What do you think of Obama's proposed Buffett Rule?

Discussion in 'Budget & Taxes' started by Meta777, Feb 2, 2012.

  1. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    Nice summary of the facts. Here's one that I wish the People would understand. The national debt is unrelated to the GDP, period. The national debt relates solely to the general revenues of the federal government and exclude dedicated FICA/Payroll taxes. The entire national debt is related to borrowing agianst general revenues and paying for general expendatures without any exceptions. Only general revenues are used to pay for the national debt.

    The relationship between the national debt and the GDP was an invention of politicians and economic idiots that has been propagated by the media. We can use the analogy of person debt as an example. When a person calculates their personal debt ratio it's based upon what they earn and not on what the company they work for earns. The individual does not own the companies revenues. The government debt ratio needs to be expressed based upon the government revenues and not what the country earns. The government does not own the national gross domestic product.
     
  2. OldManOnFire

    OldManOnFire Well-Known Member

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    It's all political BS!

    The deficit and debt numbers are so large today that it has become impossible to resolve them without a Greece-type revolution.

    Politically our idiots in Washington won't even consider a 10% spending reduction per year. Or even 1%...they simply won't pin themselves down to hard numbers.

    All this recent BS about reducing budgets, etc. and what does Obama do; submits a $3.8 billion budget!

    And IMO the only way to establish true spending reductions is to consider government expenditures per US citizen. In constant 2005 dollars, 50 years ago our government was spending ~$2000 per citizen. Today our government is spending ~$12,000 per citizen. We're too stupid with our heads shoved up our party politics to even decide what the spending per citizen should be?

    If we can't decide how much to spend, and we don't care about deficits and debt, and our citizenry refuses to pay more than $2.3 trillion, then once again...KABOOM!!
     
  3. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    There is another way. Require the Federal Reserve and the US government to comply with Contract Law.
     
  4. TrueBluTexan

    TrueBluTexan New Member

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    The only way for this to work is to give the judicial branch more power against the executive and legilslative branches as well as the "several states." Otherwise, it is the Articles of Confederation all over again and that did not work out very well.
     
  5. TrueBluTexan

    TrueBluTexan New Member

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    I disagree on this point: it is the debt per the financial statement issued by the Treasury department that have the correlation between debt and GDP and it is the publicly held that that is the indirect correlation to GDP. IT is how the government finances its operations, either equity or debt, that help define expenditures. Although I do agree that some expenditures must be reduced, but those reductions must come from the cost drivers: SS, medicare, and defense.
     
  6. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    I know it's what the Treasure Dept publishes but the national debt is not paid for by the GDP. It's paid for with general tax revenues. The government attempts to create a correlation but it does so to deceive the people into thinking things are as bad as they really are.

    Let's take a hypothetical.

    A person works for a company and earns $100K/yr and also has $100K in debt. Their debt to income ratio is 100%. They might work for a small company that has $1M in net profit but that doesn't change their debt to income ration.

    The Treasury uses the $1M (GPD) number to establish a 100% debt to income ratio when in fact it's a 1000% debt to income ratio. If the "People" began to realize that the government's debt to income ratio was 1000% they'd start to object to it.

    Remember, if the interest rates go to 10%, and they've been as high as 14% in the 1980's then the entire general revenue of the US government would have to be spent just on interest for the national debt.

    Of note Social Security and Medicare have a dedicated tax as they is solely funded by FICA/Payroll taxes. They have actually collected more in taxes than have been spent on the programs and that money was borrowed to pay for general expendatures. Currently they have a $2 trillion surplus held in special Treasury notes and have never contributed to the deficit or the national debt. "General revenues" are being spent to redeem the debt owed to the Social Security Trust Fund but that is not a payment for Social Security or Medicare, it is repayment for previous general expendatures where money was borrowed. It is true that financial projects do show that SS/Medicare will become insolvent in the future but as of today they have not contributed one cent to the deficits or national debt. They are a real problem in the future but they are unrelated to the national debt at this point in time.
     
  7. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    This isn't actually accurate because there is still a yield but it is less than 1% but that is not based upon the "fair market value of money" but instead is based upon Federal Reserve interventionism in the purchase of Treasuries. The Federal Reserve, with it's ability to create Federal Reserve note out of nothingness has driven the "cost of money" well below fair market rates. In doing so it's basically stealing from the American People that have money invested in Treasury securities as they are entitled to a "fair market" return on their investments.

    While it's "good for government" to have this very low rate of return it is adversely affecting the recovery from the 2008 recession. Much of the private investment is held by retirees and with the low return they have less income so they spend less. Taking, for example, a retiree that has $1 million in T-Bills if the fair market value of money is 4%-6% which is historical then they would have $40K-$60K to spend in interest income on their investment. With the interest rate at 1% they only have $10K in income to spend. This, more than any other single factor, is why the recovery is taking so long.


    There is a misconception related to the mulitplying power of government spending which, I believe, is normally stated as being about $4-$6. It creates no wealth but instead merely reflects monetary transfers. If I have a dollar bill and give it to someone and they give it to someone else and this happens 6-times then it reflects $6 in transactions but it has produced nothing. The problem is that the initial $1 has to come from created wealth but then that wealth is basically consumed by the government. There can be some generation of wealth generated by the cummulative transactions but the wealth generated cannot exceed the initial $1 and is often much less.

    Several points which are either absurd or completely false.

    We've seen what hundreds of billions of dollars to "create or save" jobs amounted to from 2009 where even using the most wild estimates put the "cost per job saved or created" at about $300,000 for basically temporary jobs that lasted less than a year. Most of the "estimated" 2 million jobs were not "created" but "saved" and they predominately related to State jobs and the States have been laying off those individuals after federal funding ran out so they contribute to the unemployment today.

    Next is the fact that Obama has not reduced the actual projected deficits. In 2006 the annual deficits projected were less than $400 billion per year over ten years. By 2009 the ten year budget projections under Obama were about $1 trillion per year. A more recent CBO projection showed a projected deficit for 2012 of $585 billion but Obama is asking for about $985 billion in deficit spending. The projected deficit, even under the most optimistic conditions which is what the CBO uses, for 2022 is over $3 trillion. Deficits are traditionally higher than CBO estimates and the one below is absolute junk as it didn't even project the 2013 Obama budget request.

    http://soundofcannons.blogspot.com/2012/02/latest-congressional-budget-outlook-for.html

    The cuts in military spending are not actual cuts but instead they are reductions in increased spending. They are also insignificant as they actually average about $44 billion in reduced increases per year but the DOD budget will continue to increase. Over ten years of projected military spending they will only account for a decrease of about 4% of the total expendatures that will continue to increase. It is a "smoke and mirrors" number as the cost of the US military will continue to rise adding to the national debt.

    But the blame isn't just with Obama or the Democrats because the Republicans aren't offering any cuts to deficit spending either. They also project increases in general revenue spending over the next ten years with zero programs actually slated to receive "less money" in any year.

    To "cut spending" means to actual reduce the amount of money being spent and not the simply jerk around with how much more spending could occur. If a budget goes from $100 to $110 that is not a budget cut just because someone said, "Well, we could have spent $120."
     
  8. TrueBluTexan

    TrueBluTexan New Member

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    Shiva,
    I know where you are going with this, and yes, we need to eliminate the government accounting rules to help analyze the revenue and expenditure streams of the budget. However, I still maintain that we should only look at publicly held debt, not the so called IOU's, to determine the financial strength and weaknesses of the government.

    In addition, I think your analogy is a little off kilter here. Think of it this way of a single corporation as the government, the retirement system as SS, and the health care offered by the corporation as Medicare and medicaid. The board of directors are the members of Congress. The shareholders, both preferred and common are the people and businesses of the United States. The CEO and other department heads are the various governmental agencies while the employees of the corporation are the federal workers. This is also a consolidated company with independent subsidiaries as the various states and local governments with their employees. The corporation either directs or influence the production and service decisions of the preferred and common shareholders. Now the preferred shareholders are the bond holders of public debt while the common shareholders are those that live and work inside the U.S. finally, no dividends are issued in this simple example

    To illustrate the debt, the company has gross revenue of $73m while its expenditures of $100 million. The preferred shareholders lend the company money in exchange for more preferred stock. The lending has to occur in order to make sure that the corporations preduction remains constant. Cutting production to meet meet the revenues will cause more harm to the shareholders because they will incur more substantial risk. If more substantial risk, then the less likely the common shareholders will spend and provide revnue to the corporation.

    Each year as the corporation exists, it incurs more debt, which yeilds more expenditures, but the revenues always fall short. If the corporation tries to increase prices or fees, then the less likely the preferred shareholders would be willing to lend. The common shareholders want the low prices while the preferred shareholders want the bonds.
     
  9. OldManOnFire

    OldManOnFire Well-Known Member

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    There is no action that can be taken today which 'significantly reduces' deficit spending and debt without a citizen revolt and perhaps very negative impact to the economy.

    TARP produced jobs at the rate of about $250K each. If the government wanted to eliminate the $1 trillion deficit spending, this equates to the loss of approximately 4 million jobs!

    And if this happened, now the government will subsidize these 4 million with unemployment and other welfare, and if we assume this might be on average $350 per week per person, the government is right back into deficit spending of about $73 billion per year. Plus this will negatively impact the economy meaning other job fallout and more government subsidies.

    And how much of an impact will this have on a very fragile economy?

    Just like us, and a business, and now the government, when there is this much debt, this much deficit spending, it is impossible to rectify the situation in the short term. So over the long term, of maybe 20-25 years, we need a deficit/debt reduction plan that we can afford yet will at least take us in a more positive direction...and it should start today! But Obama and Congress just spend and spend as if money grows on trees.

    It will be interesting in 10 years to see how historians rate Obama; did he grossly over-spend causing unprecedented debt or did he save the nation from the economic downturn?
     
  10. OldManOnFire

    OldManOnFire Well-Known Member

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    I'm guessing debt ratios are meaningless no matter which metrics someone wishes to use because the bottom line is how well we can 'service' the debt. In a few years when we have $20 trillion in debt, how well can we afford to pay $500 billion per year in debt interest payments? I'd rather look at the ratio between the debt service payment and the total government income and place on cap on this.

    I don't know what debt interest we pay today, but let's assume it is 2-1/2% on $15 trillion or about $375 billion per year. If we further assume the total income of the government will be $2.5 trillion, this means we are spending about 15% of our resources on debt payments.

    So the question for me; is 15% too much of our budget to spend on debt interest?

    No matter, Obama and the next president and Congress are not going to slow their spending so this is all BS talk...
     
  11. Iriemon

    Iriemon Well-Known Member Past Donor

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    We would you assume such a low income for the Govt?

    If the Govt collects the same proportionate amount of taxes as it did in 2000, the income would be $3.0 trillion. Which gives us a little more room on the interest rate payment.

    But that is certainly not to defend continued deficits.
     
  12. OldManOnFire

    OldManOnFire Well-Known Member

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  13. OldManOnFire

    OldManOnFire Well-Known Member

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    Last I read the income last year was $2.2 trillion and this year should be $2.5 trillion.

    "If" is meaningless in this conversation. The facts are the spending/income ratios we know to be accurate. The lack of fiscal responsibility.

    Supposedly the government has spent $169 billion this year in debt interest! It would be great to spend some of this money on Americans and infrastructure...
     
  14. Iriemon

    Iriemon Well-Known Member Past Donor

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    Fair enough, but you were referring to future and hypothetical events, in which case there is no reason to assume that revenues could not be enhanced as well.

    We will some some revenue enhancement just growing out of the recession, but not nearly enough.
     
  15. danielpalos

    danielpalos Banned

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    In my opinion, the wealthiest should be paying "wartime" tax rates even if only during wars on abstractions, merely to better ensure they do not become boondoggles and generational forms of theft.
     
  16. OldManOnFire

    OldManOnFire Well-Known Member

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    20-25 million Americans remain unemployed. We can subtract about 7 million who are always unemployed (5%) which leaves us 13-18 million. We can assume the 13-18 million are receiving unemployment or other government support and the 7 million are also getting food stamps, SSI, etc. I am going to 'guess' that the 13-18 million unemployed are mostly made of those who earn median wage or less; $50K. So...even if we could employ the 13-18 million, they might not earn much more than 2-3 times what they currently get from government support. The increase in spending by employing 13-18 million, IMO, will be a minor blip on the economy.

    The remaining 130-140 million currently employed are also not going to set the world on fire with more spending.

    Growing out of this recession is going to be a long process and government should not be expecting windfall tax incomes in the next few years...
     
  17. danielpalos

    danielpalos Banned

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    What objection can there be to public sector intervention being used to engender a new unemployment equilibrium, hypothetically, below one percent?
     
  18. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    Once again I will point out some facts the most important of which is that the Federal Reserve has intervened in the "cost (value) of money" which is preventing a recovery from the recession. The Federal Reserve has suppressed the prime interest rate which is tied to Treasury securities and most retirees are highly dependent upon Treasury securities for income. I often cite 4%-6% as being the historical "cost (value) of money" but a review of the prime interest rates might show it to be higher than that amount. Instead of one million dollars in T-bills earning $40K-$60K it's earning less than $10K/yr which means hundreds of billions of dollars are not being paid to retirees and that money is not being spent.

    But the problem is worse than that.

    On April 18, 1980 the prime rate was 19.5%.

    http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm

    If we were to hit that prime rate again then the interest on just the $15 trillion national debt would be almost $3 trillion and this has to be paid for with tax general revenues (FICA/Payroll taxes are dedicated taxes and not used for general expendatures like interest on the national debt). That's almost double our entire general tax revenues today.

    With the current expansionism of the money supply even the Federal Reserve is worried about inflation and it could easily turn into run-away inflation like we had in the 1980's.

    http://news.yahoo.com/feds-bullard-sees-risk-higher-inflation-180011337.html

    We literally need draconian cuts in federal spending as well as draconian increases in taxation to not just eliminate deficit spending but to also reduce the national debt which is ten times greater than the government revenues related to the debt. Neither Republicans or Democrats are being honest about how serious of a problem the national debt really is. All of these politicians just hope to be out of office by the time the "crash" occurs but we know it will occur based upon history.
     
  19. Iriemon

    Iriemon Well-Known Member Past Donor

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    What is the basis for you assertion that the lower cos of money is preventing a recovery, putting aside the false premise of your statement that we are not in a recovery?
     
  20. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    I did not state we're not recovering but instead that the corrupted control of interest rates by the Federal Reserve for the benefit of the banks and the government has been detrimental to the recovery.

    I thought I covered why but I will use specifics. My parents (can't get more specific than that) have about $1 million in T-Bills. Normally they could have expected about $40K/yr in income from those T-Bills but not since 2008. They've only received about $10K/yr since then which means they didn't spend about $30K/yr that they would have spent had they received fair market value on their investment.

    The recovery hinges on people spending money to consume goods and services. By the Federal Reserve lowering the "cost of money" it significantly reduced the income to perhaps 30 million retirees that own T-bills. Instead of "make work" spending where each job cost about $300,000 under the Stimulus Bill simply paying fair market value on T-Bills would have pumped more money into the economy expediting the recovery.

    T-Bills aren't even paying the prime interest rate today and they should.
     
  21. Iriemon

    Iriemon Well-Known Member Past Donor

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    That's a good point, but doesn't prove your assertion. It simply identifies one aspect of the overall economy.

    Lower interest rates lowers the cost of borrowing on everything from credit cards to mortgages to business working capital, all of which provides more money to be spend which has pumped more money into the economy expediting recovery, and higher interest rates would reduce this money.
     
  22. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    The problem was that even with the lower interest rates the money was not available. It was virtually impossible to get a business loan in 2008-2009 and remains very difficult today. I just tried to refi a commercial mortgage and have not been able to accomplish that yet and I have excellent credit. My brother that owns a Mercedes service center has been unable to get any business loans since late 2007. He had to borrow tens of thousands of dollars from me on a private loan for temporary business needs. The money simply isn't making it to the private sector. It's all about government and banks and not about individuals and private enterprise.
     
  23. Iriemon

    Iriemon Well-Known Member Past Donor

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    I agree that loans are tougher to get, but there are trillions in outstanding CC and mortgage debt that benefit from lower interest rates.
     
  24. OldManOnFire

    OldManOnFire Well-Known Member

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    None of that debt benefits from lower interest rates unless the debt interest can be refinanced to the lower rates. Refinancing is just as tough as original financing no matter the lower interest rates. And IMO, it should be (*)(*)(*)(*)ed tough to finance anything with very strict guidelines in the qualification process. I remember in 1970 when I bought my first home that I was 'required' to have enough cash for down payment, and on hand, along with good credit, and my monthly payment could not exceed 25% of my take-home pay. It should not be easy to obtain $150K-$500K loans to buy property...this should be a privilege granted only when the consumer can prove fiscal responsibility.

    Anyone demanding anything less than fiscal responsibility is simply reckless...
     
  25. Iriemon

    Iriemon Well-Known Member Past Donor

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    There are tons of ARMs and CC debt where the rates are pegged to interest rates.

    I agree as a general rule that buying a house should require some skin in the game.
     

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