Tax Cut/Tax Increase

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I've said the same thing. Obama has actually LOWERED taxes, and I doubt anyone is claiming that they have no representation in Congress (they may not like WHO they are being represented by, but that's a whole other stroy).

I also find the whole "Tea Party" thing a little ironic. They are protesting "wasteful spending", and they are doing this by buying tea and then dumping it, which seems to me to be quite a waste of money...

I agree with what you are saying. My thinking here is two-fold for why an eventual tax increase will be inevitable.

1.) The current US debt is approximately $11 trillion. That's a truck load (probably more like a train load) of debt. We cannot dig our way out of that with the current percentage the government is taking in.

2.) One of Obama's key interests is providing universal health care, and there's no extra money in the budget to do that. I cannot see how that's going to be done without raising taxes either.

 

Except the US Government is one of those "some people."

 

The government must still spend a whackload of money on services, even with severe cuts. Admittedly, bringing the boys* home and cutting defense spending would be an excellent step, but not nearly enough. The cuts'll have to be across the board. Foreign aid, welfare programs, civic programs, arts programs, all of them should be cut but imagine the outcry!! Everyone wants cuts until it affects them. It'll be brutal. Even if such drastic cuts can be made, tax hikes will have to be made somewhere.

*and girls!!

 

Aldeth, I'm not sure what your point is? Obama's response seems to be the default one according to current economic theory. Cut taxes in a recession to get the economy going again. Once it does, increase taxes to pay off the debt you've incurred. Are you suggesting that you'd rather get the tax increases now (or forego tax breaks, cut spending) in order to avoid incurring the debt? There's nothing wrong with incurring debt if it's used for a good purpose and right now it's likely essential to avoid the economy getting worse.

 

I completely agree Deise. Obama seems to have taken to only sensible action he can at the moment. Increasing taxes iright now certainly would do no good. However, I'm looking at a broader picture than this very moment. I'm assuming that prior to Obama running for re-election in 2012, this recession will have ended. Once this current economic period ends, I think it will be time to get spending under control - much like we did in the Clinton years, when the national debt was reduced, not increased.

Are you suggesting we could ever possibly put $2.6 trillion towards the debt in a single year? Especially considering some of Obama's proposals (like universal health care) will incur additional expenses on the government? Or are you literally comparing the debt to a mortgage, one which will be paid down over the course of 30 years?

 

The problem here is the American system of government -- and this is not America bashing because I love the ideals that form it. The whole system of checks and balances was designed to make it difficult for the government to accomplish things quickly. The ideal behind that was to minimize the ability of the government to interfere too much in the lives of the common people.

At least that's my understanding. I've heard the phrase by Republicans "a government so small you could drown it in a bathtub" that seems to me to reflect this desire for a small, less intrusive government.

IMHO, in practice this just deadlocks things in committees and meetings and bills being sent back and forth between the 3 big legislative bodies (House of Reps, Senate, and Presidency*) without much being accomplished**. At a time like this, this is a bad thing. The existence of "pork barrelling" and even non-porky representatives who know that supporting a particular bill might be in the best interests of the nation but giving said support for the bill will guarantee losing his seat next election.

*I'm aware that the office of the President is in fact the Executive branch and not the Legislative branch, but I use the word legislative in a broader sense in that the President does have a role in making laws, and thus he has a small "l" legislative role.

** Don't get me started on how little can be accomplished if the Judicial system gets involved and starts directing the other 2 branches to make certain laws.

 

BTA: If there was some plan to pay off the debt (as in the case of the mortgage you used as an example) then I would agree with you. Some debt may be acceptable. However, the national debt keeps increasing because all we have left at the end of the budget is to pay the interest, and sometimes not even that (the past four or five years for example). At the end of an interest-only mortgage, you lose your home (or pay it off in a lump sum).

I personally believe the government should only be willing to go into debt for a national emergency -- and then pay off that debt as soon as possible. To do anything else is simply robbing from one generation to pay for another.

 

Isn't it a matter of national security that a vast amount of the US debt is held by the Chinese? As I have understood things they have the theoretical power to completely demolish the US economy by calling in those debts.

 

Since they depend upon us to buy a lot of their products, they would trash themsleves as well.

 

The advantage with the US is and has allways be and probably will be for some time, is that they generally get their debt very cheaply, mainly because dollar is the most popular reserve currency and one used by China to artificially adjust the value of the Yuan downwards. This choice of policy forces China to keep very large currency reserves, in fact by far the largest in the world. Because euro is not so relevant to their exports they will probably stick to the dollar for now. If they choose to move to the euro or even increase the amount of euros in their reserve the situation will become somewhat more problematic to the United States and they won't be able to get loans so cheaply.

Chandos is also correct about the dependancy being two-sided. If China ever chose to push out the dollars they would destroy the credibility of that currency completely, and cause a hyperinflationary preassure which would cause a collapse in the US economy. At the same time however their own currency reserves would be worthless and the Yuan would effectively be set floating, not to mention the damage done to their exports, and other indirect effects caused by the collapse of global currency markets. However the US is banking their own future and the future of the entire economic system in the long-term stability of China. Something which might end up costing them a lot in the future.

The other big creditor is Japan which is a stable and reliable partner that benefits from lending money to the US through their big capital investments in there.

EDIT: According to economic theory the growing national deficit accompanied by the deficit in the current accounts should be unsustainable even in the medium run. However America usually is the prime example of economic theory failing, mostly because there is a lot of trust in the US economy, more so than in any other economy. Even now the US are expected to lift the world out of the global recession. As long as people believe that US are the engine of the global economy the US will basically be better off than anyone else and all economic trouble in the US will basically be shared by the rest of the world. Therefore this inbalance is not so dangerous as long as no one steps up to challenge the US economic hegemony.

 

One point overlooked is that the US owes a lot of debt to foreigners, all of which is denominated in dollars. The current stimulus plans are driving down the value of the dollar, causing a fall in the real value of any dollar loans or balances held by foreigners. This could be deliberate by the US, escaping out of its debt burden by depreciating the dollar. This would leave a lot of Asian countries pretty ticked off, particularly China. By the way, this is at the country level. Don't be expecting to see a reduction in your mortgage if you're from the US.

A government should get into debt if the benefits outweight the cost of the debt. This is most obvious for capital spending (infrastructure etc.). With current spending the idea is to go against the business cycle. As good as having no debt sounds, it's almost certainly inefficient. Not that I believe politicians srutinise cost benefit analysis calculations for everything but in theory you would always expect a government to have debt, even if just for capital spending.

 

Well, the Chinese are not going to get that ticked since their own monetary policy is mostly about keeping the Yuan cheap compared to the dollar, therefore when the US press down the dollar the Chinese respond by pressing down the Yuan. The ones suffering from this are Europeans (because of the strong Euro) and countries with currencies bound to the dollar which will suffer from increased exchange rate volatility and the possible prospect of having to devalue their currencies. I personally don't think that the US are trying to intentionally pay off their debt by letting the dollar devalue, they just prioritize fixing the economy over fixing the value of the currency, and since the position of the dollar in the world markets is so strong they are most likely doing the right thing.

 

I didn't mean they'd be annoyed for trading purposes. What I meant was that the hige stockpile of dollars they already have, in cash and loans given out, will be worth less as the dollar falls. The dollar would need to fall a lot more for this to be a grave concern though, it's not something that would happen soon even if it does happen.