be considered akin to a factory, what it produces is movement of money within it's borders. Income taxes, production taxes, tariffs - pretty much all of the government's income - is entirely tied to making money move.
The practical upshot is that any money the government spends within it's borders is basically an investment in it's income. Welfare, for example - the government gives poor people money, which they spend on necessities (or not). The spending requires employment of people to make those necessities - the government will make some of that money back on income taxes from the people making what the welfare is spent on. Of course, now those people also have an income, which they'll also spend - producing more jobs, and thus more income for the government and so on.
So if we say "OK, we're going to cut welfare, and save a billion dollars", we'll keep that billion - but we lose any and all money that would've come in from the jobs that money created, all the way down the chain. Worse, you not only lose the direct benefits of all the money movement that would've happened from the money itself, but the cut sends a message itself "Times are bad, save don't spend" - and that's real bad because having people not actually using their money slows down the economy even more. Saving your money for a rainy day means that money isn't being used to build homes, products, food, anything. That's real bad for everybody.
That's the underlying theory to deficit spending as I understand it. I might be wrong here, and if so I'm sure one of out economics experts will be along to correct it.
scarykitties on 1/1/2013 at 23:51
Quote Posted by Phatose
The thing about government spending is that it's actually pretty closely tied to the mechanism for government income. The government makes it's money by having the people in the country spending their money.
If a government were to be considered akin to a factory, what it produces is movement of money within it's borders. Income taxes, production taxes, tariffs - pretty much all of the government's income - is entirely tied to making money move.
The practical upshot is that any money the government spends within it's borders is basically an investment in it's income. Welfare, for example - the government gives poor people money, which they spend on necessities (or not). The spending requires employment of people to make those necessities - the government will make some of that money back on income taxes from the people making what the welfare is spent on. Of course, now those people also have an income, which they'll also spend - producing more jobs, and thus more income for the government and so on.
I think that I understand what you are saying, but I'm not sure if that is actually how it works or not.
Correct me if I'm wrong, but if unemployed people receiving entitlement checks and spending that money drove the economy, wouldn't the best economies come from taxing everyone at 100%, then give them a government check of a certain amount to spend as they please, guaranteeing money circulation?
The reason why it's hard for me to believe that unemployment entitlements can be counted as investment spending by the government is because all that money is either being taken from someone else (who could just as well spend it themselves) or (as is the case right now, since we're in debt) it's being loaned from the federal reserve. So, what's happening, so far as I see, is that the government is taking out a loan and then giving that money to people to spend. I can see how that would theoretically improve the economy because you're injecting money, but doesn't that both create inflation (which nullifies the point of having that extra money moving around in the first place) and create a ballooning debt that must later be paid off (at the expense of future individuals who will not reap any of the benefits of the loan-based money hand-outs)? In other words, stealing from the future to pay the present?
Phatose on 2/1/2013 at 00:15
Well, no. It's a balancing act. Any increase of tax does, as noted, take away money from someone else, and takes away an impetus to actually produce things - which is required. But neither of these effects are straight lines - so it's a matter of finding the sweet spot.
A couple of other details. For one, if we assume we're taking money from someone else to pay for that welfare, the question isn't "Could they have spent it?" but "Would they have spent it?". I rob Peter to pay Paul - but if Paul was going to buy a gold bar with that and toss it in his basement, while Peter's going to live off it, it's a net gain.
If this causes inflation, then we have to ask "Is the cost of that inflation greater then the benefit of the money moving around?" If it's not, then we're better off having the inflation and the money moving then having the money stopped, and no inflation.
On an odd aside, I'm not actually convinced inflation is really necessarily bad. It actually seems to push people towards reinvestment - if you just hold on to the money, it loses value over time. Plus, particularly with dealing with loans it means if I borrow money to pay back in 5 years, the money I pay back in 5 years is worth less then what it was now. Means taking out loans for investment is a good idea - and that's exactly what we need. Every dollar spent eventually amounts to people actually doing stuff, building, creating, etc.
There's one other piece - in particular, the question of borrowing from the future to pay for today. The thing is, I actually thing that the people in the future DO receive benefits from this, just not directly. Get the money moving, people create factories, devices, ways of growing additional food or buttons that cause orgasms, etc, etc. That benefit keeps on benefiting ever body down the line - the quality of life improvements affect pretty much everybody forever (well, unless something stops them).
Now, how does this all add up? Beats the fuck out of me. This is so unbelievably intricate, you'd need 5 times my educations, and likely longer then my lifetime to really understand it.
scarykitties on 2/1/2013 at 00:23
I'm interested in hearing more from others, but thanks for your insight!
Quote Posted by Phatose
Well, no. It's a balancing act. Any increase of tax does, as noted, take away money from someone else, and takes away an impetus to actually produce things - which is required. But neither of these effects are straight lines - so it's a matter of finding the sweet spot.
Yeah, that makes sense. I suppose then it just comes down to an ethical argument of whether taking from one to give to another is justified if it benefits the masses, which isn't a question that can be answered by numbers or facts.
Incidentally, I wonder what that sweet spot is. I suppose it varies a lot based on personality, location, history, etc., but I wonder what the average "maximum" amount of money to own while still spending liberally and not saving or wasting the money is. At some point, you've got so much money, you can't possibly spend it all (or you wouldn't are to), and on the other end, you'll run out of money before you've run out of wants. Though I suppose that wants will always grow to be more than what can be bought, just as a matter of human nature.
Quote Posted by Phatose
On an odd aside, I'm not actually convinced inflation is really necessarily bad. It actually seems to push people towards reinvestment - if you just hold on to the money, it loses value over time. Plus, particularly with dealing with loans it means if I borrow money to pay back in 5 years, the money I pay back in 5 years is worth less then what it was now. Means taking out loans for investment is a good idea - and that's exactly what we need. Every dollar spent eventually amounts to people actually doing stuff, building, creating, etc.
I don't know. I've always thought of it as a bad thing, since it's a struggle to keep ahead of the ballooning costs, and it won't necessarily encourage more spending now, since some may be more motivated to save even more to deal with the rising costs of tomorrow.
CCCToad on 2/1/2013 at 02:00
I'll read the rest of the discussion later, may be informative. But THIS stood out to me.
Quote:
The only way that it seems possible to truly fight back the deficit is through entitlement reform, yet that is shunned.
Not true. Republicans have been screaming to cut entitlements for some time....and it was Obama (you read that right, Obama) who was the first person to suggest cutting Social Security.
scarykitties on 2/1/2013 at 04:03
Quote Posted by CCCToad
Not true. Republicans have been screaming to cut entitlements for some time....and it was Obama (you read that right, Obama) who was the first person to suggest cutting Social Security.
I'm anxious to hear your response.
Aren't Social Security and Medicare (or is it Medicaid? I get the two confused) set to balloon out of control unless they've been reformed to be more long-term efficient?
I suppose that if revenue increases are coupled with spending cuts that don't touch entitlement, the deficit could be tackled without touching entitlements, though that may mean (
http://www.youtube.com/watch?v=p0RkWqyn1y4) a lot of cuts in other important areas. Still, spending cuts are (in my mind, anyway) undoubtedly necessary at least somewhere, yet it seems that Congress seems wholly unwilling to consider any real cuts.
Phatose on 2/1/2013 at 06:00
There's actually a good bit of debate over whether Medicare is actually more efficient then private insurance. Thing is, even if we somehow were to manage to make it 100% efficient, we'd still be up a creek because of the demographics. Same with social security - the big costs are that the US population is getting older. Something like a 15% growth in population over 65 vs 10% population growth.
More efficiency is always good to shoot for - but if we're going to save these programs, we're absolutely going to have to cut benefits.
The recipients of those benefits are pretty powerful politically. They vote, and cuts are a sure-fire way not to get their votes. They paid into those programs their entire lives, so yeah, that pisses them off.
Wonder how much of our budgetary problem is due to people living longer.
scarykitties on 2/1/2013 at 08:44
Quote Posted by Phatose
Wonder how much of our budgetary problem is due to people living longer.
A good chunk, I'd say. These days, people can live about a quarter of their life on social security. So one takes about a quarter of their life to prepare for work, half of their life working, and a quarter of their life in retirement. It's not particularly efficient.
I absolutely agree that benefits will have to be cut, though I think that they can be cut for future beneficiaries while still paying current social security members what they've already been promised.
It won't happen any time soon, though, because when a politician hears that his/her opponent is for reducing future social security/medicare benefits, out comes the whole granny off a cliff thing.
