Thursday, January 20, 2005

Deficits = Future Taxes

The last three Republican presidents have borrowed enormous amounts of money. Last year alone Bush borrowed $400 billion, about 16% of total spending. We presently owe about $7 trillion. All of this debt is due to World War II, Reagan, Bush Sr., and Bush Jr.. All the other presidents combined had a trivial effect.

When President Reagan took office in 1981 we were borrowing about $25 billion per year. Reagan doubled that every year until it hit $200 billion. The deficit stayed there, give or take a bit, through Bush, Sr.'s term and the beginning of the Clinton years. In the late 90s Clinton actually ran a surplus and paid down the debt a bit (he was a Democrat, after all). However, when Bush Jr. took office our financial position immediately began to go south to the point that we are now borrowing $400 a year. Of course, Congress passed all the spending increases and tax cuts, but they largely followed presidential policy.

Why would presidents like deficits? Power. Tax cuts make you popular so you get elected, but less money means less power. By simply borrowing trillions of dollars to cover the tax cuts and then some, Reagan and Bush Jr./Sr. gained a great deal of power.

Periodically someone asks, what's wrong with deficits? I've heard lots of complex, unimpressive answers to this question. The right answer is astoundingly simple: you have to pay it back with interest. Every dollar we borrow means two dollars of future taxes (give or take a bit depending on the interest rate and term). These future taxes will buy nothing. Not aircraft carriers, not health care, nothing. Since we will need to raise hundreds of billions of dollars in taxes that buy nothing, today's deficits will seriously weaken us.

Of course, when the bills become due, we could always borrow more money. Unfortunately, that would turn $7 trillion of debt into $10-14 trillion. We can do this for awhile, but not forever. If we continue on our present course, by 2040 all of the federal government's income will go to interest payments. There won't be any income available for defense, research, education, medical, or anything else. Consider that the Republicans are making a big deal because by 2040 social security may need to reduce benefits. This is pretty minor compared to the federal government going belly up.

How did we get into this mess? Cutting taxes without cutting spending. Both Reagan and Bush Jr have successfully pushed large tax cuts through Congree, and both have increased spending. If you make less money and spend more, you have to borrow. When the debt become due taxes will be needed to pay it.

This means that the tax cuts are an illusion. Taxes are cut today, but must be increased tomorrow to pay for it. The future taxes are larger than today's tax cuts because of the interest on the debt. Here's the genius of it: because the Reagan and Bush tax cuts were for everybody, but mostly for the wealthy, more of the future taxes will be paid by the middle class and poor. This leaves more money for the wealthy, also known as the Republican base. More money means more power.

The tax cuts and resulting debt are the key to Republican power. Tax cuts are popular, who doesn't want their taxes reduced? If it meant spending cuts the public would howl, but spending has increased! People are so confused by the BS that they don't see the obvious: massive future taxes will be needed to pay for the Reagan/Bush borrowing binge.

The Republicans like to blame the recession, the war on terror, the cold war, and so forth for the deficits. These are just excuses. Other presidents have faced bigger recessions and bigger wars without resorting to multi-trillion dollar borrowing. The deficts are the result of deliberate Republican policy to increase their power. It is successful in that it has lead to Republican control of the federal government. It will, inevitably, also lead to $7+ trillion in future taxes. Get ready to pay or go bankrupt.

A few months ago Osama bin Laden said he plans to bankrupt America. He plans to draw the US into military conflicts all over the muslim world. Without increased taxes, each conflict will add hundreds of billions of debt. The way you go bankrupt is to borrow a lot of money. I'm afraid Osama wining this particular battle.

6 Comments:

Blogger kredietlenenhypotheken said...

Hi Al Globus,

Surely a nice blog you have here! Very informative!

I have a site about geld lenen. This means borrowing money.

You may want to come and visit sometimes! I hope you do not mind me bookmarking your blog, so I can come back sometimes!

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Regards,

Walter

3:55 PM  
Blogger kredietlenenhypotheken said...

Hi Al Globus,

Surely a nice blog you have here! Very informative!

I have a site about geld lenen. This means borrowing money.

You may want to come and visit sometimes! I hope you do not mind me bookmarking your blog, so I can come back sometimes!

Hope to see you on my geld lenen site.

Regards,

Walter

4:21 PM  
Blogger kredietlenenhypotheken said...

Hi Al Globus,

Surely a nice blog you have here! Very informative!

I have a site about krediet. This means credit.

You may want to come and visit sometimes! I hope you do not mind me bookmarking your blog, so I can come back sometimes!

Hope to see you on my krediet site.

Regards,

Walter

7:23 PM  
Blogger kredietlenenhypotheken said...

Hi Al Globus,

Surely a nice blog you have here! Very informative!

I have a site about lening. This means loan.

You may want to come and visit sometimes! I hope you do not mind me bookmarking your blog, so I can come back sometimes!

Hope to see you on my lening site.

Regards,

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8:11 PM  
Blogger kredietlenenhypotheken said...

Hello Al ,Als je bij een bank niet slaagt voor hypotheken heb je dan nog kans op hypotheken bij bijvoorbeeld postkrediet?

2:11 AM  
Blogger alberthaanstra said...

Hi, Als je bij de bank niet slaagt voor een hypotheek, heeft men bij een online hypotheek dan nog wel kans op succes?

Groeten Albert.

Ps, heb je al gehoord van de nieuwste ringtonen? Een ringtone met je eigen naam erin! Supercool en grappig. Luister naar je eigen naam in een ringtone op naambeltonen.info

1:32 PM  

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