One of the touchstones for GOP members has been the pledge to “pay as you go” — covering any increases in spending with corresponding cuts in spending or new revenue. The campaign season appears to have taken its toll on that pledge with tax cuts that can add nearly $1 trillion to the federal debt.
I am obviously more conservative on economic and tax issues than many on our blog. (It is probably the hold of the University of Chicago education in my impressionable youth). However, I remain alarmed by our continuing mounting debt at a time when countries around the world are facing defaults and crisis ager periods of rising state debt. We just discussed the deficit figures this week. I was a critic of Bush for his runaway spending, including the two wars, and I also believe that Obama has shown a lack of spending control (as has Congress). While debt is part of the reality of modern economics for any state, our debt is massive and we are spending an inordinate amount of every dollar to simply pay for that debt.
The economists differ on where the redline may be for debt as a percent of GDP. We are currently eleventh in that ratio. Japan is over 180 percent while Greece is just under 150 percent. Italy is in third place at 109 percent. We stand at around 61 percent of GDP. Some economists view 70 percent as the red line.
Despite this concern, the U.S. is actually paying less on its debt service due to the effort to keep interest rates low. We are paying about seven percent on that debt which is down from the 1990s due to the shifting interest rates. That leads some to argue that we can add even more debt to offer incentives for growth. I admit that I have long been a skeptic of government programs to jump start an economy of this size. What we saw under Bush and Obama in federal subsidies, bailouts, and “growth” programs seemed highly wasteful and often involved dubious accounting of the true costs.
Jeffrey Dorfman has an interesting article in Forbes rejecting the GDP ratio as a measure. He notes:
This also offers a better comparison because different countries have very different levels of taxation. A country with high taxes can afford more debt than a low tax country. Debt to GDP ignores this difference. Comparing debt to tax revenue reveals a much truer picture of the burden of each country’s debt on its government’s finances.
When I compute those figures, Japan is still #1, with a debt as a percentage of tax revenue of about 900 percent and Greece is still in second place at about 475 percent. The big change is the U.S. jumps up to third place, with a debt to income measure of 408 percent.
The most recent measures allows for some positive changes like $155 billion research and development tax credit and a $90 billion expansion of the child tax credit to higher-income families. However, in the past, the GOP has insisted on paying down or at least covering such costs so not to add to the national debt. The failure to do so was attacked by Minority Leader Nancy Pelosi as hypocritical. Pelosi was not championing the “pay-as-you-go” policy but noting that past Democratic measures have been opposed on the basis for that policy.
The fact that these measures involve tax cuts will likely insulate the members from a backlash on the campaign trail but the “pay-as-you-go” approach just seemed to morph into “spend-as-they-went” back home to campaign.
The US has the highest corporate tax rate in the world. That’s the impetus to moving out of this tax hell.
Karen S.,
Does your husband have customers? Do they pay your husband?
Corporations will do anything and everything to increase EPS which equates to efficiency. That is their mission. If they can reduce the expense of taxation by moving, they will. And so would you and all other taxpayers.
That corporations save money through one act does not mean that the people who buy their products are not the ones supplying the money to pay the taxes.
Corporations don’t pay anything. They take money from customers, conduct operations, pay expenses, pay taxes then deploy EPS.
Customers pay for everything including taxes.
Corporations don’t have money. They get it from customers.
People pay taxes and politicians fool people into paying two or three levels of taxation. Corporations don’t pay tax. People/customers do. Politicians live by obfuscation.
I’m trying my best to demonstrate something. It appears that you want to call it “semantics” and dismiss the facts.
Are you understanding or are you being fooled?
Karen S. My comment to John was hyperbole, in answer to his equally hyperbolic posts. I come from a business family, I do understand taxes, but I also understand that those businesses pay the taxes. My family made outdoor furniture. We lived in a resort area and the business did well. My father and his brothers were in business for many years, before selling the place when they retired. They paid taxes on the business. I never heard foolishness like “my customers are paying the taxes now”. They made a profit, and they paid taxes. If you want to split hairs, their profit came from people, but equally, my father and his brothers paid salaries to other workers. When those workers paid their taxes, should they have then said, “this is the money that my employer gave me, so my employer is paying my taxes”? This can all be very prettily put into semantics, but it’s not very helpful. John is now telling me why corporations try to ease their tax burdens, but if that doesn’t lower my costs, then I’m not benefitting from that easement, therefore, I’m not getting the tax break, so how am I paying the tax to begin with? Sure, it makes for a fine argument. Yet, I’m the one being fooled. I realize it’s all symbiotic, but to say that a corporation doesn’t pay taxes, as John is actually saying, is no different than what I said. Your husband’s business pays taxes, and so do corporations. The money has to come from somewhere, to be sure, but that’s obvious. When I pay my taxes, I can now feel better by saying, “I’m not paying taxes, AT&T and the Federal Government is paying taxes.” I now understand.
maxcat:
“Corporations don’t pay taxes. Full stop.”
That is such a misstatement as to boggle the mind. My husband’s business is incorporated, and I do assure you that we pay so much in taxes, that I at first thought it must be a typo, the first time I saw our tax returns.
Samantha – that was one of my favorite articles in a long, long time.
This kind of thinking out of the box is exactly what I’ve been talking about. We need to stop obsessing about the means, and focus on the results, and CHANGE OUR APPROACH as often as needed to optimize results.
I particularly liked the bit about replacing the unaccountable Department of Education with a Board of Trustees elected by the parents in the area, and tying funds to each child, who can attend any school. This model has also born fruit in Europe. Once teachers and schools understand that if they underperform, they lose their funding, and their jobs, you see results.
Another favorite aspect was 2 flat rate taxes, one for high and one for low earners. Simple. It also completely removes the temptation to high lawyers and accountants to exploit every tax loophole and deduction.
Love it.
You can’t argue with the results (but I know some will try.)
John, one more thing…why was Walgreens trying to move to Switzerland to avoid U.S. taxes? Was that also to lower my prices?
maxcat06
You know that corporations sell products, right?
You know that consumers pay for those products, right?
Then you know that consumers pay the corporations then the corporations pay
the taxes, right?
Corporations obtain revenue and pay taxes from that revenue.
The top line is reduced by expenses to arrive at the bottom line.
Taxes are one of those expenses.
Consumers pay the taxes of corporations.
Corporations DO NOT PAY TAXES.
John, I can play semantics with you all day, and it would be fun, but answer me something: if corporations don’t pay taxes, why do they move to other countries or offshore in order to not pay taxes? Why does Exxon/Mobil get tax breaks from the U.S. government? You did answer it in one line, “The top line is reduced by expenses to arrive at the bottom line.” Fine. How high is high enough for the top line? Is it never high enough so that taxes can be paid purely as a form of skimming off profit, without it being passed on to the consumers? Of course it can be. It just isn’t. Why are corporations always trying to find tax loopholes? Is it so they can pass off the savings to their consumers? If so, I’m expecting big savings the next time I fill up at the pump.
When Clinton took office the interest (voodoo) payment on the national debt ~ equaled DoD spending(400B) Toward the end of the “ClintonS” term, the deficit was being reduced w/ surplus taxes, billybob even gave a speech to the 1%’ers saying he’d raised their taxes too much. Sorry. Then came the moochers demanding tax cuts, instead of paying for AF/Pac & homeland security state.
Treason. period. Same ol same old.
bait & switch = cuts taxes & then blame FDR & El-bj for the deficits
Hi Darren, My newest comment wouldn’t post either! Thanks for getting the other ones. If you can get this one, I’d appreciate it!
Actually, Paul, like torture, the prosecution of financial fraud such as occurred before 08 (and has now morphed into even worse types of fraud) is mandatory under US law.
Bill Black is a white collar criminologist. He has written about this extensively. Again, though I recommend nakedcapitalism.com. There are a variety of view points and people who write there understand the system quite well. They are extremely informed, do not engage in personal attacks (for the most part) and there is a good interchange of ideas. That’s my go-to place for economic analysis!
Jill, I retrieved your comment at 3:04.
maxcat06,
Social Security should be privatized as are all other retirement plans.
Self reliance is the basis of the American principle of freedom.
Corporations DO NOT pay tax, their consumers do.
Do you enjoy being manipulated by Ponzi schemes like Social Security and
fooled by the idea that corporations pay tax?
I don’t care how you choose to finance Social Security in the future – to be frank, I won’t be here. I know that now, I’m reaping what I sowed, and I’ll be damned if I’m going to be shamed over it. Corporations don’t pay taxes. Full stop. They are not required to. In fact, Congress rolls over and plays dead in order to ensure that they pay as little as possible. I’m not manipulated, and I’m not buying the libertarian claptrap of self-reliance as the basis of freedom in America. Read the preamble of the Constitution for example: “WE the people, in order to form a more perfect union…” and I could go on. The wild west ended over a century ago. Yes, self-reliance is important, I’m not saying it isn’t, but if you’re saying it’s the cornerstone of the idea of America, I’m not buying it. My parents were 1st generation American, built a business and hired people at good salary with benefits. I later worked for 30 years at AT&T. I know both sides of business and I know corporate mindset, as I was in management at AT&T. Corporations pay tax, and they can afford to. They just have decided to lay that burden off onto the consumers. After all, their profits might be just a tad smaller.
Do you enjoy belittling people by asking them if they enjoy being manipulated? One thing I used to enjoy about this site was civility. Another casualty of “self-reliance”.
To form a more perfect union, government was limited to Justice, Tranquility, Common Defence and General Welfare. That is security and infrastructure, deliberately excluding individual welfare.
The Blessings of Liberty are the endeavors, businesses and industries conducted in the free markets of the private sector without governmental interference.
It takes discipline for such simplicity.
Alexis de Tocqueville
“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
The Constitution provides for governance within the parameters of the Preamble which is the American context.
The parameters have been exceeded.
The piper will have to be paid.
Yesterday, a small victory for American taxpayers took place when Walgreens, caving in to public outcry, decided not to become a Swiss corporation in order to avoid U.S. taxation. Why are corporations allowed to do this with impunity, except when they are exposed and ridiculed beforehand? Is it because they’re “people”. Before we blame the libs, or the lazy federal workers, perhaps it is time to blame the corporations. I agree with Jill, and also question the need to bring Lois Lerner into this conversation. We are losing billions in taxes, and both parties are letting it happen. I’m retired, and do collect Social Security, but doubt that I or my fellow retirees are the huge drain on the system. I worked and paid in to allow myself the knowledge that the funds would be there. That the Social Security “kitty” has been raided time and time again is the reason it’s going bankrupt, not the number of recipients.
Never ending spending
Jill, The DOJ also refuses to prosecute people like Lois Lerner. Are you as angry about that? Who are the people in 08 you are talking about? How would they put common people in jail for accepting loans that they signed but couldn’t afford? I love how people blame the bankers, but not the people who signed on the dotted line. It’s called personal responsibility, something libs hate to hear.
Back on the topic, this is why I am not a republican and hate it when republican and conservative are mixed together like they are the same.
I cannot post any comment with content concerning the topic on this thread.
There is a good book on the perils of private contractors: Shadow Elite by Janiene Wedel.
Republicans will spend like drunken sailors for the people who purchased their services! I don’t know why ordinary Republicans fail to notice this. They should call out these hypocrites.
I disagree with JT that this is a time for pulling back spending in the US. We desperately need fiscal stimulus. The real problem is many fold, but one major issue is how the money is spent. We do not use our money for the good of our nation, we take from the poor and give to the super rich to pay off their waste, fraud and abuse.
Not only does the DOJ refuse to prosecute for financial fraud, as they are requried to by law, they make certain the same people who brought down our economy in 08 keep getting pay offs. If you’re a war contractor you can just hold out your hand and receive whatever you want. Never mind that your company engages in fraud and murder of civilians–sure, no problem, have some more taxpayer funds!
How a society spends money shows the values of the elites of that society. It doesn’t show anything good about the people running things, that’s for sure.
I recommend nakedcapitalism.com for good analysis of economics.
Jill, I retrieved your comment at 12:26.
Jill – the DOJ is not ‘required’ to do anything, just as the police are not required to ‘protect and serve.’
Samantha:
“we implemented a new policy whereby money wouldn’t simply be allocated to government agencies; instead, there would be a purchase contract with the senior executives of those agencies that clearly delineated what was expected in return for the money.”
How wonderful if we would emulate.
Great idea, Samantha!
I move that fiscal conservatism be placed on the Endangered Species list, with corresponding federal protections.