The Solvency Deniers

Intrepid reader Stan is right to be offended by the blame game. The question is not who is to blame, but what to do about it. Cherished interlocutors Donald, Bill, and A.I., seem convinced that there is no solvency crisis and that the fault for the solvency crisis belongs solely to the Republicans. The latter is adolescent; the former, pathological.

President Bush does share a lot of blame for the present crisis, along with Republicans who weren't the least bit shy about spending when they held Congress. However, Bush isn't President anymore. I underline that for Bill's benefit. Obama is president and he continued Bush's economic policy. That means he owns it.

As for the reality of the crisis, if this one isn't real it is difficult to imagine what a real one would look like. Europe is headed for a major financial meltdown. It doesn't look as though there is any realistic chance of avoiding that now. What is the cause? Let me suggest that it isn't Republicans. It is the simple fact that one European government after another can't pay its debts. There is reason to suspect that China is headed for the same kind of disaster.

The U.S. still enjoys a cushion in so far as our Treasury Bonds are the last refuge of world capital. That ought not to be reassuring. It ought to be terrifying. Our debt is now, for the first time since WWII, equal to the GDP. Does anybody think that, absent serious reform, it won't continue to grow? If the CBO's more realistic scenario is indeed realistic, we will indeed be where Greece is now in a couple of decades. Perhaps I need to reproduce the CBO's ominous chart.

What happens in the short term if Europe does meltdown? They buy a quarter of U.S. exports. What happens in world capital markets do lose confidence in Treasury Bonds and there is no safe refuge left?

The U.S. has to put its fiscal house in order. Even if ObamaCare paid for itself (it doesn't) and Social Security were fixed (it hasn't been), these programs soak up enormous resources that can't be used for anything else. Meanwhile, Medicare and Medicaid are out of control.

It is a case of world class irresponsibility to pretend that we can solve the solvency crisis without reforming entitlements. Yes, we are going to have to have tax increases. We are also going to have to reduce the size of the welfare state. Anyone who refuses to recognize this is estranged from reality.

Comments

[Stan Gibilisco]

The Bowles-Simpson commission produced a good plan, in my opinion. So did Paul Ryan. The government will need more revenue, and it will also have to spend less, not just for awhile, but permanently.

I continue to believe that we have a government "of, by, and for the people" in the United States of America, even if at times it doesn't seem that way. If we all live within our means and stop expecting to get stuff for less than it's worth, we'll have gone a long way to mitigating the malaise. As the plankton go, there goes the whale (and Captain Ahab, I guess, but that's for another rant).

Lots of people say that we emulate our politicians, and if we manage our money in a stupid way, it's all their fault because they set the example. I say the opposite: We elect politicians who'll try to give us what we want, and in the past few years, too many of us have expected more than the economic cosmos can give.

[Stan Gibilisco]

Well, another of my cherished illusions just died. I thought that China might offer us a good example of how we should manage our money. 'Tain't so.

http://www.foxbusiness.com/markets/2011/08/07/chinas-debt-problem-worse-than-portugal-1014895568/

[duggersd]

Stan, I could not agree with you more about the government needing more revenue and spending less. Just how much less do you propose? Personally, I would like to see a cut back to 2008 levels. When you say raising revenues, do you mean raise taxes? I don't. I mean the economy needs to increase. When the economy does well, the revenues do well also. Witness the large increases in revenue during the Reagan years coming out of recession, the Clinton years coming out of recession, and the Bush years coming out of recession.
Ken, when you say Obama continued Bush's economic policy, just what do you mean? If you mean he doubled down on the deficit spending, OK. Are you comparing the Medicare drug policy to ObamaCare? I hope not. Surely you do not mean extending the Bush tax policy. He has already said that needs to go. I think doubling down on deficit spending is not continuing an economic policy.

[George Mason]

The problem with Obama is he has no plan, no ideas and obviously not a clue. He has abrogated his responsibilities to the dems in congress. This is why the stimulus was not only a failure (it was doomed anyways)but such an awful mess of misguided priorities. The failure to address the big three spending mandates, Medicare, Medicaid and Social security is the cause of the bond rating downgrade. Obama and the dems address the bond rating by shooting the messenger. Then they wonder why the markets decline. The best line yesterday came from the WSJ: "Why is Obama trying to disarm the fire alarm instead of fighting the fire."

[Bill Fleming]

Chaos.

S&P downgrades our credit rating. The stock market panics and dives out of the market into... wait for it... T-Bills, thus increasing the deficit.

It's just plain goofy. I'm done trying to figure it out. KB thinks those charts about the future are right. I say we can't even predict what's going to happen in the next 10 minutes. Such is the nature of chaos.

How about this. Print some money, pay off the goddam debt, shut the hell up, and get to work creating jobs.

Might as well do it in one fell swoop, because that's what were going to do anyway.

How's that for a little crystal ball work, KB?

[Bill Fleming]

Now.. I predict KB will say my post above is absurd. And if he does, I will reply, yes it is. I gould have jst as well have randomly said, "Who farted?" But Samuel Beckett already used that line in "Waiting for Godot."

For the bible readers, let me remind you that God forgives everything but despair. And that goes for athiests as well.

Amen.

[Stan Gibilisco]

Dugger,

Fundamentally, I'd like to see government minimize its power and scope to levels originally intended by the people who wrote the Constitution. Increased revenue should come from a healthy economy.

The other day, Bill O'Reilly said that when the Bush tax cuts took effect, revenues increased (his figures amounted to a roughly 50% rise). Then he went on to advocate a flat tax and a "small national sales tax," both of which I oppose. Both taxes are regressive, and a "small national sales tax" would rapidly evolve into a massive value-added tax, or VAT (a fact that Mr. O'Reilly evidently can't or won't come to grips with).

Not bitten, not shy.

I get deeply suspicious of anyone who advocates making our tax system more regressive than it already is. Yet, isn't it true that roughly half of the households in America pay no federal income tax at all? No wonder so many people want to "tax the rich more"! Just as long as it's not them!

I can't imagine how we'll ever be able to get into the black without a tax increase of some sort. While I despise the VAT for its regressivity, its complexity, and its tendency to encourage funny business on the part of those fortunate souls who can afford to hire the best international business lawyers, I sense that, within the next 20 years, that's exactly what we will see.

God help those bright young people today who have in mind the radical notion that they can guide their own destinies!

New revenue in the form of higher income taxes or a VAT will do nothing but pull us out deeper, for the government will see it as a brand new cash cow unless a sea change occurs in everyone's attitude, and that goes right down to Dick and Jane and Paul and Linda ...

If we're going to end up like Europe (and I'm afraid that we will), let's emulate the ones who do it right: the Germans, the Swedes, the Danes. the Swiss. They live within their means. Even the Canadians do it better than we.

[George Mason]

Unfortunately Bill is on to something. The Fed is proposing QE3 which means printing more money and leaving the Fed rate at close to zero. The artificially low interest rates of the Greenspan and now the Bernanke era are one of the main causes of the 2008 meltdown. These low rates encouraged debt, which combined with the CRA (Fannie and Freddie) mismanagement, led to the bank crisis. Obama and the dems decided this was a good time to greatly increase the public debt to go along with all the private debt. We may very soon see Carter like inflation.

[Jimi]

Donald,

"What the Republicans didn't seem to realize is that the higher paid union workers voted Republican. Those voters have switched."

How'd that vote go in Wisconsin! I thought for sure that all your advocation against the evil Republicans was going to work, and the voters in Wisconsin would come to there senses and vote back in the Mommy Party majority.

It seems the voters in Wisconsin know what's best for them!

[duggersd]

Stan, have you ever looked at the Fair Tax? That is a national sales tax of 23% inclusive. In the bill, the 16th Amendment would have to be repealed and the IRS abolished. It includes a "prebate" for the average living expense of the average family. It has some interesting concepts. Some might call it regressive, but when you consider the prebate for food, shelter, etc. the poor wind up paying almost nothing. This includes payroll taxes as well. It would also get a lot of the underground economy that has income not taxed. They still purchase things in the store. Worth thinking about.

[Bill Fleming]

Would you tax stock transactions, DuggerSD? How about when somebody buys mortgage paper? Advertising space? TV air time? Exactly which things things that get bought and sold get taxed?

[duggersd]

According the the bill, Bill, the only thing taxed are retail transactions. If you buy a new car, it is taxed. If you buy a used car, it is not taxed. I would suggest you consider reading the Fair Tax book... http://www.barnesandnoble.com/s/fair-tax

[Bill Fleming]

For goods and services, right? Which "services?" That's what I'm talking about. I don't want to read he book I want you to answer the question, duggerSD.

[duggersd]

Bill, do your own research. The book is not very big and has decent size print and the words are not very big so I am pretty sure you can understand it. Or go to fairtax.org to have your questions answered. I am not an expert, only read the book and have been intrigued. There is a bill in Congress if you want to read that. Answer the question???!!!??? Coming from Mr. Obfuscate himself???!!???

[Bill Fleming]

I have read the FAQ's on the website, DuggerSD. When they say tax everything, they mean exactly that. All prices go up on all services delivered to the end user. How come you didn't know that?

[duggersd]

Bill, you are a little slow here. The prices will not go up because the taxes that are already built into the products will be gone. The actual costs will be about where they are. How come you cannot understand that?

[Bill Fleming]

There is no tax built into advertising in SD right now, duggerSD. Advertising is exempt. Looks like my clients would have to pay 25% more for my services and for their TV ads than they do now. Definitely those buying their own ads would. No more personals or classifieds, I guess, huh?

[Stan Gibilisco]

The Fair Tax is intended as a retail sales tax. It's collected only once: at the final point of purchase. Intermediate sales (such as sales for resale) are exempt, as they are in most sales taxes. (It is not a value-added tax or a gross receipts tax.)

See ...

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#1

All that said, this plan will never become reality, in my opinion. We would find it easier to eradicate the common cold, than to abolish the IRS.

The great danger is that a national sales tax (or, more likely, a value-added tax) will get piled on top of the existing tax structure, creating a whole new bureaucracy, a whole new IRS, a whole new category of tax cheats, and not one bit of improvement in the life of any Americans, except for lawyers and tax preparers.

And the debt will only get worse, as an alcoholic, given the keys to the liquor store, falls deeper into the abyss.

Forgive my cynicism, but in the current political climate, a lack of cynicism would constitute legal insanity.

[Bill Fleming]

I agree, Stan. The Fair Tax is going nowhere, basically because it would be really unfair.

[duggersd]

Bill, your clients paying tax on this is just a way to make it more fair. You seem to want rich people to pay their fair share, well this would be that chance. I believe it is exempt from state sales tax and still would be. However, since you would not have to pay income tax, it would actually come close to cancelling out the fair tax. As for being unfair, it would be nice if you explained that.
Stan does have a point in that it probably will not be enacted because it would require government to give up some power and that is unlikely to happen.
In the current system, 48% of the people pay $0 in federal income tax. The top 1% pay 38% while earning 18% of all of the income (2005 numbers). So what is fair?

[Bill Fleming]

What's fair is that my clients (or anybody else) not be taxed on exercising their right to free speech.

[Bill Fleming]

...as in "I'm sorry, Mr Barns, but if you want to run that ad supporting Rush Limbaugh's freedom of speech, you're going to have to pay 25% more now, because Rush doesn't want to pay income taxes any more.)

[duggersd]

Bill, I really do not know what Rush has to do with this discussion. He really has not said much about the Fair Tax proposal, except he pretty much agrees with Stan. I have not heard him say he does not want to pay any taxes. And what does advertising have to do with freedom of speech, even if it is political speech? Candidates have to pay for paper, why not advertising? Yes, you are a typical liberal who does not mind other people paying taxes, but when it might affect him, well that is a different story. Regardless, it is an interesting idea and I believe it has some merit. So is it fair that the top 1% pays 38% of income taxes? And the bottom 48% pays 0%? Actually, under the Fair Tax proposal, things would be about where they are not anyway according to the figures. Try to stay on topic. And perhaps you should read it before you demagogue it.

[Stan Gibilisco]

For the record, I'm not particularly fond of the fair tax.

[Mark Anderson]

Ah, Ken, why not bring up military spending? Why didn't you?