Posts Tagged ‘Taxes’

The Public and Deficit Spending

The last American President who paid off the national debt

Surprise, surprise.  A new survey finds Americans don’t like most of the remedies being proposed to deal with the nation’s $14.2 trillion deficit.  They strongly oppose any major changes to Medicare and don’t like big cuts in defense spending.  The only thing they do approve of in large numbers is increased taxes on rich folks.

The poll by the Washington Post and ABC News  seems to support the notion that Americans say they don’t like government all that much- until you start taking away the government goodies they like. 

So leading up to the high drama of the vote expected in July on raising the national debt ceiling, polls like these underscore the high risks politicians are facing- especially those on the cutting side of the equation.  As for higher taxes, the strong support for higher rates for those making over $250,000 a year is one thing.  Higher taxes across the board are very unpopular.

So how do you deal with a public that finds the deficit troubling but isn’t enamored with most of the proposed solutions?   Seems to me politicians are either going to pander which always seems to be their initial instinct- or you could split the differences- but that might involve both sides giving up their sacred cows.  In other words, they may have to act like adults.

But is the situation as dire as most are now painting?  Let’s put it this way, where was Standard and Poor’s in the late 1940’s when the percentage of the national debt compared to the Gross Domestic Product was around 40%?  Because right now, huge as it is, that $14.2 trillion represents only 11% of the GDP.  Standard and Poor’s says that’s enough to earn a “negative” rating on America’s future prospects as an investment.  But it’s been way worse.

History finds that deficits…not balanced budgets are the norm.  Posted on this couple of months ago.  According to NPR’s Planet Money team- the last time the United States actually paid off all its debt was during the administration of Andrew Jackson.  This would have been in the 1830’s.

Fact is, as much as the President and his political adversaries both pontificate about how government needs to balance its budget just as American families do- it’s a total crock.  Governments are not families.  Some argue a certain amount of deficit spending can actually be helpful.  Banks make money.  Government spending tends to keep the economic machine well greased.  Societal needs like spending on highways and infrastructure and even health care- get met.   Besides, even American families that balance their budgets think nothing of holding hundreds of thousands in debt on 50-year home mortgages.

The trick…as in just about everything in life…is doing things in moderation.  Don’t expect any politician to make that case.

Greenspan: Higher Taxes Are Our Only Hope

September 16, 2010 1 comment

The world has officially turned upside down. Alan Greenspan, former Federal Reserve Board Chairman and advocate of the Bush tax cuts of 2001 and 2003 is now calling for a complete repeal of those tax breaks. All of them. He says we can’t afford them.

Stimulus spending has not worked, he reasons, because American businesses continue sitting on the sidelines with record cash reserves, not hiring or investing in much of anything. They are crippled by fears of what our huge federal deficits could bode for the future and so Greenspan says the best course now is to repeal the tax breaks, make serious spending cuts and reduce the massive federal deficit.

This is all nice in theory but there isn’t a political snowball’s chance in hell that the Bush tax cuts are going to be repealed. Of course they add to the deficit- just like stimulus spending. But they’re popular. People complain when governments ignore pot holes, offer inferior public education, do a lousy job shoveling snow off the streets and fail to provide adequate police and fire protection. They just don’t want to pay for these services. Worry not- they will soon be disappearing. There’s not a solvent government left in the United States.

Now with the November elections coming and massive losses predicted for Democrats, we are headed for divided government, which in the past, hasn’t been so bad. Bill Clinton lost his Democratic congressional majorities in 1994 and he and the Republican-led Congress promptly ended welfare as we know it, passed free-trade legislation (NAFTA), and ended up with record budget surpluses. But something tells me we’re headed for gridlock and nothing resembling bi-partisan government.

The worst thing of all about the coming mid-term elections has nothing to do with the possible results. It’s that it rings in the beginning of the 2012 Presidential election silly-season. We better hope the economy heals itself because it doesn’t look like politicians are going to be acting like mature adults and do much of anything to either reduce deficits or put us back to work.

Hate to be such a bummer but Greenspan, I think, speaks the truth when he says “Our choice is not between good and bad but between terrible and worse.”