What Would Happen If We Had $0 Debt As a Country?

[bobber205]

I know the only way to reduce our nation's debt is to reduce spending and increase revenue.

Let's say "that happened". What benefits would be gained by cutting the debt by say 80 or 90%? Or 100%?

I'm not asking this to start a fight but I am generally ignorant on what a small amount of debt does for a nation versus a medium or large amount of debt.

[Ugg]

I know the only way to reduce our nation's debt is to reduce spending and increase revenue.

Let's say "that happened". What benefits would be gained by cutting the debt by say 80 or 90%? Or 100%?

I'm not asking this to start a fight but I am generally ignorant on what a small amount of debt does for a nation versus a medium or large amount of debt.

After the US Revolution, the guy on the $20 bill (Alexander Hamilton) pushed to take over the debt of the individual states in exchange for more federal power. By doing so, he helped strengthen the federal government.

My point being that a federal debt has value by strengthening the ties that bind. If we had no debt, what price would we pay? Would there be enough "glue" to keep the fractious fifty together? Debt isn't merely a matter of money.

Economically, it makes no sense to have a pay as you go economy. Some debt is necessary. There are very few small businesses that are self financed. Large corporations out of necessity must have debt. Any CEO that suggested a no debt expansion would be put in the loony bin.

[OutThere]

There was a bit of concern towards the end of the Clinton presidency—when the country was running large surpluses—about what would happen if the debt was eliminated entirely, rendering government bonds (one of the most secure investments) unnecessary....clearly this hasn't been a problem. :p

[Sun Baked]

Let's see, that would be the day after the court lets the US out of bankruptcy court and the Chinese are boxing up the Statue of Liberty and are re-painting the White House a vibrant color with a new blue tile roof so they can turn it into a hotel.

[CorvusCamenarum]

Probably not much. The dollar would regain some lost credibility, and then the following three things would happen in no particular order:

1) The tax & spend crowd would try their damnedest to crank up their spending.
2) The borrow & spend crowd would try their damnedest to crank up their spending.
3) No one in Washington would learn a bloody thing.

After the US Revolution, the guy on the $20 bill (Alexander Hamilton) pushed to take over the debt of the individual states in exchange for more federal power. By doing so, he helped strengthen the federal government.
When did Alexander Hamilton get Andrew Jackson's face? And his name for that matter.

[KingYaba]

When did Alexander Hamilton get Andrew Jackson's face? And his name for that matter.

A slight error on his part. I've mixed names before, too.

[Wotan31]

Not gonna happen. The US is *the most* in debt nation in the world (http://en.wikipedia.org/wiki/List_of_countries_by_external_debt).

The problem with too much debt, is your ability to repay it. It's the same as you or I with a credit card. Max out your credit cards, start barely making the minimum payments, and you'll see your credit rating drop. Same thing.

And Obama's solution? Increase that debt to $1.9 Trillion with his "bail out" plan. Brilliant. :rolleyes: In his first 100 days in office, Obama has increased the national debt by more than every prior US President - combined.

Then you know how he's gonna "fix" that debt problem? Simple! Print more money. Yes, it's that simple. But that has the unfortunate side effect of sending inflation through the roof, making all the hardworking people with 401k's, watch the value of their retirement shrink into nothing, while also sending product prices through the roof. $20 can of soda? $200 for a pair of underwear at Wal-Mart? It'll happen sooner than you think.

And oh BTW, lets increase ******** gov't handouts and social problems through the literally hundreds of earmaks that were added to the bailout bill. The exact same earmarks that Obama pledged to eliminate as part of his Campaign promise.

I say Impeach the fool before he does any more damage.

Does that answer your question? ;)

[mactastic]

Yup, inflation seems to be raging right now.

And it's pretty hollow to hear people complaining that inflation will destroy the value of a 401k... when conservative fiscal policy has destroyed more 401k value than inflation ever will.

[bobber205]

Not gonna happen. The US is *the most* in debt nation in the world (http://en.wikipedia.org/wiki/List_of_countries_by_external_debt).

The problem with too much debt, is your ability to repay it. It's the same as you or I with a credit card. Max out your credit cards, start barely making the minimum payments, and you'll see your credit rating drop. Same thing.

And Obama's solution? Increase that debt to $1.9 Trillion with his "bail out" plan. Brilliant. :rolleyes: In his first 100 days in office, Obama has increased the national debt by more than every prior US President - combined.

Then you know how he's gonna "fix" that debt problem? Simple! Print more money. Yes, it's that simple. But that has the unfortunate side effect of sending inflation through the roof, making all the hardworking people with 401k's, watch the value of their retirement shrink into nothing, while also sending product prices through the roof. $20 can of soda? $200 for a pair of underwear at Wal-Mart? It'll happen sooner than you think.

And oh BTW, lets increase ******** gov't handouts and social problems through the literally hundreds of earmaks that were added to the bailout bill. The exact same earmarks that Obama pledged to eliminate as part of his Campaign promise.

I say Impeach the fool before he does any more damage.

Does that answer your question? ;)

What do you suggest we should have done? Just take the depression like a man? Should we raise taxes in a few years to pay this debt off? What would YOU have done? Almost all economists said we had to spend a ton to avoid a disaster.

Of course you can argue that we shouldn't have spent as *much*. But then there'd be someone like you criticizing you that your amount is still too much.

[Peace]

Do what old Israel used to do. Every seven years forget all debt.

[OutThere]

Then you know how he's gonna "fix" that debt problem? Simple! Print more money. Yes, it's that simple. But that has the unfortunate side effect of sending inflation through the roof, making all the hardworking people with 401k's, watch the value of their retirement shrink into nothing, while also sending product prices through the roof. $20 can of soda? $200 for a pair of underwear at Wal-Mart? It'll happen sooner than you think.

CPI has fallen quite dramatically, reflecting some deflation associated with the recession. Oops.

[Desertrat]

Sorry, mac, but conservative fiscal policy did not cause the subprime loans and the resultant rise of derivatives and CDOs and all that idiocy which led to the stock market crash.

The more the national debt, the more tax money goes to paying the interest. The Obama/Congress proposed budgets and commitments are heading us toward an interest payment of some $500 to $600 billion per year.

Were the US to have zero national debt, the dollar would likely be so strong that our exports would be far less competitive in world markets. We would somehow be forced into other, more economically competitive endeavors to remain debt-free. There would be an impetus to import cheap goods and our balance of payments would remain negative.

It's sort of a "We're all in it, together" deal. Other countries need to be debt-free in order that there be some parity among currencies and buying power.

'Rat

[themoonisdown09]

We'd just wind up putting ourselves back into debt in no time, so it really wouldn't matter.

[Wotan31]

CPI has fallen quite dramatically, reflecting some deflation associated with the recession. Oops.
Yup, inflation seems to be raging right now.
Good grief. they haven't started printing money to pay off the debts yet! Inflation will happen in 5+ years if the Obama "solution" comes to fruition. Are you two really that out of touch of economics?? Or did you just not read my post?
And it's pretty hollow to hear people complaining that inflation will destroy the value of a 401k... when conservative fiscal policy has destroyed more 401k value than inflation ever will.
LMAO because you want it to be, does not make it fact. Site a source, or go back to sleep mactastic.

[yg17]

Not gonna happen. The US is *the most* in debt nation in the world (http://en.wikipedia.org/wiki/List_of_countries_by_external_debt).

The problem with too much debt, is your ability to repay it. It's the same as you or I with a credit card. Max out your credit cards, start barely making the minimum payments, and you'll see your credit rating drop. Same thing.

And Obama's solution? Increase that debt to $1.9 Trillion with his "bail out" plan. Brilliant. :rolleyes: In his first 100 days in office, Obama has increased the national debt by more than every prior US President - combined.

Then you know how he's gonna "fix" that debt problem? Simple! Print more money. Yes, it's that simple. But that has the unfortunate side effect of sending inflation through the roof, making all the hardworking people with 401k's, watch the value of their retirement shrink into nothing, while also sending product prices through the roof. $20 can of soda? $200 for a pair of underwear at Wal-Mart? It'll happen sooner than you think.

And oh BTW, lets increase ******** gov't handouts and social problems through the literally hundreds of earmaks that were added to the bailout bill. The exact same earmarks that Obama pledged to eliminate as part of his Campaign promise.

I say Impeach the fool before he does any more damage.

Does that answer your question? ;)

Calling for Bush's impeachment when he was screwing up this country and spending billions of dollars on an illegal war was considered un-American and unpatriotic by the wingnuts. Now Obama's trying to clean up Bush's mess and all the wingnuts start calling for impeachment. You're un-American and unpatriotic. :rolleyes:

[mactastic]

Sorry, mac, but conservative fiscal policy did not cause the subprime loans and the resultant rise of derivatives and CDOs and all that idiocy which led to the stock market crash.
Deregulation of the markets, Graham-Leach-Bliley style, and Enron loophole style are foundations of the conservative philosophy; thus conservative fiscal policy was at the heart of this fiscal collapse. Conservatives have been fighting since the 1940s to get Glass-Steagal repealed. They were successful in 1998, and within 10 years managed to create the conditions for this situation.

Good grief. they haven't started printing money to pay off the debts yet! Inflation will happen in 5+ years if the Obama "solution" comes to fruition. Are you two really that out of touch of economics?? Or did you just not read my post?
So then why don't you give Obama 5 years to fix the problem before you go around with your unhinged cries to "impeach the fool"?

Oh, right. Because you hate the man.

LMAO because you want it to be, does not make it fact. Site a source, or go back to sleep mactastic.
LMAO see above, or go back to your right-wing parallel universe Wotan.

[apunkrockmonk]

We have a fiat currency...

If there is no national debt than we as a country have no money.

At least that is how I understand it.

[Dmac77]

What do you suggest we should have done? Just take the depression like a man? Should we raise taxes in a few years to pay this debt off? What would YOU have done? Almost all economists said we had to spend a ton to avoid a disaster.

Of course you can argue that we shouldn't have spent as *much*. But then there'd be someone like you criticizing you that your amount is still too much.

This recession is nothing like the depression. It's much more similar to the early 1980's recession.

Don

[gotzero]

I say Impeach the fool before he does any more damage.

Does that answer your question? ;)

This is always a fun chart to trot out at these times.

There were some artifacts of the Clinton era that are responsible for some of the problems, but regardless of your political affiliation, it is hard to blame anyone but W for the runup to and aftermath of the banking crisis.

It is even better with 07-08 (http://www.theinsaneasylum.com/dubiosity/national_debt.pdf).

[OutThere]

This recession is nothing like the depression.

Whoa there...extended bubble followed by panic, spike in unemployment, effects felt internationally. I certainly wouldn't say it's nothing like the great depression...it could have been quite similar, however today we have lots of controls in place to keep those kinds of panics in check.

[mactastic]

This recession is nothing like the depression. It's much more similar to the early 1980's recession.

Don
Did the unbiased reporters at FoxNews tell you that, or did you come to that conclusion independently via your own research or life experience?

[Dmac77]

Whoa there...extended bubble followed by panic, spike in unemployment, effects felt internationally. I certainly wouldn't say it's nothing like the great depression...it could have been quite similar, however today we have lots of controls in place to keep those kinds of panics in check.

And we certainly didn't ned to spend the kind of money that we did. The stimulus was just a way for pork barrel projects to get passed en masse.

Don

[OutThere]

And we certainly didn't ned to spend the kind of money that we did. The stimulus was just a way for pork barrel projects to get passed en masse.

Don

And what would you have proposed? That we sit back, crack a bottle and let it mellow?

[CalBoy]

We have a fiat currency...

If there is no national debt than we as a country have no money.

At least that is how I understand it.

I hate to burst your bubble, but that's not how it works.

If we were to have no debt perpetually, then some interesting things would happen. If we assume that the government runs no deficit and no surplus after the debt is wiped out, then the supply of "safe" investment vehicles will decline considerably because government bonds form the bulk of such safe investments. From an economic point of view, little else would happen.

If the government continued to run a surplus, then things get interesting. The surplus is in essence the government removing money from the economy because it is taxing but not spending. As a result, the economy will not grow as quickly as it could if the government's surplus was spent or if the tax rate was lower. However, a surplus is not always a bad thing. Surpluses during good economic times help to curb inflation and provide a safety fund for when the economy sours. This is one reason why unemployment insurance should be expanded; the more money you take out for unemployment services, the better you fight inflation during good times and the more money you have for unemployment insurance during bad times.

[Dr.Gargoyle]

Q:What Would Happen If We Had $0 Debt As a Country?
A: Another Bush in the White House... You just don't learn.

[Rodimus Prime]

Q:What Would Happen If We Had $0 Debt As a Country?
A: Another Bush in the White House... You just don't learn.

well I think that might need to be updated to Obama in the white house. In another tread some one showed even under best estimates over the next 8 years Obama will the year he spends the least than bush did in the year he spent the most.

[Eraserhead]

^^ Because not regulating enough (thanks to the US republican party) destroyed the world economy.

[Desertrat]

"Deregulation of the markets, Graham-Leach-Bliley style, and Enron loophole style are foundations of the conservative philosophy; thus conservative fiscal policy was at the heart of this fiscal collapse."

Wrong again and still wrong.

Anyhow, back to the thread: In the 1950s, we had almost no debt. 360 Yen to the dollar. 350 Old Francs. Imported Johnny Walker Red Label was a buck a shot and water by in the bar of the George V hotel in Paris. Dortmunder beer was 17¢ done in Pigalle. Our coinage had intrinsic value.

LBJ's guns'n'butter doings led to a decline in the value of our currency such that silver prices rose beyond the coinage value--so Gresham's law took over. DeGaulle started whipping our butts with gold, so Nixon separated us from any connection with gold. Ensuing monetary policy gave us the misery of the late 1970s and most of y'all have seen the last 25 or 30 years, maybe.

FWIW, if the US Government had to do its accounting as corporations are required by law to do, we'd have to show the $74 trillion of unfunded obligations we now have. That's the accumulation of public debt, plus future Medicare, Medicaid, Free Pills and retirement.

I said before that the Bushies did stupid on spending, but it's still chump change compared to what's happening just this very year, with more of the same to come.

We still have some three trillion worth of Alt-A and Option ARMs of residential mortgages to reset during this coming three years or so, with 58% of them in California. Wells Fargo's acquisition of Wachovia included a bucketful of these. Florida is in deep doo-doo as well.

Then there is this little squib:

"Wed Jun 3, 2009 7:18pm EDT

WASHINGTON, June 3 (Reuters) - The U.S. dollar is "seriously overvalued," mostly against the Chinese renminbi and some other Asian currencies, according to a new study published on Wednesday.

The Peterson Institute for International Economics, a Washington-based think tank, said the majority of the 29 currencies it studied need to appreciate against the dollar, with a large rise especially needed by the Chinese currency.

"The principal counterpart to the overvalued dollar is the undervaluation of the Chinese renminbi, which would have needed to appreciate about 21 percent on a weighted average basis and about 40 percent against the dollar to achieve equilibrium," said the study by economists William Cline and John Williamson.

Investor flight to the dollar safe haven since last year has pushed the U.S. currency up by about 10 percent, which on top of an estimated overvaluation of about 7 percent a year ago made for an overvaluation of about 17 percent by March this year, the study said."

China has already pretty much sold out of long-term US treasuries and is only buying our short-term debt. If they shift much more of their spending into commodities, look out.

Hey, Turbo Timmy goes to China to make nice, and even the college kids laughed in his face when he said we're protecting the dollar.

Anybody who figures this is just a severe recession hasn't been paying attention. And about all I can figure this "green shoots" stuff is is maybe some sensamilla...

[jknight8907]

well I think that might need to be updated to Obama in the white house. In another tread some one showed even under best estimates over the next 8 years Obama will the year he spends the least than bush did in the year he spent the most.

Usually I'm pretty good with deciphering not-English English. But what the heck were you trying to say, because I sure can't figure it out from that sentence.:confused:

[Rodimus Prime]

Usually I'm pretty good with deciphering not-English English. But what the heck were you trying to say, because I sure can't figure it out from that sentence.:confused:

Ok from another tread some one else posted link to.

The year Obama spends the least amount of money. will still be greater than the amount Bush spent the most and that was using best case projections.

Basically what it is saying is the amount Bush spent in his term as president will be chump change compared to what obama will be spending.

[jknight8907]

Ok from another tread some one else posted link to.

The year Obama spends the least amount of money. will still be greater than the amount Bush spent the most and that was using best case projections.

Basically what it is saying is the amount Bush spent in his term as president will be chump change compared to what obama will be spending.

Thanks, that makes more sense. :)

[mactastic]

"Deregulation of the markets, Graham-Leach-Bliley style, and Enron loophole style are foundations of the conservative philosophy; thus conservative fiscal policy was at the heart of this fiscal collapse."

Wrong again and still wrong.
Denial again, and still in denial.

[Wotan31]

Calling for Bush's impeachment when he was screwing up this country and spending billions of dollars on an illegal war was considered un-American and unpatriotic by the wingnuts. Now Obama's trying to clean up Bush's mess and all the wingnuts start calling for impeachment. You're un-American and unpatriotic. :rolleyes:
First of all, it was just a jab at those who called for Bush's impeachment. Clearly, this street goes both ways, as it appears I touched on a nerve. ;)

Second, if you're going to call something "illegal", you'd better have facts to back it up. And you've got none. Simply because you want something to be, doesn't make it so.

And this thread is about the economy anyways, so allow me to keep things on topic:

[miloblithe]

...And this thread is about the economy anyways, so allow me to keep things on topic:

Amusing picture, but the fact of the matter is that the DOW has gone up since Obama took office, from 7949 to 8750 today.

[bobber205]

Amusing picture, but the fact of the matter is that the DOW has gone up since Obama took office, from 7949 to 8750 today.

I've noticed that some people never mention that... :D

[Desertrat]

Sure, the DOW is up. It's called a "bear market bounce". Just as in 1930. Some folks figure it could get up to 9,000 or 10,000--before dropping back to 6,000 or less...

Do some homework. Hunt up the historical average P/E ratio for the NYSE. Then look at the present P/E ratios. There is just a wee tad of imbalance, you should pardon the snark. But, to return to the mean, either earnings rise or prices fall. For the next few years there's no sign of earnings rising--which oughta tell you something.

'Rat

[mactastic]

I've noticed that some people never mention that... :D
Yeah, funny how that little talking point critique seems to be gone. "Look how much wealth Obama has destroyed since he took office", and "look at how the market tanked when Obama put forth X" were the battle cries back in March. Funny that those who were employing that (stupid) tactic back then don't have the integrity to praise him now for the stock market rise.

[Desertrat]

Okay, the predicted "Obama Bounce" has occurred. If you've recouped your losses, however, you might consider these numbers from Bill Bonner of The Daily Reckoning:

"In 1930, six months after the initial storm front passed, world output was down about 15%. Today, it is down about 15%, too. Stock markets were only down about 20% in mid-1930. Today, they’re down about 35%. And world trade slipped about 15% in the six months following the onset of the Great Crash of ’29. Today, it is down 25%.

One thing you notice is that like the Great Depression, this downturn is global. A collapse in world trade followed the Crash of ’29. It is usually blamed on two protectionist bumblers in Congress – Smoot and Hawley. But in a real depression, trade falls anyway. World commerce needs to readjust to new realities…whatever they are. That’s happening again now.

The other thing you notice is that this adjustment takes time…and takes the losses much further…much deeper…than anyone expects. The actual bottom in the ’30s didn’t come until 2 to 3 years after the crash. And it took stocks all over the planet down to about 65% below their peaks. World output eventually fell to only about 2/3rds of what it had been in the late ’20s.

It took two decades and a major world war before the world was back on its feet."

A statement which shows up all too frequently is, "It'll be different, this time." Let's hope it's maybe only ten years, not twenty, and no war.

'Rat

[gotzero]

There is a huge difference between debt and deficit. Some debt is arguably very good for reasons stated in this post.

However, constant deficits for no specific purpose other than we are spending too much are very unhealthy. We were in a great situation until the tax cuts that came with the last president, and we are now in an impossible position.

Personally, I wish we had a federal law like that of many states that the budget must be balanced. Since there is only so much to cut, that would almost certainly mean tax increases. I would like to see taxes raised to a sustainable level.

[OutThere]

Okay, the predicted "Obama Bounce" has occurred. If you've recouped your losses, however, you might consider these numbers from Bill Bonner of The Daily Reckoning:

"In 1930, six months after the initial storm front passed, world output was down about 15%. Today, it is down about 15%, too. Stock markets were only down about 20% in mid-1930. Today, they’re down about 35%. And world trade slipped about 15% in the six months following the onset of the Great Crash of ’29. Today, it is down 25%.

One thing you notice is that like the Great Depression, this downturn is global. A collapse in world trade followed the Crash of ’29. It is usually blamed on two protectionist bumblers in Congress – Smoot and Hawley. But in a real depression, trade falls anyway. World commerce needs to readjust to new realities…whatever they are. That’s happening again now.

The other thing you notice is that this adjustment takes time…and takes the losses much further…much deeper…than anyone expects. The actual bottom in the ’30s didn’t come until 2 to 3 years after the crash. And it took stocks all over the planet down to about 65% below their peaks. World output eventually fell to only about 2/3rds of what it had been in the late ’20s.

It took two decades and a major world war before the world was back on its feet."

A statement which shows up all too frequently is, "It'll be different, this time." Let's hope it's maybe only ten years, not twenty, and no war.

'Rat

The conventional understanding as we have discussed it in my politics classes is that the safeguards and regulations that were put in after the Great Depression limited the scope of the initial damage, and the swift application of stimulus was aimed at averting what happened in 1929+: Hoover's lack of quick and effective action, feeling that the system would eventually regulate itself.

Whatever your opinion, we haven't had bank massive bank closings from runs on the banks (FDIC Insurance), we haven't had the same single day drops in the markets, and we don't seem to be headed in the direction of 25% unemployment, even if it were to get much much worse.

[hulugu]

...Anyhow, back to the thread: In the 1950s, we had almost no debt....

Are you sure this is correct? According to at least two separate sources, the national debt was 87% to US GDP falling to 56.2% by 1959. For comparison, our current debt is 90.36% for '09.

From Wikipedia are two charts. The first shows debt, the second shows debt as a portion of GDP.

http://upload.wikimedia.org/wikipedia/en/thumb/3/3b/USDebt.png/350px-USDebt.png

http://upload.wikimedia.org/wikipedia/en/thumb/3/3b/USDebt.png/350px-USDebt.png

[zap2]

And this thread is about the economy anyways, so allow me to keep things on topic:


Um,how? I'd love to see some proof...I'm not saying its 100% Bush's fault(it isn't, our system won' allow for that much power in one persons hands), but he does take some of the blame.(so does the rest of the government)


But how is it Obama's fault?

[mactastic]

But how is it Obama's fault?
Shut up! That's how! ;)

[Desertrat]

Hoover's efforts at stimulus were limited by law to the amount of gold in the treasury, or some such deal about percentage of it. Anyhow, he couldn't do the size of stimulus efforts as we now see. SFAIK, that was the impetus for FDR to de-value the dollar from $20.62/oz to $35/oz of gold, some 75%. Plus, taking the gold away from the public dramatically increased the amount of gold on hand to back his stimulus efforts.

Sure, we have the FDIC and its safeguards, but the fact remains that these safeguards are at present a very big drain on the taxpayer. Further, the amounts of off-the-books risk for the big investment banks are still in the trillions. Over five trillion, last I read.

One thing that has me worried is that we began this mess with little personal savings and a high national debt. No fall-back reserves. All this paper-printing that's going on may well put money in circulation, but it also makes higher consumer price inflation an inevitability. And we still have the commercial real estate bust underway plus the reset of AltA and OptionARMs ahead of us.

hulugu, yeah, you're right about the gross amount. The important point, IMO, is that by the late '50s we were back down to the 1940s level and the economy was booming. Note the rate of decline from '50 to '60. I got out of the Army in 1958, took my GI Bill and never even gave a thought to any difficulty of finding a job after graduation. Aerospace, cars, you name it. Germany and Japan were well underway with rebuilding, along with others, and we were selling all manner of smokestack-industry stuff. Lathes, milling machines, dozers, farm equipment. The dollar was King Kong. I think our gold reserves were up to something like 8,700 tonnes. (Roughly 32,000 troy ounces per tonne.)

The curves for the 1970s are interesting. I recall the consumer price inflation but I didn't realize that GDP growth had flattened that much. Sorta need a curve of GDP through the late '60s into the mid '80s, I guess, to get a better understanding.

[mactastic]

hulugu, yeah, you're right about the gross amount. The important point, IMO, is that by the late '50s we were back down to the 1940s level and the economy was booming.
Hey 'Rat, can you remind us what the top marginal tax rate was back then when you say the economy was booming?

[Eraserhead]

Sure, the DOW is up. It's called a "bear market bounce".

Its debatable whether that is occurring because the economy is doing better or its a false dawn. It certainly isn't certain that it is a false dawn.

[Eraserhead]

Hey 'Rat, can you remind us what the top marginal tax rate was back then when you say the economy was booming?

It was between 84% and 91% :eek:.

http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_top_rates

[Desertrat]

The high top marginal tax rate on income is what led to stock options and company-paid perks. Avoidance of taxable income. So, not many people were exposed to it. The top dogs had company cars and company charge accounts at country clubs and at restaurants. The company picked up the tab for hunting leases and fishing trips. The company had executive meetings in exotic places. As loopholes got closed, others got dreamed up, Congress got lobbied and the game goes on.

Tax avoidance is what people do, what they've always done. Doesn't matter if it's smuggling French brandy into England, hundreds of years back, or juggling the numbers on expenses and depreciation, today.

So a contractor has a fuel tank for his equipment; the fuel is deductible as an expense. The fuel tank doesn't know if the fuel goes into a backhoe or into the company's pickup truck which the owner uses to take his family out to dinner. The 6,500-pound GVW pickup is 100% depreciable.

Harry Homebuilder likely has a whole bunch of improvements to his own house, with all the material costs charged off to his regular business.

Eraserhead, one of the reasons that a lot of folks believe in "bear market bounce" is the present repeating of prior governmental monetary-policy behavior which led to a bear market bounce. The ongoing increase in unemployment and the increase in indebtedness also contribute to this view. At some point, the fundamentals will come into play: Profitable companies increase in stock value. Unprofitable companies decline. What's happening now, mostly, is Vegas-style gambling, not investing in any traditional sense.

[mactastic]

It was between 84% and 91% :eek:.

http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_top_rates
I won't believe it until 'Rat says it. ;)

[Desertrat]

:) About the only really high marginal rate I recall was--with shock--as a kid, around 1943-ish. My grandfather had gotten a raise from $285 a month to around $315 or $325, and he came out with less net money because of being moved to a higher bracket. He was principal of four elementary schools at the time; some 38 years of experience.

Anyhow, I saw the tax table, and the marginal rate for that portion of one's income above one million bucks was 98%.

Even at just nine years of age, I figured that it was nowhere near an incentive to work hard. Why bother?

I know it struck me as being terribly unfair, which is probably a large part of why I favor a flat rate on income tax. A progressive rate is in no way fair; it's just part of a thief's philosophy. Robbing Hood, as it were.

I'm not much on church; never have been, but learning about "tithing" struck me as a reasonable percentage. Hey, ten percent of what I make, I don't mind paying that to Uncle Sugar. I'd never have bothered to become an expert on how to interpret Schedule C to my own benefit.

After all, if you're not paying out a bunch in taxes, you're investing more in others' business, adding to productivity, or in your own business, same deal. And better able to provide for your own old age.

Marc Faber once gave a comparison between a US citizen's investment potential and a citizen of Hong Kong. Each began at 20 or so years of age and wisely invested some $20K/yr over a forty year period. At the end of the period, the US citizen would be worth some $10 to $12 million. The Hong Kong citizen would be worth some $120 million. Taxes. Every time the US citizen sells a stock, he's taxed on the profits, and the dividends are taxed as ordinary income.

Nothing like setting up a tax code to screw your citizens, I guess...

'Rat

[mactastic]

:) About the only really high marginal rate I recall was--with shock--as a kid, around 1943-ish. My grandfather had gotten a raise from $285 a month to around $315 or $325, and he came out with less net money because of being moved to a higher bracket. He was principal of four elementary schools at the time; some 38 years of experience.
That's not a marginal tax rate then. While I'm unsure if they were not using the marginal tax rate principle back then, this is one of those randroid fantasy tales that consistently crops up (and no more true than the idea that tax cuts pay for themselves by stimulating growth) -- under the marginal tax rate system it is impossible to take home less money by moving into a higher tax bracket.

So either this wasn't a marginal tax system of which you speak, or your grandfather was stashing money away that no one knew about.

[zap2]

That's not a marginal tax rate then. While I'm unsure if they were not using the marginal tax rate principle back then, this is one of those randroid fantasy tales that consistently crops up (and no more true than the idea that tax cuts pay for themselves by stimulating growth) -- under the marginal tax rate system it is impossible to take home less money by moving into a higher tax bracket.

So either this wasn't a marginal tax system of which you speak, or your grandfather was stashing money away that no one knew about.

Thats what I thought it was now too, I assume it was just different then(and faulty, it doesn't make sense)

But the way the system is now, I don't buy for a minute that it pushes people not to succeed. No one would rather make 20K vs 40K, just because the taxes on the 20K is lower. Sure its lower, but its 1/2 the amount of over all money!

[hulugu]

Thats what I thought it was now too, I assume it was just different then(and faulty, it doesn't make sense)

But the way the system is now, I don't buy for a minute that it pushes people not to succeed. No one would rather make 20K vs 40K, just because the taxes on the 20K is lower. Sure its lower, but its 1/2 the amount of over all money!

Right, even if you made personally made $82,250 and were given raise of $1, you still wouldn't lose money on the change, instead that last dollar would be charged at the higher 28% rate while your previous income would remain at 25%. Yes, your raise of $1 would only be worth 72 cents after taxes, but you'd still get 72 cents more per year.

And, I simply don't buy the idea that I should stop increasing my income because, even as my tax liability rises, I still have more money to invest, buy the Next Best Thing, and travel.

An interesting bit of data I ran across indicated that because of how taxes are instituted by various agencies (sales tax, state tax, local city or county taxes, property taxes) the average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is only 5.3 percentage points.

As a consequence, a 30-year-old couple earning only $20,000 a year has a marginal tax rate of 42.5%, while a 45-year-old couple earning $500,000 pays at 43.2%.

This is according to a paper written by the National Bureau of Economic Research. Note, the authors are Flat Tax proponents, but the information is interesting.
Linky (http://www.nber.org/papers/w11831.pdf).

[Desertrat]

:), mac, my view of my grandfather was that he was a man who flat-out did not know how to lie. It wouldn't even occur to him to do so. He was born in 1885, the 8th of 10 children; German stock with roots in the Texas Revolution. Began teaching in 1905; retired in 1954. Along with being a school principal, in 1937-1939 he did a survey of Texas public schools for the legislature, which gave him the cash to buy 150 acres outside Austin. $24/acre. (Irony: By 1980, the school taxes were $35/acre/yr.) He added farming and ranching to his teaching.

During WW II, as a principal at four elementary schools, he integrated Matthews School in Austin, telling the world that if a child lived near the school, that's where they should go. Since most of the school board and local area parents had been his students in high school, he caught little flak. Post WW II, he was principal at a 90+% Latin elementary school where he solved the bi-lingual language problem--with over 90% of the Latin kids going on to junior high with adequate fluency in written and spoken English.

You grow up around a gentle man who's thrifty and hard-working, you start figuring out about respect--as well as courtesy and politeness. About earning one's way in life. And for sure, all about debt and the avoidance of wasting money on frou-frou bling garbage.

So, back to debt: Check out EverBank's daily commentary at http://www.dailypfennig.com/ Today's comments about unemployment and debt are a continuation of the thoughts of folks who make money by being correct in their judgements.

Regardless of the what-ifs of no national debt, the monstrously gigantic debt now being racked up by TPTB bodes ill for the nation. The happy noises of spin and BS coming from inside the Beltway don't help people prepare to deal with the coming storm.

FWIW, folks talk of the views of economists. Okay, who caused the loss of several billion bucks at Long Term Capital Managemnet? Some Nobel Laureates of Economics. The feds have bunches of economists working for them, with access to far more information than you or I have. How come they didn't see the coming of this present mess?

'Rat

[mactastic]

:), mac, my view of my grandfather was that he was a man who flat-out did not know how to lie. It wouldn't even occur to him to do so. He was born in 1885, the 8th of 10 children; German stock with roots in the Texas Revolution. Began teaching in 1905; retired in 1954. Along with being a school principal, in 1937-1939 he did a survey of Texas public schools for the legislature, which gave him the cash to buy 150 acres outside Austin. $24/acre. (Irony: By 1980, the school taxes were $35/acre/yr.) He added farming and ranching to his teaching.

During WW II, as a principal at four elementary schools, he integrated Matthews School in Austin, telling the world that if a child lived near the school, that's where they should go. Since most of the school board and local area parents had been his students in high school, he caught little flak. Post WW II, he was principal at a 90+% Latin elementary school where he solved the bi-lingual language problem--with over 90% of the Latin kids going on to junior high with adequate fluency in written and spoken English.

You grow up around a gentle man who's thrifty and hard-working, you start figuring out about respect--as well as courtesy and politeness. About earning one's way in life. And for sure, all about debt and the avoidance of wasting money on frou-frou bling garbage.

So, back to debt: Check out EverBank's daily commentary at http://www.dailypfennig.com/ Today's comments about unemployment and debt are a continuation of the thoughts of folks who make money by being correct in their judgements.

Regardless of the what-ifs of no national debt, the monstrously gigantic debt now being racked up by TPTB bodes ill for the nation. The happy noises of spin and BS coming from inside the Beltway don't help people prepare to deal with the coming storm.

FWIW, folks talk of the views of economists. Okay, who caused the loss of several billion bucks at Long Term Capital Managemnet? Some Nobel Laureates of Economics. The feds have bunches of economists working for them, with access to far more information than you or I have. How come they didn't see the coming of this present mess?

'Rat
Hmm... still having difficulty understanding how he wound up with less by making more.

[hulugu]

Hmm... still having difficulty understanding how he wound up with less by making more.

Maybe he changed his withholdings?

[Desertrat]

The only comment I recall had to do with the higher bracket. I doubt there were arithmetical errors. Hey, he wrote math books at night. :D Published and sold, and then re-issued when "New Math" got started.

Funny how various disscussion subjects bring up memories. Same sort of thing on another board I frequent. All in all, I wouldn't trade my life for anybody's. :) I've had way too much fun to ever care about the occasional hard times. Still having fun, but less of the hard-charging physical stuff--as I knew was coming. One thing about it, getting old beats the alternative. :D

'Rat

[Rodimus Prime]

Hmm... still having difficulty understanding how he wound up with less by making more.

Only way I could think of it happening is if he made enough to just slip into the alternative minimum tax which when it was designed was supposed to only target the super rich but it was never index against inflation so over the years it has been hitting lower and lower incomes. It already has nailed the upper middle class and now starting to hit middle middle class.

[hulugu]

Only way I could think of it happening is if he made enough to just slip into the alternative minimum tax which when it was designed was supposed to only target the super rich but it was never index against inflation so over the years it has been hitting lower and lower incomes. It already has nailed the upper middle class and now starting to hit middle middle class.

In 1943?

[Desertrat]

The Alternative Minimum Tax was so generously given to us by "Mr. Republican", Sen. Robert Dole. Around 1984 or 1985. It took me three years to restructure my little financial micro-empire around that deal.

[mactastic]

Yeah... still confused.