Why do governments get into debt?

That is the same conclusion I reached which is why in my proposal to end crony capitalism in our federal tax codes the FICA/Payroll/Self-employment tax should be applied to all income regardless of source. The "dollar" doesn't care where it came from or how it is spent so why should the tax codes reflect a difference?

A dollar is a dollar is a dollar and all dollars should be treated identically under our tax codes.

 

You are absolutely correct, income taxes are paid to fund the government while payroll taxes (FICA/SECA), are deducted NOT to run government, but instead to provide a source of income and medical care for those who have met the work requirements once they reach retirement age, or become disabled.

The excess money, amount collected exceeding the amount paid out, is spent each year by replacing the money spent with the money being replaced by 'non-marketable' interest bearing government securities. Who pays the interest?

Some questions I've been unable to resolve rationally.
1. As I understand it, the public debt is claimed to be less than 100% of the GDP. In 2012,when the debt was $15.7 trillion, exceeding the GDP, the government was claiming the debt to be less than 100% of the GDP, based on the reasoning that $4.8 trillion of the debt was not owed by the public, but by the government. From where does the government acquire money to pay its' bills?

2. Clinton was claimed to have created a surplus, but it is my understanding that was accomplished by cashing in some, or all the securities backing the Social Security trust fund. Also noted that the debt increased even with a so-called surplus. If true, what were the securities held in trust for Social Security replaced with? And, if a surplus did occur, why did the debt not show a reduction?

Keep it up OldManOn Fire, at least someone is trying to focus rationally on government, its' spending, waste, corruption, and the long term cost to not just those living and working, but those yet born who will become employed.

 

If you collect FICA on capital investments this means stocks, bonds, property...all of which the net profits would be FICA taxed.

And if you collect FICA on these instruments, then you also must provide SS, Medicare, etc. to the contributors.

Why do we have FICA? I'm guessing in order to provide retirement and medical services after age 65 for the working man. Those who make investments have already earned the cash to invest and therefore have already paid their share of FICA...

 

Total debt during the Clinton years increased each year. However, the public debt portion slightly decreased while the intragovernment portion increased. Because the economy was good, more money was flowing from FICA, and there were excesses monies, so this cash was moved to the general fund and replaced with government securities.

Debt is debt no matter how it is twisted. Interest is paid on public debt and intragovernment debt...by the taxpayers.

 

I would suggest reading my federal tax proposal as I don't want to cover it all here again.

http://www.politicalforum.com/showthread.php?t=306610

There are no FICA taxes related to personal investments. There are "self-employment" taxes related to investments as the person that invests is "self-employed" and not working for anyone related to their investments. There is no difference between a person that owns a small business and a person that invests except that the small business owner typically gets up early everyday, goes to work, puts in long hours, and then returns home after a hard day at work while many investors sit on the beach drinking their Corona (with a slice of lime).

Of note the primary sources of income from investments do not come from the enterprise that would be "dividend" payments. Most investment income related to stocks comes from stock trading as stocks increase in value over time predominately due to the expansion of the enterprise, inflation, or simply stock speculation. Investments in money markets and other investment vehicles has nothing to do with enterprise.

The myth has always been that "investments create jobs" that that has never been the case. Consumption, not investment, creates jobs.

The top income earners in America rarely "worked" for their income and paid FICA taxes. Mitt Romney never "worked" a day in his life from what I understand. He headed Bain Capital but I believe all of his income was derived from "investment" income where FICA taxes are not paid.

Anyway, read my tax proposal (there were amendments to it in the thread itself such as allowing a corporation to "write-off" dividend payments to avoid double taxation) and then comment there as it addresses the issues specifically. Too much to cover again here.

 

Total debt actually decreased $114B in 2000.

We also had higher taxes which flooded the Treasury with additional revenues.

 

I'm only guessing here, but I think people who invest in capital gains instruments are not considered 'self-employed'. Maybe a sole proprietor or independent contractor. Stock transactions are subject only to capital gains taxes at the federal level and in some cases at the state level.

There can't be billion$ traded every day without a percentage of that money energizing the economy. You should have been in Seattle when Microsoft stock started to pay off, or in Silicon Valley recently when Facebook stock paid off, etc. etc. those economies are going crazy!

- - - Updated - - -

•09/30/1997 Debt: $5,413,146,011,397.34
•09/30/1998 Debt: $5,526,193,008,897.62
•09/30/1999 Debt: $5,656,270,901,633.43
•09/29/2000 Debt: $5,674,178,209,886.86

These are total debt on those dates...

 

Total Public Debt outstanding:
December 31, 1999 5,776,091
December 31, 2000 5,662,216
ftp://ftp.publicdebt.treas.gov/opd/opds122000.pdf

These are total debt on those dates...

 

Sole proprietors and independent contractions (except for investors) pay the self-employment tax on earnings. I'm actually both (i.e. I own a small business and I'm also an aerospace consultant) and I've been paying self-employment taxes for years.

That is the problem. How is one dollar of income different than another dollar of income? They both spend the same.

First let's dispell the myth. I live in the Seattle area and the economy sucks and has since 2008. My brother lives in the San Francisco Bay area and his business, a German automotive (i.e. Mercedes-Benz, BWM, Porsche, Audi) service center, is going into bankruptcy so the economy there as well sucks.

There is a fact related to this. The higher the income of the person the lower the percentage of that income that is spent on consumption. A low income person spends 100% of their disposable income on consumption while a super-wealthy person might spend less than 10% of their income on consumption with the balance being re-invested which does nothing for the economy.

So we could see a billion dollars in profits being taken from investment transactions but perhaps only $250 million of that is spent on consumption (a person can only own so many Bentleys or eat so many lobsters) while if that billion dollars would have been earned by working Americans (i.e. the botton 90% of Americans) virtually all of it, let's say 90% conservatively, would have been spent on consumption. So we end up with two simple numbers based upon the same billion dollars of income.

Top 1% (investors) = about $250 million worth of job creation by spending.
Bottom 90% (workers) = about $900 million worth of job creation by spending.

This thread is about government debt so let's address that. As I've noted the American People have more than enough income to pay for all authorized federal expenditures as there's over $12 trillion in personal income in the US and the federal govenments, for the sake of simplicity, spends about $3 trillion. The problem is that the income is not spread equally so we can't apply a "flat tax rate" on all income but let's pretend we could. If we had a "flat rate" to fund $3 trillion of expenditures with $12 trillion in personal income the tax rate would be 25% (that ignores that Social Security/Medicare are not funded with general income taxes that are only paid by "workers" basically).

So we have a worker with an average spending of 90% of disposable income on consumption so the tax would cut their consumption by 22.5% and that would reduce the number of jobs that provide the goods and services we require because those goods and services wouldn't be purchased. Basically if we had four households with $40,000 in personal income/yr (that would almost always spend 100% of their income on consumption) a 22.5% tax would result in the loss of one job in the economy. In fact is actually relates to more than that as $1 in comsumption actualy drives $1.80 in total consumption as the money makes its way through the economy.

Now the top 1% only spends 25% of their disposable income on consumption so they could pay the entire 25% tax and not reduce their spending on consumption by even one dime. They simply pay the tax out of their surplus income. For a person making $20 million a year it doesn't really matter if they pay $2.8 million in taxes or $5 million dollars in taxes because it doesn't affect the $5 million they spend each year on their standard of living. Because their consumption doesn't increase no jobs are created. The "super" high income individuals don't even spend 10% on consumption today which is why their wealth is expanding exponentially while America remains stuck in a highly depressed economy today.

Taxation can depress an economy but that's only true if it reduces consumption. If we reduce taxation on low income individuals then it increases their consumption which benefits the economy. If we increase taxation on very high income individuals it doesn't change they consumption so it doesn't harm the economy.

The concept of reducing taxation on the bottom 90% which improves the economy with consumption while increasing taxation on the top 1% that doesn't harm the economy because it doesn't affect consumption seems to be a foreign concept to "conservatives" but it is a simple fact of economics.

I don't know why "conservatives" don't seem to understand this simple fact.

 

Because the economically the money they borrow is going toward..."growth"

To keep up with other growing "countries"

Why? They can invest it and get it back ten-fold.

Only if the money is spent on bad investments...like looking for WMD's where there aren't none.

No.Your money is going toward drawing a "red-line" to Syria. But hey, they use chemical weapons on people that we don't give a crap about, but yet, we don't blow $40 billion a month to "get those WMD's". We just simply ask for them and they hand them over. No economy breaking invasion necessary.

Most governments stabilize their infrastructure so that their citizens don't have to beg for the minimum wage to be raised.

Exactly right. When the borrowers blow the money on ponzi schemes like credit default swaps and world policing.

 

People whose income is derived solely from trading in the markets are not considered self-employed because their income does not come from the trading of goods or services. They are counted as non-participants in the work force. A vast increase in day traders could be a logical explanation for why so many have dropped out of the labour market and the unemployment rate has declined if it was not so implausible.

According to the last study I saw the percentage of equity market trading that leaves the market every day for the wider economy is somewhere around 0.0002%, which works out to about $200million for every $100Billion in trading activity. If you subtract the daily average inflow, which is around $100million a day the amount of money from trading in equity markets that flows to the rest of the economy is about $100-200million a day, or around $25-50Billion a year.

This is a drop in the bucket for an economy with a $16Trillion GDP and certainly does not give credence to the position that equity market contributions to wider economic activity are so great that their participants deserve favourable tax treatment.