Editore"s Note
Tilting at Windmills

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April 24, 2011

A FAMILIAR MODEL.... The Washington Post has an interesting piece today on Clarence Cammers, a 64-year-old retiree who lives in Paul Ryan's Wisconsin district. He's a life-long Republican, but has an adult son, Tim, who never left home, has health issues, and struggles with his finances.

Clarence told his congressman that he'll be fine, no matter what Congress does when it comes to taxes and spending. He then asked, referring to the House GOP budget plan that he's read cover to cover, "I guess what I'm saying is, what are all these changes going to mean for my son?"

It's a good question. I can only hope others look at the Republican agenda and wonder the same thing.

Reading the article, Clarence comes across as a pretty decent guy who worked hard when he could and who's asking the right questions now. Like a lot of people, he doesn't seem to like government, but nevertheelss relies on government programs to help his family get by.

But there was one other point Clarence raised that stood out for me.

He had been balancing a budget every month for 40 years, and his fingers navigated the numbers on the keyboard from memory. It was simple accounting, really -- a calculator, a Microsoft spreadsheet and an old floppy disk. Nothing to it. Money came in, and he never spent any more than he had. Input. Output. An end balance in the black.

It drove him crazy that the federal government had made such a mess out of the same process... Sometimes he wondered: Who was in charge of their math? How did they ever let it get to $14 trillion, turning a man who could balance his own budget into someone with his hand in the air and a question for a congressman about his son?

I suspect questions like these are fairly common. Folks say, "We balance our budgets. Why can't Washington?"

It's worth noting that the question isn't just flawed -- the federal government of the world's largest economy and military superpower has to operate differently -- it's also based on a false assumption.

When a family goes to buy a home, its members don't simply write a check; they take out a mortgage. Almost no one can afford to simply and literally buy a home, so we take out very large loans, and make payments, with interest.

The same is true when a family wants a car, tackles college tuition, or thinks about starting a small business. American families, in other words, take on debts, some of them huge relative to their incomes, all the time. There's nothing wrong with any of this -- these are just routine examples of people investing in themselves.

The government's debts aren't identical -- there is no mortgage or car payment, exactly -- but officials take on debts to invest in things they consider worthwhile, too. A family that relies on student loans to pay for college should be able to relate to a government that relies on loans to pay for public services. The family thinks it'll be worth living in the red for a while, so long as it can make the payments and afford the interest, because they'll be better off in the long run -- and the government believes the exact same thing.

The comparison between families and governments "living within their means" tends to annoy me because of the lack of parallels, but I'm wondering if I should just embrace it and turn it around. If Mr. and Ms. America take on debts they can afford to improve their position in life, why is it outrageous for their government to do the same thing?

The answer from Republicans, I suspect, is that we can't afford this much debt. (They weren't thinking this way when they inherited a national debt that was $5 trillion and shrinking, and turned into a debt that was $10 trillion and growing, but let's put that aside.) But we can afford it; that's the point. Like a family making its monthly payments, the government is doing the same. Indeed, we're doing so well on this front that others keep loaning us money at low interest rates, confident that we're good for it.

The point is, there is no debt crisis. We owe a lot, but we've owed more before, and we can back on track without resorting to extremist tactics like the GOP budget plan.

Steve Benen 12:45 PM Permalink | Trackbacks | Comments (49)

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It is amazing that people confuse their household budget with the finances of the USA. But sometimes when you hear political types and pundits do the same thing you wonder if they really are so poorly educated.

Posted by: hornblower on April 24, 2011 at 12:57 PM | PERMALINK

This is a great post but if anything it doesn't go far enough. A government is different from a family in other ways as well: it is immortal (doesn't have to worry about retirement or someday not working); it can define its own income, either by raising taxes or just creating money out of thin air; and it has access to effectively infinite lines of credit at incredibly low interest rates. A government is almost nothing like a household. We don't have to "balance our checkbook"; we have to spend counter-cyclically to get the country out of recession...

Posted by: GC on April 24, 2011 at 1:09 PM | PERMALINK

Your debt analogies are pretty obvious, but not obvious enough to our intrepid reporters, who seem incapable of dealing with the simplest of math problems. Even a saver like myself has a mortgage that dwarfs my annual income and will do so for quite long time.

Posted by: Rich on April 24, 2011 at 1:09 PM | PERMALINK

Your post brings to mind Naomi Klein's Shock Doctrine - commerce in emergency, for profit!

Panic ma and pa into conflating their microeconomic reality with macroeconomic workings. Once the unassuming electorate bites on the confusion, profiteering corporate cronyism will be the catch!

Re: Ryan's Budget Plan

Be afraid, very afraid! The plan is not so much a blue print for alleviating our economic woes, than it is to exacerbate them so the Turd can finally Blossom on the American Dream! -Kevo

Posted by: kevo on April 24, 2011 at 1:31 PM | PERMALINK

I'll say it again - we aren't cutting social programs to eliminate the deficit. The deficit was created run up deliberately in order to eliminate social programs. For our Republican friends, the existence of social programs is the true crisis - not the deficit.

All of this is by their own admission. You just have to pay attention to what they say out loud to each other.

Posted by: Roddy McCorley on April 24, 2011 at 1:39 PM | PERMALINK

As you point out, borrowing per se is not bad- indeed it can be both good and necessary.

HOWEVER: Like the family that takes out a home equity loan for a ("you deserve it!") vacation cruise, a government that borrows for a questionable enterprise (say, invading a country), but does not "pay for it" with a revenue increase, is heading down the road toward fiscal Hell.

Posted by: DAY on April 24, 2011 at 1:41 PM | PERMALINK

Note also that the government expenses capital purchases (planes, tanks, ships, buildings, computers) unlike businesses which expense capital purchases over years or even decades (depreciation).

Posted by: HerbTC on April 24, 2011 at 1:46 PM | PERMALINK

I have said this for years, Steve. We borrow, routinely. We go into debt, routinely. We do so when we expect that what we can do with borrowed money is going to be more financially advantageous than what we can do with our cash on hand. You borrow money, make the payments, and do your best to make sure that the project results in a benefit that makes paying down that debt easier.

The whole discussion of debt in this country is asinine.

Posted by: FlipYrWhig on April 24, 2011 at 1:52 PM | PERMALINK

..you wonder if they really are so poorly educated...
The wonder comes at me in waves of stultifying arrogance . The effort it takes to destroy the most robust economy in history , to a more comfortable reactionary 'have and have not ideal' , is another wandering personal wonder of why , why o , o why o .
As someone pointed out earlier , despite the lovely walled communities with armed guards and all the safety of wealths reach , the exhaustion of Victorian age industries assets will be permanent .

Posted by: FRP on April 24, 2011 at 2:01 PM | PERMALINK

Excellent point, Steve. I'd also like to point out that Mr. Carlson not only lived off of welfare payments when he was young but also bought a house with a mortgage. So he is, in fact, quite familiar with borrowing more than he has to get to where he needed to get with his own "infrasctructure."


Posted by: aimai on April 24, 2011 at 2:04 PM | PERMALINK

ummm.... States "balance" their budgets in part because they also get huge infusions of money form ... the federal govt. Many programs that the states use have 2: to 5:1 or even higher, in federal state match.

So to strain the false family analogy even farther, it is like someone else giving me $15,000, and I spend $5,000 of my own money, to buy a $20,000 car. My budget might be "balanced" in that I did not incur the 15 k debt --- I foist it onto someone else ....

One can argue that without some of the programs, the states would spend 0; fine, but highways, pell grants, etc etc etc are direct federal subsidies from the feds [well, ok, from the taxpayers] to the states, and typically, from the NE to the rural and southwestern states ...

Posted by: bigtuna on April 24, 2011 at 2:09 PM | PERMALINK

Day has a good point. Rather than compare it to a mortgage you should compare it to a home equity loan. We already owned the house (our country) and what the politicians have done is spend more than they take in by getting a loan secured by the property. Since the world still sees us as having equity available to use as collateral they are still willing to loan it to us. The problem is that the revenue vs spending gap is getting larger not smaller and is not projected to come into balance for decades. This requires more borrowing and more interest being paid just to service the debt without touching principle. The interest itself will become our largest budget item that has to paid before any social obligations can be. Otherwise we are in default and no one will lend to us at all. Also at some point the lenders will no longer see our assets enough to go around to the various debtors should we default and will no longer lend to us.

GC says that we are not like a household because we can simply raise taxes to define revenue or print money out of thin air. While both statements are true the fly in the ointment is that raising taxes presumes there is ample revenue for the taking the will not deplete the source (the taxpayers) to the point that they can no longer pay for their own fixed costs, default on home, car, business loans etc, go on stamps or welfare or one of the myriad other social nets and become a added cost to the government as opposed to a source of revenue. The classic "cutting your nose off to spite your face" senario.

If we could just print unlimited sources of dollars then why don't they just print the 16 trillion (14 current plus the two they are about to add)and pay every body? The reason is that the devaluation to the dollar would cause things that we buy on the world stage like oil to skyrocket and Americans would face even larger personal financial crises and the enevitable defaults that would follow. More defaults means less revenue and more expenditure on the part of the government.

It is foolish to pretend that the debt/deficit issue is just being created for political gain.

If your afraid of what anyones plan for reducing government expenditures is going to mean for future generations you should be even more afraid of what maintaining the status quo is going to do to them.

The debt will eventually have to be paid by someone and that is clearly going to fall on your kids and grandkids.

Posted by: Nite on April 24, 2011 at 2:17 PM | PERMALINK

It certainly does not help when the so-called Democratic response is from such as Dorgan of North Dakota. On to balance Coburn, this AM, David Gregory threw out the recent polls which show a vast majority of the public not supporting cuts to Social Security, Medicare and Medicaid, and highly supportive of raising taxes on those making more than $250,000. Dorgan, immediately, repsonded that cuts "MUST" be made and the poll questions were improperly presented. The old "We Know Everything; The Public Knows Nothing". Please, Dorgan, go back to ND and never darken the doors of the Senate again.

Posted by: berttheclock on April 24, 2011 at 2:23 PM | PERMALINK

The big players own real things.
The little people own paper money.

Posted by: Hank Roberts on April 24, 2011 at 2:36 PM | PERMALINK

I like how the article states that his constituents have "voted for Ryan seven times in part because people here believe in fiscal responsibility and a balanced budget."

Never mind that Ryan voted in lock-step for every policy that added $5 trillion to our national debt in 8 years and turned a surplus into a deficit.

Posted by: Sam on April 24, 2011 at 2:45 PM | PERMALINK

If a person spent the same percentage of their income on weapons and protective services that the US does on the military, relatives would be looking at locking up the person as mentally unbalanced.

Posted by: Objective Dem on April 24, 2011 at 2:46 PM | PERMALINK

"If a person spent the same percentage of their income on weapons and protective services that the US does on the military"

You do...it is just taken from your paycheck before you get it and sent to DC where they buy those things for you.

Posted by: Nite on April 24, 2011 at 2:54 PM | PERMALINK

Steven, yours is a ridiculous analogy. Young adults buy homes on credit because it's cheaper and a better investment than trying to save up cash for the full price of a home out of what's left over after paying rent. Students borrow for college so they can have the benefit of their degree for most of their lives instead of waiting for decades. And borrowing is easy because society has long recognized the wisdom of allowing young adults to get a running start on life while they're in their prime.

In complete contrast, the overwhelming majority of the national debt was created by the Republican propensity for borrowing trillions to give to the rich and buying votes on a massive scale by implementing expensive initiatives without even trying to pay for them.

There are legitimate reasons for government borrowing, but the present crisis (such as it is) did not arise out of legitimacy. The Clarence Cammerses of the nation are completely justified in asking WTF.

Posted by: Tom Marney on April 24, 2011 at 2:54 PM | PERMALINK

Our children and grandchildren will get the benefit of today's spending if it goes for infrastructure, alternative energy and education et al.
Please stop referring to progeny as the ones who will pay debts. That is another bogus argument.

Posted by: hornblower on April 24, 2011 at 2:56 PM | PERMALINK

What's particularly interesting about this is that the Republicans, as the party of business, ought to have a better grasp on the distinction between capital expenses and operating expenses.

And to be fair in one sense, I'm pretty sure that they do. They just don't mind taking advantage of the fact that most people don't understand the difference as it applies to government budgets.

Posted by: larry birnbaum on April 24, 2011 at 3:01 PM | PERMALINK

"Please stop referring to progeny as the ones who will pay debts. That is another bogus argument."

Yeah, your probably right. They probably will not be able to pay and will have to go to war when they are no longer able to afford the cost of debt service and have to default. Since that war will probably be with China they will get to be the new slave laborers working for their new Chinese bosses and will be making cheap products that get exported back to China.

I sure they will thank those who said the US debt is not a problem.

Posted by: Nite on April 24, 2011 at 3:03 PM | PERMALINK

Nite, how does that make our "progeny" any different from any other US generation? Or from the life they are going to have anyway, debt or no debt? The Republican party is proposing to pay off the debt by destroying SS and Medicare, by ending spending on infrastructure (roads, bridges, space program, hospitals, schools), by slashing investment in education (schools, pell grants). It may have escaped your notice but all of that stuff comes right out of the hide of our "progeny." Without good roads, schools, bridges my children are already going to grow up in a poorer America than the one I had. Without investment in education, pell grants, affordable college my kids already won't be able to afford the education I received. So they won't get the jobs I had and won't have the income I have. Without SS and medicare they have to assume that their father and I will be moving back in with them--if they have ever been able to afford to move out.

The debt service burden should be handled by those who ran up the debt--the wealthy--and not by the children whose current chances and future happiness are being slashed to pay for it under Republican plans.

In other words: when you cut services to pay for the debt now you are actually already attacking our children and our children's children. If you raise taxes on the wealthy to cut the debt we can have both investment now and safe children in the future.


Posted by: aimai on April 24, 2011 at 3:26 PM | PERMALINK

Folks say, "We balance our budgets. Why can't Washington?"

Yessir, that's what folks say . . . in Green Acres and The Beverly Hillbillies.

Somebody above mentioned "asinine", and I couldn't come up with a better description.

Posted by: Squeaky McCrinkle on April 24, 2011 at 3:30 PM | PERMALINK

"Nite, how does that make our "progeny" any different from any other US generation?"

The size of the debt vs the size of the GDP is what makes the future more bleak than the past. The interest, which is at very low rates right now, to service the existing debt is about 215 billion. By 2019 the projected debt service costs will be 700 billion or more than the entire defense expenditures, including the two wars Iraq and Afghanistan, for this year. If and only if we are able to keep our AAA rating which keeps our rates low and if the dollar does not crash causing them to be worth less and requiring more of them to make the debt service payment. Since this only pays the interest and not the principle and since we are having to borrow more each year to fill the revenue vs expenditure hole, the percent of the budget that has to go to debt service has to grow. This means fewer dollars for the services you mention. Unless and until we are no longer having to borrow to pay the bills the credit card balance will grow and grow and the interest due will continue to compound. This is why it will be different for future generations.

Politicians on both sides of the aisle have mismanaged the countries finances so bad that there is no path to correct it that does not include a cut in services. The only real question now is how deep will they have to be.

Why not just tax the rich to make the budget whole you ask?

Because they will, and do, take their wealth to places that do not take as much.

Say for instance you raise the top marginal rate to 50%. If enough wealth flees the country to cheaper venues you not only don't get the 50% you don't even get the 36% you used to. This is why some advocate the lowering of corporate tax rates to encourage companies to keep their wealth, and our jobs, here. Not because big business didtates policy and just wants lower rates but because it is good business to do so. This is why smaller governments at the state and local level give business tax incentives to locate there. They know that the business will create revenue from all things that spin off of it. Jobs directly created and those created as a result will, hopefully, eclipse the amount they give away. Like a store lowering prices to drive in more customers creates revenue, sometimes giving away money makes you money.

Posted by: Nite on April 24, 2011 at 4:13 PM | PERMALINK

Nite, I think those horses have already bolted and the stable doors are well and truly locked.

Posted by: Squeaky McCrinkle on April 24, 2011 at 4:19 PM | PERMALINK

Wealthy and corporate flight to low tax states and countries is another myth that has entered the conventional wisdom but has no factual basis.

Posted by: Sam on April 24, 2011 at 4:22 PM | PERMALINK

It is not just tax flight, or the moving of a company to get a lower tax rate, it is out and out corporate welfare with tax giveaways. Here in central Colorado two large stores, Walmart and Costco, were offered deals that allows them to charge sales tax but get to keep it and not give the town their share. This was done to entice them to locate there. The same is done at the federal level but with tax breaks for R and D. This is done to encourage firms to develope new products which can be taxed later when purchased by you and me.

Also, tax flight to another state (which contrary to your assertion most certaintly does happen) is one thing. At least the feds still get their cut. Tax flight to other countries is the most damaging. No corporate taxs collected, no income tax from employees, no taxes collected from related jobs created by those who service the business etc. The best way to avoid flight is to make it attractive to do business here.

Squeaky your right about the horses having left the barn but they are still alive and worth the effort of rounding them up, bringing them home and securing the barn so it does not happen again. Unfortunately for us the cowboys needed for the job are down at the bar getting drunk and fighting with each other.

Posted by: Nite on April 24, 2011 at 4:37 PM | PERMALINK

So let's assume that back in 2001, after inheriting a substantial budget surplus from Bill Clinton, Republicans first cut government revenues and then launched America into a debt-financed, 10-year, $1 trillion war in Iraq all because they thought it would make America better off in the long run.

Is America better off because of those decisions? No. Bush-era decisions to take America into debt failed to grow the economy because of the nature of the goods we bought (weapons) and because an emboldened, de-regulated Wall Street used the tax cuts to pay greens fees at Westchester Country Club and create a financial bubble that nearly collapsed the banks.

The debt we are incurring now has a) saved the banks and led to a net profit for the government; b) revived the auto industry, a key component of american economic growth; c) kept the economy's teachers and policemen in their jobs, generating demand; and d) leveraged private investment into new construction and energy projects to build the infrastructure of the future. As Bush's wars continue to wind down the economic leverage wielded by the federal government will only increase.

So not only is the country's current budget not like a family budget, the country's current debt is not like the Bush-era debt.

Posted by: pj in jesusland on April 24, 2011 at 4:43 PM | PERMALINK

OK ... But shouldn't we try to arrange for the US government/taxpayers not to owe anyone interest too? There should be a self-contained federal system, not like "the (so-called) Fed", that lends for its own purposes at no interest.

Posted by: neil b on April 24, 2011 at 5:09 PM | PERMALINK

"the country's current debt is not like the Bush-era debt."

Well PJ, at least you got that right. The current debt is NOT like the Bush-era debt. It is larger. Hope that helps you sleep well in jesusland. Every other point you made is just factually incorrect.

Posted by: Nite on April 24, 2011 at 5:10 PM | PERMALINK

Whatever you say, Nite. There was study just done - the first of its kind - that proved that tax flight is a myth. It literally did not happen in California or New Jersey in 2004.



Business choose their location based on where there is the best infrastructure, best educated work force, cheap labor costs, best R&D, etc. Families choose where to live based on job opportunities, school systems, crime, local climate, proximity to relatives etc. The idea that a wealthy person or corporation would uproot his/her family or corporation because of a couple percentage point increase in their tax rate flies in the face of common sense.

Posted by: Sam on April 24, 2011 at 5:11 PM | PERMALINK

How many corporations actually create the vast numbers they promise when pleading with governmental entities for tax relief in order to build new factories? Nite's argument that payrolls are going to offset those tax breaks is based on what?

I shudder whenever I see the ad promotions for "Steel on Wheels" showing Rattigan hooking up with Nucor. Nucor just bamboozled Bobby Jindal into being granted huge tax breaks so they would build a steel plant in Louisiana. Nucor has "promised" many jobs paying $75,000 per year. Promise is the key word. Jindal gives up needed upfront money for his constituents for a "Pie in the Sky" promise by Nucor.

I witnessed Nucor play off two depressed areas in the PNW. Hoquiam, Washington and Coos Bay, Oregon. Nucor had them falling over each other in granting more and more tax breaks for the building of one small plant. A commissioner in Hoquiam lost an election because he refused to give in to them (Funny thing - He was a Republican). Finally, Hoquiam lost out, then, Nucor demanded the State of Oregon pay for an electrical line to be run from Bonneville, Northeast of Portland to the Southwestern part of Oregon for the new Coos Bay plant. When, Oregon balked, Nucor moved elsewhere. Nucor demands no property tax, no corporate tax, on the basis of "We are going to create X number of high paying jobs".

I still can't believe Rattigan fell for their baloney.

Posted by: berttheclock on April 24, 2011 at 5:14 PM | PERMALINK

I agree that the analogy between a family's budget and the federal budget is deeply flawed. But as long as Republicans are going to use it, I like holding them to their assumptions and showing that they're still wrong.

Every time someone says "We can't spend money we don't have," I want to say "Didn't you take out a mortgage for your home? Well, then, you'd better give that home back! You're spent money you didn't have!" Every time someone cries "We're broke!", they should be asked "Should families take out loans to send their kids to college? Taking out loans gives those families negative net worth--they're broke!"

Under their assumptions, everything should be paid in cash, so only the very wealthy could buy a home or send their kids to college. Obviously, a lot of the non-wealthy successfully buy a home or send their kids to college. So even giving these people their analogy, they're flat out wrong.

There is good debt and bad debt. Sure, some loans get misused. But that doesn't mean all debt is bad. (If we hadn't had debt, we would have lost WWII).

We clearly have the ability to pay back this debt, most likely through a combination of spending cuts and revenue increases. But it's Republicans who can't seem to tell good debt from bad, and refuse to countenance even the least painful revenue increases to pay for it.

Posted by: dsimon on April 24, 2011 at 5:19 PM | PERMALINK

Sam: "Business choose their location based on where there is the best infrastructure, best educated work force, cheap labor costs, best R&D, etc....The idea that a wealthy person or corporation would uproot his/her family or corporation because of a couple percentage point increase in their tax rate flies in the face of common sense."

If taxes were such an important factor for businesses, I'd think you'd see low-tax states as a hotbed of domestic economic activity. And I don't think that's been the case. Many southern states that tout their low-tax, non-union credentials continue to languish. That's not to say that some low-tax states may be doing well, but that the differences we're seeing in state tax rates may not be much of a factor overall.

Posted by: dsimon on April 24, 2011 at 5:29 PM | PERMALINK

I think we liberals have mistakenly bought into the "debt is good, it's the new normal" mentality. We ARE in a debt crisis - personal, corporate and government - but "everybody's doing it," so it's OK. We call it an "investment," and everything's cool.

Young people go to college, end up with tons of student loan debt, then can't find a job and have to live with their parents. The "lucky ones" get to take on a mortgage they'll probably never pay off, for a home they might live in for 5 years until their corporation tells them it's time to move again. Let's not even talk about buying a brand new car and what a ripoff that is.

Who benefits from all this? The bankers and finance companies and Wall Street. A small group at the top are getting very rich watching Americans "invest" themselves to death.

Is what we're doing sustainable and healthy? No.

Posted by: Speed on April 24, 2011 at 5:32 PM | PERMALINK

There's a corollary that everyone seems to miss. The GOP budget plans - the RSC and Ryan plans especially - include massive tax cuts, with no apparent understanding that doing so cuts government's ability to pay down the debt that has accumulated, and will continue to accumulate under those plans. There is a clear household comparison that begs to be made:

When you're over your head in debt, deliberately taking a lower-paying job is not an effective means of addressing the problem.

Posted by: boatboy_srq on April 24, 2011 at 6:07 PM | PERMALINK

Dear Mr Cammers the government can print, thru Bernanke, money, you can't.

Posted by: Kill Bill on April 24, 2011 at 7:26 PM | PERMALINK

We did not have much of a deficit problem, until Reagan became President and the deficits exploded. It continued under Bush. Clinton came along, and brought us to the point that we were running surpluses and looking to pay off the national debt in 10 years. Then the Republicans took over and deficits exploded again. The Republicans now admit that they cannot balance the budget for 70 years, and to do that they need to end Medicare as we know it and to rely on unrealistic assumptions.
The answer to Clarence's question about how things got so bad is that the party of fiscal irresponsibility was put back in change after their mess had been cleaned up. The simple fact is that if that had that not happened, we would not be in such bad shape today.
It was amazing how quickly it was possible to get things under control after the extreme irresponsibility of the Reagan and Bush administrations. At this point in Clinton's presidency, things looked pretty hopeless. The mess that Bush left Obama is much worse than the mess his father left Clinton, but with time it can be cleaned up too.

Posted by: david1234 on April 24, 2011 at 7:51 PM | PERMALINK

"Say for instance you raise the top marginal rate to 50%....." Nite @ 4:13 PM.

Whether you realize it or not, this entire paragraph is a strawman argument.
First, any increase in taxes would apply only to that income earned AFTER the legislation was passed. Thus, someone now earning $10 million per year would have to pay $4.5 million IF they continued to receive that amount.
They wouldn't. Well, perhaps for the length of a current contract, but once that contract expired any future contract would limit pay levels to just under the 50% amount. No company would willingly pay any employee a salary half of which, or more, would go directly to the Federal government. That's where the value to society of high marginal tax rates comes in. If those who have the money won't invest it to the benefit of the community, then the government will tax it and take it away from them.
It rarely happens that way however, because the company would STILL have that nine million, or whatever, it just wouldn't be going to only one or two people. It WOULD be going to such things as increased dividend payments, repurchase of stock, increased wages, or increased R&D. Even, dare I say it?, lower prices.
Reducing taxes on the rich to create jobs doesn't work because most of those who are rich aren't interested in creating jobs, they're interested in keeping and increasing whatever wealth they already have. Investing in activities that increase employment are often risky and that's not what these people are interested in. Undoubtedly there are some wealthy people who actually ARE interested in increasing their wealth by creating jobs, but they're obviously a minority; viz, where are the jobs?
Any "flight" from this country has already taken place as company after company has shifted its manufacturing plants to low-cost labor areas, because LABOR is the highest cost in most industries.
Since many, if not all, labor costs are tax deductible, a decision to relocate ANY factory is a decision to INCREASE profits by decreasing labor costs. As those increased profits AREN'T used for R&D, increased wages (that's why the factory was relocated), or increased dividends, the proper question to ask is WHERE those profits ARE going.
They're going to obscenely out-of-scale CEO salaries and benefits; which by the way, aren't tied to performance. Currently most Boards of Directors rubber-stamp these contracts, but that would stop immediately if marginal rates WERE at 50% or, even better, higher still.
The same applies to the "bonuses" on Wall Street. "Bonuses" taxed at or below the regular tax rates simply encourages irresponsible, even criminal, behavior because, as long as the market, or the police, doesn't intrude, the rewards are so great the risk may seem worth it. The risks for an individual, however, aren't the same as the risks for an entire country as can be seen by what happened in 2008.
High marginal rates effectively act as brake on one of humanity's basest urges - greed. Religion doesn't. Social mores don't. But high marginal rates (and an effective SEC) DO. If you doubt it, study the economic history of the US from 1938 to the repeal of Glass-Steagal.

Posted by: Doug on April 24, 2011 at 9:01 PM | PERMALINK


you are right that a growing deficit is unsustainable but no one is arguing that it is. the question is how and when you reduce the deficit when you have an economy that is fragile at best. on the other hand, you have republicans arguing that any deficit is bad, which is ridiculously wrong.

and from a personal standpoint, what are you suggesting, that we not go to school? that we all rent?

Posted by: mudwall jackson on April 24, 2011 at 9:06 PM | PERMALINK

Maybe if people actually did live within their actual means, we'd all be better off. Don't buy a car until you can afford to pay cash for it. If you can't, take the bus, ride a bike, or walk. Don't buy the latest electronic gadget unless you can pay for it. Don't buy a house if you can't plunk down a 100 percent "down payment."

Put our economy on a 100 percent cash basis.

No credit cards. No loans. No phony baloney financial derivatives or CDOs. Just cash on the barrelhead and if you can't scratch a window with it then don't accept it.

If it's good enough for Paul Ryan, it's good enough for the rest of us.

Posted by: Steve on April 24, 2011 at 9:24 PM | PERMALINK

Doug makes good points. One of the big reasons tax cuts for the wealthy are such an inefficient way to create jobs is that many of the people receiving these tax cuts are highly paid managers, not the rainmakers who take risk.

These wealthy managers just say thanks to Congress and stash their bucks away in accounts managed by other highly paid, risk-averse managers. Any small businessman will tell you the banks have clamped down hard on credit since the financial meltdown. They don't lend to you until you've become successful and don't need their money.

Posted by: pj in jesusland on April 24, 2011 at 9:49 PM | PERMALINK

I agree that government budgets should not be compared to household budgets. But it's fair to point out that when family revenues are down and people are drowning in debt, they can increase revenues by taking on a second (or third) job or start a side business. Using the government budget analogy, this is the equivalent of raising taxes.

Posted by: cynicalgirl on April 24, 2011 at 10:15 PM | PERMALINK

That Nucor deal blew goats, as I grew up in both Oregon and Washington in those areas. It was stupid of them to fight for it - all the money spent wooing them never brought a single job locally; and neither bay had the energy infrastructure to support it (although Grays Harbor was close to the WHOOPS plant, and Coos Bay used to be near dams, neither of those produce power in the here and now).

There are good reasons to bring in things like colleges, research, shipping, because there are benefits from having it locally. There is no benefit to having a Walmart on this side of the city boundary or that - they'll hire the same people and displace the same competition. That local politicians can't tell the difference is because of corruption and idiocy.

Anyhow, I think the mortgage is a great analogy to the national debt, even though it's closer in process to a credit card. We buy a house when the market is low, and live in it. It's secured, sure, that's because the promise of one person doesn't match the power of the promise of an entire nation! My house's personal credit is only about 1/3rd of our gross annual income, our mortgage is 1.5 times our gross annual income.

The US's debt is about equal to our gross annual income (GDP). So what's the difference?

Are people saying that if you get laid off, but expect to be hired next month that you should default on your bills in the meanwhile? That at no point does it make sense to expand your credit to pay for food or shelter while income is low?

Do these people never invest in capital improvements via debt to increase their earning potential? A car via debt? A house or move via debt? An education via debt?

Who are these people who have never incurred debt to balance their expenses?

Posted by: Crissa on April 24, 2011 at 11:16 PM | PERMALINK

What I found interesting in the WaPo piece is that the son the conservative father is so worried about is, by his own account, a pathetic wastrel living in his parents' basement, with no interest in his own betterment or maintenance, a fat overgrown baby waiting to suck on the public teat.

The Dad is worried about welfare for his pathetic, incompetent lump of a child.

But he's white, so that's ok. As long as he's not a dark-skinned welfare queen in some distant ghetto of strangers. We take care of our own (white) losers, but no (colored) strangers need apply.

Sad. Sad. Sad.

Posted by: Jon on April 24, 2011 at 11:57 PM | PERMALINK

The main difference between the federal gov't debt and an individual's debt is this:
The US gov't owes nothing but paper when you really think about it. If anyone demanded full payment, the gov't could pay them off in paper dollars. If the debt holder wants something other than paper money, they can sell the debt on the open market, again getting nothing but paper.
The reason the US got off the gold standard was that we lost nearly half of our gold reserves in the 1960's due to dollar fluctuations. Now its all paper fluctuations.
Those worrying about hyperinflation if the US prints its way out of this crisis needs to think about this.
If we were really heading for hyperinflation and a collapsed dollar would the richest of the rich still be holding trillions and trillions in US currency...smart money says no, but they are....

Posted by: Heathwood on April 25, 2011 at 12:40 AM | PERMALINK

Add something else: if a family finds itself in dire straits, one option it has is to increase the income - a stay-at-home parent, for example, could enter the workforce. Or one of the adults could do part time work on weekends and at night. With the House Republicans, increasing the income is a non-starter. I would like someone with a larger microphone than mine to point that out.

Posted by: BC on April 25, 2011 at 1:44 AM | PERMALINK

A well-informed and complex debate, no doubt.

The bottom line, however, is that the current Republican agenda is manifestly not remotely interested in eliminating debt and balancing books, whatever their public facade may wish us to believe. They are intent only in serving the small, richest fraction of the population by siphoning off all the wealth of the country into the coffers of corporations and their plutocratic overlords. This they are aiming to achieve by destroying government to the point where it is incapable of serving the common good, by manipulating voting rights through introduction of ID restrictions which obstruct and discourage registration and access to the polls thus tipping the scales against Democratic voters, by busting unions and their revenue, by instituting financial marshal law, and by all other means to impoverish, disenfranchise and otherwise intimidate and humiliate the poorest, least powerful bulk of the population simply for the purpose of establishing their vaunted permanent majority with the consequent freedom to exploit, extort, corrupt and enslave the citizens of their country. This is nothing new. Civilizations have succumbed to such despotic usurpation numerous times in the past - and none of them have survived. It seems to be an historical pattern of evolution and demise which has beset many cultural phenomena be they monarchic, oligarchic, imperialistic or even democratic. Maybe it's a law of the universe: what goes up must come down.

The post-colonial American experiment has enjoyed unprecedented material success and aggrandizement over the last century or so, largely at the expense of poorer countries whose natural resources have been cheaply acquired to furnish the great American dream. The Republican project over recent decades has been explicitly to dehumanize the United States governmental system in favor of business and the wealthy. It will be a sad but telling irony if, in so doing, they destroy the very goose that lays their golden eggs.

Posted by: Goldilocks on April 25, 2011 at 7:20 AM | PERMALINK

A mortgage eventually ends.

Our debt is driven by ongoing expenses, defense, Medicare, and Medicaid.

Further, these expenses often produce no extra value for the economy. Often medical expenses not only are of little utility but we know damn well even as we're spending it that it is a bad decision.

The whole goal for defense equipment and people is that they are wasted. We want them to never be used. Perhaps if we took some care to get a little closer to our ideals...

Republicans refuse to evaluate medical procedure efficacy because many useless or low-payoff therapies pay them substantial sums to keep them on the list of compensated care.

Tremendous sums are spent trying to prevent death in the terminally ill. We need to admit that much of this care should not be pursued. Not only does it fail too frequently, but it causes a lot of suffering in the process as well as putting the bill for this cowardice of mortality on the grandkids tab. Reality sucks, but denying it never produces better outcomes.

We can either lower taxes or redeploy the funds but spending money foolishly should be an agreed upon enemy by conservatives and liberals alike. (proving what's foolish can be a challenge, I admit.)

Posted by: toowearyforoutrage on April 25, 2011 at 9:09 PM | PERMALINK
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