U.S. Credit Downgrade - Who is to blame?

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The SS change is forward looking - for all those baby boomers who are going to be retiring in droves starting a few years from now. You're right that SS isn't a big problem now, but it will be five years from now. As the current economic problems show us, waiting until the problem has arrived is not the best time to deal with it.

I agree with you on some professions being able to continue working longer than others. However, even in the current system, the amount you get is based on how old you are when you start collecting benefits. With SS, you can start collecting as early as 62 - but you get considerably less than if you wait until you are older. It caps at age 70, and AFAIK, they don't take what you're profession is into account.

It is true that it would keep workers in the workforce for a few more years, which may mean it would be harder for younger people entering the workforce to find work - but it a way, that's exactly the point of it. By making people work for a few more years it makes them be on SS for a few years less. All told, I think it would be a temporary problem. The baby boomers are going to start to retire in droves in the next decade, and that's going to happen whether the retirement age is 65 or 70. There will be demand for workers to fill those positions one way or the other.

SS really wasn't reformed in the 80s. They fiddled with how much you had to pay into the system, and the percentages you got back, but the basic structure with the age 62 minimum and age 70 maximum was in place prior to any of the reform done then. And you also always got more per year if you waited longer to start receiving benefits. That's why I think that making people wait until they are 70 isn't a huge deal on the workforce. The government is already incentivizing you work until you're 70 by giving you more if you wait.

 

We don't have a revenue problem we have a spending problem. I've been hearing about a guy on CNBC who has been saying something like this (I haven't actually heard it yet, so I'm paraphrasing what others are saying about it).

"If my wife goes out and starts spending 30% more than she did last year, it isn't my responsibility to go out and get a part time job. It is her responsibility to stop spending more than I make".

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Didn't someone once say that the downfall of Democracy will be when people realize they can vote for what they want and force others to pay for it?

 

All this is just avoidance. So is all this talk about who should pay and who should not. The rich benefit greatly from government spending and they should pay their share. When they have a great portion of the wealth of the nation and only pay 15 percent in taxes, then something is very wrong. Really, it's not rocket science.

For all those war mongers who love our huge military and overseas operations, let's start cutting spending right there. How about it? Let's end the war on drugs and all the other bull, including immigration enforcement, that costs tax payers so much that they can't afford to educate their children.

Ok, let the excuses start rolling in now.

 

It wasn't the fact that we failed to do "enough" that caused our downgrade -- if that were really the case, the S&P would have been swayed (or at least shamed into backing down) after it was pointed out that they made a $2 trillion error in their accounting. After all is said and done, we were downgraded because we seriously considered defaulting on US debt. Was it the democrats or mainstream republicans seriously entertaining default as an option? No. It was the Tea Party, which is why they are to blame for the downgrade.

 

It's an often-said phrase (I think politicians on the right love it) but I'd say it's partially wrong, not to mention misleading. Normally, spending and revenue "problems" are two sides of the same coin - you don't earn enough to pay for your expenses. You can either earn more (which a state does by taxation) or spend less. It becomes an issue of which is more beneficial, or rather, less harmful.

Do note, however, that normally revenue increases slightly as the economy and the population (thus taxable base) both grow. Yet in the last several years, this was very much not the case: in the 2008 US budget, revenue was estimated at 2.7 Trillion USD. Three years later, in the 2011 one, it wass estimated at 2.17 Trillion USD - a fall of some 25%. That is a problem, and a big one. In fact, that's about the same ratio by which spending has grown - from around 3 Trillion to 3.7 Trillion USD. A lot of the change in both can be explained with the 2008 economic downturn - but to say that neither is a problem is almost laughable. Just what kind of business, or family, or anything would consider a 25% decrease of earnings "not a problem?"

By the way, the revenue is also falling with respect to the GDP. At present the revenues as percentage of the GDP are at just under 15% - a rate notably lower than anything since the 1970s.

It's a bit worrying, when you look at, say, the CBO table. Budget revenues more than doubled in the 70s and almost doubled in the 80s and 90s. The last 10 years certainly have been quite the outlier.

 

Well, here's the thing. If you're going to increase the amount of money collected in taxes, it makes sense to increase taxes on people who, you know, actually have money.

 

And while our politicians continue to place their heads in their asses playing the blame game, it appears that a further downgrade may be on the horizon:

link

 

The article I linked above references exactly that point, and it's as much a function of how the S&P does it's ratings. The short version is this when it comes to their ratings - past performance does influence future results. Once you get downgraded the next chance is far more likely to send you lower rather than higher. The reverse is also true - when you get upgraded, the next change is far more likely to send you higher than lower.

 

How can they "create jobs" if they have to pay taxes?

 

Interesting article:

http://www.startribune.com/opinion/otherviews/126863123.html

I have no idea who the "Tax Foundation" is so really can't verify the accuracy of their claims. By the way, the "15% in taxes" is only for capital gains. Income tax is quite high at the top of the food chain.

I also found this interesting ... although I don't know who the National Taxpayers Union is or really how "unbiased" they are.

http://www.ntu.org/tax-basics/who-pays-income-taxes.html

But the page does show that the top 1% of the wage earners payed 38% of the overall tax income for 2008 -- which is pretty much on par with what I remember reading before.

 

Around here I think the really big earners pay up to 70-80% in tax. It still leaves them very comfortable. If you have three cows and give away one you only have two cows left to feed your family, if you have 3000 cows and give away 2000 you still have a thousand cows left, that is a whole lot more than two even if you gave away both a larger number and a larger share.

Oh and Snook, what if the wife spends the money on diapers, food and medicine for your sick child? Isn't it about time you get an extra job then?

 

No, really they don't. But I guess that's one way to look at things...

T2B - I based the 15 percent on the "super rich" comment made by Warren Buffett recently during an interview. But here's an intersting article on the topic as well.

http://www.thedailybeast.com/newsweek/2011/05/01/an-empty-offer-from-the-super-rich.html

 

I could not help but think of BTA's comment when I read this:

http://www.salon.com/news/politics/war_room/2011/08/09/scarborough_column/index.html

 

Not necessarily.