7
   

why does congress exaggerate the national debt?

 
 
cicerone imposter
 
  0  
Reply Wed 28 Jan, 2015 11:00 am
@revelette2,
Just stating the obvious. Not my problem.
parados
 
  3  
Reply Wed 28 Jan, 2015 12:28 pm
@cicerone imposter,
We currently have some of the lowest taxation rates as a percentage of GDP since Ww2. The only time we balanced the budget in the last 40 years our taxation as percent of GDP was much higher than it is now. If our current tax rate was the same percent of GDP we would be close to balancing our current budget.

Congress doesn't exaggerate the debt. They exaggerate how high taxes are. The last time we balanced the budget we had higher tax rates and a booming economy.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205
cicerone imposter
 
  1  
Reply Wed 28 Jan, 2015 02:56 pm
@parados,
That's because congress favors the rich; trickle down theory of conservatism.
Obama made excellent points about revising our tax code, but with the majority conservative congress, it ain't gonna happen.
0 Replies
 
puzzledperson
 
  0  
Reply Wed 30 Sep, 2015 05:59 am
@Rickoshay75,
There are really two components to the U.S. national debt:

(1) Debt to the public

This includes U.S. Treasury securities held by entities other than the U.S. government, including individual and institutional private investors, U.S. states, counties and municipalities, foreign countries, foreign individuals, foreign central banks, and foreign private investment funds. In other words, this includes everybody that can cash in a Treasury IOU upon maturation. So this is the category that really counts and it is much smaller than the total national debt.

(2) U.S. Government debt held by the USG itself.

In 1983, payroll taxes were raised so that these tax collections were larger than the outgoing payments on Social Security and Medicare benefits. As this cash surplus was spent (because the overall US budget was still in deficit) the federal government wrote itself IOUs for these spent surplus tax collections, in the form of "special Treasury securities" -- very special, since they're just an accounting gimmick and can't be redeemed. This part of the debt doesn't really matter.

Democrats don't clarify this because to do so requires admitting a lot of funny accounting involving very big and very popular programs; Republicans share this motive but also find it useful to exaggerate the debt to scare others into supporting spending cuts. Also, outside of committees specializing in such matters, many in Congress may not understand such distinctions.

Another often overlooked point is that much of the increase in debt in recent years has been purchased by the Federal Reserve as part of its "quantitative easing" programs. Though the Fed is counted as part of the "public" (see above) it is really a quasi-federal entity and won't hold the U.S. over a barrel like, say, China could. For this reason, even "debt to the public" is an exaggeration of U.S. debt obligations.


0 Replies
 
puzzledperson
 
  0  
Reply Wed 30 Sep, 2015 06:39 am
@revelette2,
The debt has never been paid down. Even after WW II when the debt had grown enormously because U.S. war spending required deficits that are gigantic even by today's standards (when viewed relative to the size of the economy), there was no paying down of the debt. The government made sure that the debt grew slower than the economy grew, so that debt as a percentage of GDP decreased, even though the size of the debt in dollars didn't decrease, but actually increased over time. The old debt outstanding was simply rolled over, by selling new debt as the old became new.

The real burden of the debt comes from interest payments to those holding Treasury securities. But as debt shrinks as a percentage of GDP those interest payments become smaller as a percentage of federal revenues (tax collections), which means that more of the money the government collects can be used for purposes other than interest payments. Of course, an increase in interest rates can make interest payments on the debt higher, too.

So, instead of paying down the debt, it can instead be managed so that it grows slower than the economy most of the time. During serious national economic emergencies, like the Great Recession and its aftermath, that isn't always possible.
0 Replies
 
puzzledperson
 
  0  
Reply Wed 30 Sep, 2015 06:44 am
@Rickoshay75,
Also note that the debt has never been paid down. Even after WW II when the debt had grown enormously because U.S. war spending required deficits that are gigantic even by today's standards (when viewed relative to the size of the economy), there was no paying down of the debt. The government made sure that the debt grew slower than the economy grew, so that debt as a percentage of GDP decreased, even though the size of the debt in dollars didn't decrease, but actually increased over time. The old debt outstanding was simply rolled over, by selling new debt as the old became new.

The real burden of the debt comes from interest payments to those holding Treasury securities. But as debt shrinks as a percentage of GDP those interest payments become smaller as a percentage of federal revenues (tax collections), which means that more of the money the government collects can be used for purposes other than interest payments. Of course, an increase in interest rates can make interest payments on the debt higher, too.

So, instead of paying down the debt, it can instead be managed so that it grows slower than the economy most of the time. During serious national economic emergencies, like the Great Recession and its aftermath, that isn't always possible.
0 Replies
 
puzzledperson
 
  -1  
Reply Wed 30 Sep, 2015 07:02 am
There are really two components to the U.S. national debt:

(1) Debt to the public

This includes U.S. Treasury securities held by entities other than the U.S. government, including individual private investors, U.S. states, counties and municipalities, foreign individuals, foreign states, and foreign private investment funds. In other words, this includes everybody that can cash in a Treasury IOU upon maturation. So this is the category that really counts and it is much smaller than the total national debt.

(2) U.S. Government debt held by the USG itself.

In 1983, payroll taxes were raised so that these tax collections were larger than the outgoing payments on Social Security and Medicare benefits. As this cash surplus was spent (because the overall US budget was still in deficit) the federal government wrote these IOUs to itself in the form of "special Treasury securities" -- very special, since they're just an accounting gimmick and cannot be redeemed. This part of the debt doesn't really matter.

Democrats don't clarify this because to do so requires admitting a lot of funny accounting involving very big and very popular government programs; Republicans share this motive but also find it useful to exaggerate the debt to scare others into supporting spending cuts. Also, outside of committees specializing in such matters, many in Congress may not understand such distinctions.

Another often overlooked point is that much of the increase in debt in recent years has been purchased by the Federal Reserve as part of its "quantitative easing" programs. Though the Fed is counted as part of the "public" (see above) it is really a quasi-federal entity and won't hold the U.S. over a barrel like, say, China could. For this reason, even "debt to the public" is an exaggeration of U.S. debt obligations.
cicerone imposter
 
  1  
Reply Wed 20 Jan, 2016 11:08 pm
@puzzledperson,
Another issue of interest is inflation. The US government continues to print money at a greater rate than the CPI. How do they manage that?
cicerone imposter
 
  1  
Reply Wed 20 Jan, 2016 11:17 pm
@puzzledperson,
What do you think is a good way to 1. decrease government debt, and 2. stimulate our economy?
puzzledperson
 
  1  
Reply Thu 21 Jan, 2016 03:43 pm
@cicerone imposter,
As for economic stimulus, see my comment here:

http://able2know.org/topic/228366-1#post-6076915

(Nothing to wade through: there is only one page.)

As suggested by my comments in the current thread above, I think the best way to manage the national debt is to allow it to shrink as a percentage of GDP without worrying about reducing its size in dollars.
0 Replies
 
puzzledperson
 
  1  
Reply Thu 21 Jan, 2016 04:10 pm
@cicerone imposter,
Inflation, as measured by the CPI, is extremely low and has been for years.

If you're asking why several rounds of "quantitative easing" by the Federal Reserve didn't cause inflation, that's a good question. I haven't come to any definite opinion but I can point to several things:

(1) When the Fed "prints money" that way, it doesn't actually print paper money, much less spend it in the economy. It creates money by giving banks additional reserves. Reserves determine how much money banks can loan. So theoretically they should be able to spread the wealth by increasing the number of outstanding loans. But the credit crisis that caused the banking crisis has caused banks to tighten their lending standards; and also, businesses seek loans if they want to expand their businesses or start new one, and they only expand or create new businesses when consumer demand increases sufficiently. (Would you double the number of business branches and the number of employees, if your business income hadn't grown much and had little prospect of doing so? No.)

So because economic conditions have been weak, demand for loans has been weak, and when it exists, banks may be reluctant to extend loans anyway. Unlike small business, large corporations are flush with cash, and besides, they often raise money through non-commercial bank financial sources, rather than commercial bank loans. Since the Fed created additional reserves for commercial banks, most of these excess reserves sit around idly (i.e. existing only on the books).

This is only my amateur attempt to grapple with the problem, however. There is much I don't understand, and things that remain mysterious or even nonsensical. So I offer this because you asked, and maybe to start further discussion.
cicerone imposter
 
  1  
Reply Thu 21 Jan, 2016 04:26 pm
@puzzledperson,
I think you have a pretty good handle on the issue. From my observation, it seems the wealthy continues to get wealthier, but they don't need to spend any more than earlier times. They just accumulate more wealth, and demand for goods and services remain stagnant. The other issue is the pay structure of our economy that have seen very little increases during the past decade.
There are many American companies with lotsa cash, and many offshore it to the Caribbean to save on taxes. Apple computer is rich; they're now building an office building, Campus 2, less than one mile from where we live, and is spending $5 billion to build it. We get to see the construction progress almost every day, and they have now started installing some huge windows. Most of the framing seems to be finished. It's going to be an architectural marvel when completed. I believe a UK architectural company designed it.
puzzledperson
 
  1  
Reply Thu 21 Jan, 2016 05:29 pm
@cicerone imposter,
cicerone imposter wrote: "From my observation, it seems the wealthy continues to get wealthier, but they don't need to spend any more than earlier times. They just accumulate more wealth, and demand for goods and services remain stagnant. The other issue is the pay structure of our economy that have seen very little increases during the past decade."

I think the two are related. If your consumer needs (goods and services) are already met, and your income increases, the excess is used to bid up the value of notional assets (e.g. stocks, commodity futures) or concrete but speculative assets (e.g. real estate), which further increases wealth on paper while fueling speculative asset bubbles.

Meanwhile, the income share used for these purposes doesn't go to the wages and salaries of those whose incomes are low enough to leave plenty of unfulfilled consumer needs.

Between the two, consumer demand stagnates.

During the 2000s insufficient incomes and lack of real wage growth was made up for by spending on credit as well as by dividends associated with the housing bubble (cash out refinancing, home loans and lines of credit, and capital gains from home sales). When the housing bubble burst and the credit crunch hit, it put an end to these unsustainable supplements to stagnant and declining real incomes. The only way forward is to increase real wages or to ease consumer lending sufficiently to enable the same unsustainable cycle to recur.

cicerone imposter
 
  1  
Reply Thu 21 Jan, 2016 06:34 pm
@puzzledperson,
I see it a little differently. The more consumers are able to buy goods and services, it increases demand that translates into more jobs. The biggest problem during the past decade and more is that wages have in kept up with inflation. The middle class has been getting squeezed to the point many are now getting food stamps. Unless the middle class income increases at a greater rate than inflation, the economy is going to remain stagnant.
Those unfulfilled consumer needs translates into lay offs and stagnant wages.
There have been several cities in the US that have established minimum wages, and the fear of cutting staff has not developed to the degree most feared.
I believe that the governments should spend money on our infrastructure which is necessary for a healthy economy. The more money that goes into circulation by government spending translates into more consumer spending that increases demand for more goods and services thereby increasing jobs. I see it as a win-win scenario.
roger
 
  1  
Reply Thu 21 Jan, 2016 07:58 pm
@cicerone imposter,
I have finally come to accept minimum wages as a good idea. I'm totally sure the employers wanting to pay less are not keeping one more person on the payroll than absolutely necessary. If that's true, there isn't much chance of a reduction in staffing.
cicerone imposter
 
  1  
Reply Thu 21 Jan, 2016 08:06 pm
@roger,
I see the pros and cons on minimum wage. I don't believe in a national minimum wage, because the cost of living differs from one area to the next. It costs more to live in Silicon Valley than most other areas of the country, and we have high wage and low wage earners living here. My family is 'no wage,' because I've been retired since 1998.
San Francisco set their minimum wage at $13/hour which I think is realistic for that city because of the cost of living there. There are still many country towns in California, and $13/hour would kill most businesses.
It's an issue with many complexities that results in too many questions rather than answers.
0 Replies
 
cicerone imposter
 
  1  
Reply Thu 21 Jan, 2016 08:09 pm
@roger,
Here's a good article on a San Francisco small business owner.
http://www.huffingtonpost.com/entry/san-francisco-minimum-wage_us_55b62f53e4b0224d8832b207
0 Replies
 
puzzledperson
 
  1  
Reply Fri 22 Jan, 2016 03:44 pm
@cicerone imposter,
cicerone imposter wrote: " I see it a little differently. The more consumers are able to buy goods and services, it increases demand that translates into more jobs."

That isn't different from what I wrote.

Note that real wages for the working class (or if you prefer, lower class) have decreased even more than for the middle class.

cicerone imposter wrote: "The more money that goes into circulation by government spending translates into more consumer spending that increases demand for more goods and services thereby increasing jobs."

That's true if the federal government borrows to raise the extra funds, and that increases the public debt. If the government increases taxes, the results depend on whether those taxed are losing income they would otherwise spend. For example, sales taxes and other regressive taxes (including VAT taxes, which are passed on to consumers) just transfer funds from the private sector to the public sector, and government spending increases at the expense of private spending, with no net increase in demand.

Total demand is what counts. That's private spending plus local, state, and federal spending.

I prefer redistribution by means of an expansion of the Earned Income Tax Credit. That avoids the whole minimum wage debate. A financial transactions tax (with income appropriate exclusions) could fund it.

Also, government spending is a hard sell these days politically. Giving workers more money and letting them decide how to spend it could be a easier, if the idea is presented well.

Part of the reason the Obama administration stimulus was only weakly effective despite its large size, was that the federal share of national spending was already large before the Great Recession, and the recession decreased federal tax revenues by large amounts. So a large part of the stimulus was eaten up just making good on lost federal revenue, not net new spending. Another big chunk of the stimulus was eaten up by spending cuts by state and local governments. All of that had to be offset before any federal stimulus spending could offset the recessionary drop in private spending.
0 Replies
 
 

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