Government to run out of Money

by Sal on March 14, 2006

in Politics

U.S. Secretary of the Treasury John Snow warned this week that if Congress does not raise the current statutory debt limit of $8.184 trillion, the government will be unable to borrow more money and will not be able to fund the government. Democrats are balking at raising the limit, which is interesting since they passed most of the legislation that requires the funding. Part of me hopes the statutory limit isn’t raised. Maybe a financial crisis will finally curb the wasteful government spending of the last 60+ years.

{ 5 comments… read them below or add one }

rightonoz March 14, 2006 at 11:22 pm

The reality is that Afghanistan and Iraq are draining billions and the tax cuts don’t help (other than the rich).

So perhaps there should be a temporary limit waive until everyone is extracated from those sorry spots.

I know this will be objected to, but the concensus worldwide (other than the US) is that ‘trickle down’ which is what Reganomics, Thatcher and GWB are about benefits the upper 1/2 while the lower suffer. Thatcher is titally discredited in the UK (other than for facing down Argentina and the unions). Surely education, social security, health spending etc should be protected. I don’t know enough about the US budget to comment on other spending, but these are the area’s most often apearing to be targeted.

From my time in the US it appeared to me that your country is no different from any others in needing to provide decent services and a safety net for the less fortunate. Having seen the income levels at the lower end of town even a full time employed person at the bottom of the heap needs support.

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rightonoz March 14, 2006 at 11:25 pm

Sorry, missed one comment – perhaps a temporary reduction in the tax cuts that certainly don’t help the budget- balance the pain by taking from both ends of town?

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Sal March 15, 2006 at 6:34 am

Raising taxes, while it may help the budget in the short-term, will actually hurt the budget in the long-term. It is a basic economic principle that raising taxes takes out money from the economy, thereby shrinking future tax revenues by not allowing that money to be spent/reinvested/etc. When you lower taxes, you end up with a short-term shortfall, but a longer term gain as the money put back into the private sector stimulates the economy, thus producing more tax revenues. This happened in the 1980s (Sorry, but Supply-side economics DID work), the late 90s after the tax cuts of 94, and even today (Tax Revenues are actually much higher than anticipated for the last couple of years). Also, Afghanistan and Iraq are just a drop in the bucket of the budget. The biggest areas are in what you call “Safety-net” spending and what we call “Pork-barrel” spending. Pork-barrel spending are needless projects that Senators (both Republican and Democrat) bring back to their districts. The problem with the Safety net spending is not the spending themselves, but the fact that there is so much waste in the spending. Social Security, for example, is a system that is losing money because Congress has spent the so-called “Trust Fund” over the past 50 years on other projects. So in 1917, Social Security will no longer take in what it needs to put out.

Education, Social Security, Health Spending should not be protected when the spending is wasteful. All the programs you mention could use some reform and efficiency to make better use of the dollars given, and then their budgets could be cut. Also, programs should be reevaluated for their effectiveness, and if they are ineffective, they should be cut and replaced with effective programs. The problem we have is that programs have rarely been cut over the last 40 years, even when they are not at all effective.

So the answer is not higher taxes (which would be a short-term windfall but a long-term problem), but trimming spending where it is inefficient and balancing the budget just like ordinary people do.

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rightonoz March 17, 2006 at 12:25 am

Just a quick re-but.

My comments about tax are that in the US all the benefit of tax cuts appears to be at the top end. We have a slightly less generous system that still gave cuts at the bottom end and slightly less at the top. Our economy is going gangbusters with record surplus and we provide a much stronger safety net (too many handouts in some areas)the the US, plus much stronger health care. I know no direct comparisons as we don’t spend as many billions on defence, though we have increased it substantially.

My point is that there is a nice balance in there that perhaps should be considered. The top 5% in the US pay a very small percentage of tax (we even have some in Oz who manage to work the system and pay almost nothing). They don’t spend it so there is no benefit to the economy. My view is that (and this applies here also)rather than an ideoligical cut taxes (at the top end) there needs to be a thorough review. Make the very richest carry their fair share, but also incentivate the middle and lower classes to contribute more by rewarding greater effort.

We’re never going to agree in a back and forth e-mail exchange, however I strongly believe in the whole tax/budget scenario needing to be looked at in terms of cost/benefit outside of party platforms (and definitely pork barreling).

We’ve made a start with the GST which is a tax that applies to everyone who spends and cuts out multiple sales and other taxes. Added billions to our economy out of the under the table economy. same happended when NZ did the same some years earlier, though they’ve slipped back with ‘Chairman Clarke’s’ left wing agenda. We still have a way to go, if only we could get the party politics out of reasoned budget debate.

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Mike March 20, 2006 at 5:45 pm

It has to be remembered that tax cuts seem to benefit the rich more because they pay more taxes to begin with. Sure one reason for it is they make more money but don’t forget that our system was skewed prior to the Reagan Revolution. The top marginal rate was 71 percent. We went so far in the wrong direction that any corrective measures will appear to favor the wealthy.

It should also be noted that the rich do indeed pay their fair share. The top 50 percent of wage earners pay 96.54 percent of all taxes in the country.

Like you, I consider myself egalitarian. I believe everyone should pay the same low tax rate. This way, the rich pay more total tax but the rate is the same. Moreover success is not punished. No one should pay high taxes, rich or poor. Though I would like to point out that I have never been hired by a poor person.

I wouldn’t mind something like your GST Oz as long as it replaces the current code. taxes are a necessary evil. Some stress the word necessary, I stress the word evil.

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