U.S. National Debt Hits $17 Trillion: How Did We Get Here?

Discussion in 'Business & Economics' started by cosmictraveler, Aug 29, 2016.

  1. cosmictraveler Be kind to yourself always. Valued Senior Member

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    The meteoric rise in America’s national debt has been largely due to something economists calldeficit spending. Put simply, deficit spending is an economic term for spending more than you earn. A government that relies upon deficit spending to grow its economy is like a man who pays for his groceries and his rent with a credit card. While this “buy now-pay later” attitude may work for a while, eventually the bill comes due. And when it does, it is often painful.

    Search the pages of economic history and you will be hard-pressed to find another government that has relied so heavily upon deficit spending than the United States of America. Similarly, I cannot think of a constituency that has been more supportive of a government’s out-of-control spending in all of history than the American public.

    Because America enjoys a unique and enviable position in the global economy, our nation has been allowed to delay the inevitable day of reckoning.But the torch of economic supremacy can never remain in the hands of one empire forever.For this reason, we can know with all certainty that America’s day of financial reckoning, which has been decades in the making, is nearer than ever before.

    To help understand the magnitude of our current debt crisis, let us examine an abridged version of the story of America’s national debt from 1980 onward.

    In 1980, Ronald Reagan defeated President Jimmy Carter in the race for the White House. Reagan, who famously quipped “government is not the solution to our problem, government is the problem”, won in a landslide victory.Ironically, from 1980-1986, the national debt did in just six short years under President Ronald Reagan what it had taken nearly 200 years to do:it doubled to $2 trillion.

    When Reagan’s eight years of massive deficit spending were finally over, the national debt had soared a whopping184%.

    Reagan would later describe the massive debt increase as the “greatest disappointment” of his presidency. But unfortunately for America, the deficit spending under Reagan was just a warm-up for the coming debt marathon that lay ahead. Today, some 30+ years since the beginning of the “Reagan Revolution,”, the U.S. national debt has risen by over 1600%!

    https://www.google.com/url?sa=t&rct...-here/&usg=AFQjCNF8-Uu9mNYmvzg2jj6-pXLaZ5JKdQ
     
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  3. joepistole Deacon Blues Valued Senior Member

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    First off, the US debt isn't anywhere near 17 trillion dollars. Below is a link to the US Treasury which displays US debt to the minute. A large chunk of the US debt is "debt" the government owes to itself.

    http://treasurydirect.gov/NP/debt/current

    When you subtract the "debt" the US government owes to itself, You get about 14 trillion dollars in debt and when you extract the US debt held by the US central bank, you get about 11 trillion dollars. That's the real debt. The debt the government owes to itself, the "intergovernmental holdings" is directly attributable to payroll taxes and the way those taxes are accounted for. I bet you didn't realize that whenever you earned a paycheck, you increased the national debt. That's one reason why the national debt soared under the Reagan administration. Reagan increased payroll taxes and in doing so, he increased the national debt.

    Reagan and his Democratic congress substantially raised payroll taxes. They raised taxes far above the levels needed to fund the programs they support. The excess taxes were suppose to fund Baby Boomer retirements. Those excess taxes were and have been continually transferred from the Social Security Trust Funds to the general fund and when that transfer occur the government records that transfer as debt. So every time you receive a pay check you are adding to the national debt, because a portion of the payroll taxes you and your employer pay are transferred from the trust funds who receive those taxes to the general fund and that transfer is recorded as debt.

    The excess payroll taxes have been used by government over the course of more than 3 decades to fund lower taxes for America's wealthiest residents. Marginal income tax rates went from 70% to 34%. Capital gains taxes went from 40% to 15%. Those tax cuts were funded by America's wage earners and have been funded by American wage earners for more than 3 decades. That's a big part of the the reported American debt. It's more than 5 trillion dollars worth of that debt. That "debt" didn't exist before Reagan.

    So when you subtract out the intergovernmental holdings, something that didn't exist prior to Reagan, the US debt is not nearly as dramatic as folks like to to be. Further, service on the US debt is about 6% of the federal budget and accounts for less than 2% of GDP. That really isn't burdensome or catastrophic by any measure. It isn't the crisis some people i.e. demagogues have made it out to be. People too often confuse and apply kitchen table finances to sovereign finances and the two are vastly different. A sovereign can always print money or raise taxes, that's not something Joe or Jane Six Pack can do. And a sovereign has obligations Joe and Jane Six Pack don't. So it's wrong to compare the two. But, unfortunately, it happens all the time.

    There is never a good time for bad decisions and profligate spending of the type we witnessed during the Georgie Bush 2.0 administration. But the US debt is very manageable and it's better off than most every other developed nation. There is no looming imminent debt apocalypse lurking in the shadows unless Republicans create one as they have repeatedly attempted to do during Obama's presidency by not paying the nation's bills.
     
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  5. billvon Valued Senior Member

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    Not sure why. Cutting taxes while not cutting services results in a deficit, and he cut a lot of taxes. It doesn't take an economist to realize what will happen when you do that.

    Deficit spending is the ultimate "let the next guy deal with it" dodge. People like government spending; they like fighter planes and schools and highways. People don't like taxes; they will generally vote for the politician who promises to "cut taxes on the middle class." Combine these two desires and you have a constant and unrelenting pressure to spend more than you take in.
     
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  7. iceaura Valued Senior Member

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    It's money the budgeted funding of US government - the funding supported by income and other taxation - is obligated to provide to the Social Security trust fund, which is promised to retirees over the next few decades.

    If it isn't paid the Social Security setup will fail to meet its own obligations, and effectively go bankrupt - same as any other creditor would if key loans defaulted.

    The debt to the SS funding is part of what has to be paid out of US Federal revenues, by income taxes and tariffs and all the other US Federal revenue sources.
    The large majority of the debt, including the financing costs, represents the shortfall of revenue from sharply lowered taxes under Reagan and W when matched against the sharply increased costs of military buildup and war under Reagan and W.
    When you don't, it is. Reaganomics has done a lot of damage.
    The question is whether the US government can in fact significantly raise taxes on its wealthy citizens. This is where the threat comes from - the consequences of failing to do that, with a debt level this high and growing this fast, are kind of severe.
     
  8. joepistole Deacon Blues Valued Senior Member

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    The nation has clearly had the fortitude to pay higher taxes and pay down its debts. Now whither it still has that fortitude is another matter. The never raise taxes folk e.g. the Grover Norquist folks and Republicans aren't really totally against raising taxes. They are just totally against raising taxes on the wealthiest Americans. In Kansas the state's wealthiest residents pay no state income taxes. In order to preserve that tax free status the Republicans who control the state have raised sales taxes on multiple occassions, and virtually everything including groceries in Kansas are subject to sales taxes, and gone deeply into debt.
     
  9. joepistole Deacon Blues Valued Senior Member

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    22,875
    Well, you are back to the gobbledygook. Excess payroll taxes are are not debt. Counting anticipated program expenses over a indeterminate period of time as debt makes absolutely no sense. If you are going to go down that route, you may was well call all anticipated future government expenditures as debt. It makes as much sense. The reason the US Treasury reports debt net of intragovernmental holdings is because others e.g. investors, bankers, economists, etc, understand that fact. Social Security and Medicare recipients have no ownership rights - ZERO. Social Security and Medicare and related programs are funded anyway the government wants to fund them. The programs beneficiaries get whatever Congress says they get and how the program is funded is immaterial. It's first last and always a government program. The government owns the program and the government funds the program. It's anticipated future spending isn't debt any more than anticipated future spending of any government program isn't debt.

    Every time government transfers money from one fund to another fund, it records a "debt" owing to the accounting method used by Congress i.e. fund accounting. It really is that simple. If government used the same accounting method used in private industry these intra-organizational debts would be netted out in consolidation. As previously stated, every time someone earns a paycheck they are indirectly contributing to the national debt because as previously explained, a portion of those payroll taxes will be transferred out of the payroll accounts and into the Treasury's general fund.

    Yes at some point the nation will need to make some decisions about taxation. It will need to raise taxes. It already has raised taxes and rather recently. In 2013 a Republican congress and a Democratic president raised income tax rates on the nation's wealthiest citizens for the first time in 2 decades. The highest marginal rate went from 34% to 39.6%. Capital gains for wealthier Americans went from 15% to 20%. I don't think most people realize that. But it's a fact. But that's still a far cry from what they were during Reagan's presidency. Regardless of all they hype and partisanship and animosity, a Republicans controlled congress and a Democratic POTUS cooperated and raised taxes on America's riches residents.
     
    Last edited: Aug 30, 2016
  10. timojin Valued Senior Member

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    Why do you blame Reagan, he was a dumb man he did what his cabinet and his Phd Economist put in his dish, he just signed it. ( Was not his Nobel prize made economist from University Chicago did his package ?)
     
  11. iceaura Valued Senior Member

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    The excess payroll taxes did not go into the general fund, but instead the Social Security trust fund. From there, they were borrowed by the Federal government, and the Trust Fund holds the IOUs (they are a kind of bond). That is called "debt". The Federal government spent that borrowed money on wars and stuff. Now the time approaches for the borrowed money to be repaid to the Trust Fund, so that Social Security can continue to hand checks to retiring Baby Boomers.

    Of course the Federal Government can simply refuse to repay the borrowed funds. The Federal Government can always repudiate any of its debt, if it's willing to accept the consequences.
    The original Reagan deal that established the SS trust fund was predicated (officially, wink and nod) on much higher tax rates levied against rich people than we have now. Effective tax rates, not paper theory. If you are supremely confident that such tax rates can be restored, then there is no problem. Otherwise, there is.
     
  12. joepistole Deacon Blues Valued Senior Member

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    22,875
    Are you really that slow or just that dishonest? I suggest you go back read what I posted. What don't you understand about, "The excess taxes were suppose to fund Baby Boomer retirements. Those excess taxes were and have been continually transferred from the Social Security Trust Funds to the general fund and when that transfer occur the government records that transfer as debt. So every time you receive a pay check you are adding to the national debt, because a portion of the payroll taxes you and your employer pay are transferred from the trust funds who receive those taxes to the general fund and that transfer is recorded as debt. " What don't you understand about my previous post? Apparently everything. I refer you to my previous post, post #2. http://www.sciforums.com/threads/u-...lion-how-did-we-get-here.157729/#post-3401694

    As is almost always the case with you, you keep contradicting even yourself. First you say the payroll tax money didn't go to the general fund and in the very next sentence you say it does. All these disconnected and contradictory thoughts never cause you any concern; you seem oblivious to your contradictions. It has already been established that the government records fund transfers as debt because of the previously referenced accounting method used by the government.

    That doesn't make it debt in the traditional sense of the word. The transferred funds are owed to the government. Those funds are not owned by any individual or institution other than the government. It's analogous to writing yourself and IOU because you took money out of your vacation budget to pay a for a new set of tires.

    Again, you are mixing accounting with debt. Investors, bankers, economists, et al. really don't care about the accounting method the government uses to record taxation and spending as long as the books balance and that has been explained many times,and that is what this is. This is all internal accounting. You are confusing internal accounting with actual debt. There is a difference.

    And whether you can wrap your head around it or not, others can. That's why "intragovernmental debt" is broken out and listed separately. It is an accounting artifact and it need never be repaid. It could vanish in overnight with an act of Congress without causing any economic concerns. It's not real debt. It's an IOW the government writes to itself to note a transfer from one fund to another. That's all it is.

    Well, the "original Reagan deal" didn't establish Social Security Trust Funds. Secondarily, but not surprisingly, you are mixing unrelated stuff again. The fact is, as previously pointed out, a Republican congress and a Democratic president working together increased taxes on the wealthiest Americans. That's very real. Capital gains taxes have increased by more than 33% for America's wealthiest residents. For America's wealthiest residents, income taxes have gone from 34% to 39.6% and that has absolutely nothing to do with effective tax rates. That's a simple but verifiable fact.

    Also as previously written even with those tax increases, current tax rates are substantially lower than what they were during Reagan's presidency. And taxes on America's wealthiest will likely go higher in the coming years. That's the right thing to do. It will help mitigate the wealth inequality issue and in doing so strengthen the American economy. Your issue of "effective tax rates" is only relevant to a discussion on how much more of the tax burden should be born by America's wealthiest residents. It doesn't change the fact that tax rates have been significantly increased by a Republican Congress and a Democratic president as recently as 2013. That very clearly demonstrates the US still has the ability to increase taxes.
     
    Last edited: Aug 30, 2016
  13. iceaura Valued Senior Member

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    I don't understand why you keep saying the bonds held by the Social Security fund, that are to be called in soon, can be treated as if they were not debt owed by the Federal Government. Do you regard defaulting on Social Security as a serious option?
    Says the guy who on Mondays complains about people confusing kitchen economics with government budgeting.

    No, it's more like you took money out of your IRA to pay for an emergency - you have to get it paid back, or shit's going to hit the fan.
    You keep describing the borrowing from SS as if it were a transfer between different Federal departments all funded from the general pool.
    SS funding has always been separate from the general fund.
    They are owed by the Federal government to the Social Security trust fund. The bonds will have to be retired by regular taxation, by printing money, or defaulted on - just like any other government bond.
    Effective tax rates are the only ones of interest here. We have to actually get the money.
    If you are right, there, then we have no problem. I predict certain difficulties in that agenda.
     
  14. cosmictraveler Be kind to yourself always. Valued Senior Member

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    But it was a Democratic Congress that spent that much. During his administration the Democrats had both houses of Congress so that they could vote for whatever way they wanted to spend.
     
  15. cosmictraveler Be kind to yourself always. Valued Senior Member

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    He didn't cut, Congress , which was Democratic controlled, did.
     
  16. billvon Valued Senior Member

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    He wrote the Tax Reform Act of 1986. It was, of course, approved by Congress - but he was the author, and he had the final approval on it. (Which is why it is often referred to as the first Reagan tax cut.) He campaigned on doing just that.
     
  17. Russ_Watters Not a Trump supporter... Valued Senior Member

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    I don't know if they really believe it, but politicians from both sides tend to claim deficit spending as "stimulus". Reagan might have been saying he wished his policies had resulted in higher economic growth, which would then have yielded lower deficits.
     
  18. Russ_Watters Not a Trump supporter... Valued Senior Member

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    While often cited, the marginal rates are highly misleading because the don't account for deductions, much less the actual structure of the rates or income distributions. The reality is that over time the rich have been paying more and the "everyone else" less, not the other way around. It's probably mostly due to the upside of inequality that liberals don't like to acknowledge. You can look at the numbers yourself, but here's a smidgen that illustrates:

    Top 1%: in 1980 they payed 19% of all federal income taxes and in 2013 they paid 38%

    Bottom 50%: in 1980 they paid 7% of all income taxes and in 2013 they paid 3%.

    http://www.ntu.org/foundation/page/who-pays-income-taxes

    And the percentage paying nothing or on the take is about 40%.

    I consider a situation where a large fraction of the voting public does not contribute to the government's revenue, but can vote on the spending to be very dangerous.
     
  19. billvon Valued Senior Member

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    12,798
    It definitely is stimulus; government spending translates directly into more jobs, a faster velocity of money and a rising GDP. That's why people do it to deal with recessions. Cutting taxes also does this to a lesser extent. It does not directly increase employment, but does increase spending, and that indirectly improves both GDP and the employment situation.

    The problem is that such actions are completely unsustainable. If the government wants to try to use its power to mitigate the effects of a recession it can do so via spending a lot and cutting taxes (that's effectively what the ARRA stimulus was in 2008.) But that has to be followed rapidly by increases in taxes and reduction in government spending once the economy begins to recover - and no one wants to hear that.
     
  20. joepistole Deacon Blues Valued Senior Member

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    22,875
    Except that isn't exactly true, is it? What deductions have changed? What structural changes have occurred which renders marginal tax rates misleading? What is misleading is to include the taxes wealthier people pay i.e. income taxes and ignore the taxes wage earners make e.g. payroll taxes. When you factor in the total tax burden your assertion simply isn't true. And that's how you get very wealthy people like Romney with an effective tax rate of 14% of less if he took all the deductions for which was entitled (i.e. 9%) or Trump who pays no income tax and 100 million dollar IRAs. Whereas you average Joe pays at least 15% in income taxes and another 15% in payroll taxes.

    The fact is America's wealthiest residents earn most of the nation's wealth. Their wealth dwarf's that of 99% of Americans. So it's not untoward or unexpected that the should pay more in aggregate terms. But that isn't what this is about, if a wage earner is paying 30% of his or her income in taxes then America's wealthiest citizens should be able to pay a similar percentage of their income in taxes and that simply isn't the case today e.g. Trump, Romney, Buffet, et al.
     
  21. billvon Valued Senior Member

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    12,798
    They do. The top 1% of earners in the US pay almost 50% of the income taxes in the US. (46% to be precise.) Given that the bottom 60% pays less than 2%, that seems more than fair.
     
  22. joepistole Deacon Blues Valued Senior Member

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    As previously pointed out, that's deceptive and here is why, we have basically 3 taxes on income in this country, federal income tax, payroll taxes, and state income taxes. So to focus just one one tax. the one which is mostly paid by the wealthy, is to ignore more than half of the taxes on income. Whereas federal income taxes are mostly paid by the wealthy, payroll taxes are mostly paid by the working stiffs i.e. middle income earners and payroll taxes. So as previously pointed out it isn't fair to only look at the taxes paid by America's wealthiest and not look or contrast that to the taxes paid by middle income earners. And payroll taxes are just as significant as federal income taxes.

    And then there are state taxes, in some states e.g. Kansas the state's wealthiest residents pay zero income taxes whereas your average working stiff in the state pays 4.6% of his income in state income taxes. So it's not fair to focus only on the taxes paid by the wealthiest and ignore all the other taxes working stiffs pay.

    Additionally, even though the wealthiest pay the majority of the federal income tax, they also earn most of the income. And the amount of their income which is paid in taxes is significantly less than that of a middle class working stiff. There should be a minimum income tax rate as first espoused by Warren Buffet. America's wealthiest shouldn't be paying less as a percentage of income than their workers. If their workers are paying 34% of their income in taxes, then they should too. And that's not the case today. As previously pointed out income tax rates have been much higher in the past. The federal income tax rate has been as high as 95% in 1945. That's a far cry from the current 39.5% as it is today. Capital gains taxes when Reagan was POTUS were 40%, today they are 20% for the highest earners, and before the 2013 tax increase they were 15%.

    So there is plenty of room to raise taxes.
     
  23. Russ_Watters Not a Trump supporter... Valued Senior Member

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    Total is total. Those numbers are directly about the claim you are making. The details are complicated and don't impact the bottom line -- this is you attempting to distract from a set of facts that you don't like and/or have wrong.
    That was your choice, not mine, but to make matters worse, you are mixing, matching and switching back and forth. More on that below.
    If you want to change the claim to be about something else, then you need to provide your own data to back it up. So please provide stats on how total tax burden has changed over time. And provide sources too, since many of the numbers you have provided are wrong.
    No, Joe, your average Joe does not pay anywhere close to 15% in income taxes and your average nebulous "rich" person doesn't pay 14% or 9% in income taxes or nothing in payroll taxes. All of that is wrong or worse, selected to be mis-matched groups.

    Focusing on the angle I think most relevant (income taxes...though much of the rest was false too...), the "average Joe" should probably refer to the median, which pays an average income tax rate of 5%, not 15%. If you wanted the mean, that is 10%, but that includes the entire population, and I'd consider that too broad to just be the "average Joe". To put it another way: the averages of all four of the bottom quintiles are each less than 10%. Any way you want to slice it, it's much less than 15%.

    On the other end, you selected outliers for the nebulous "rich" and pretend they are typical. Since you reference "99% of Americans" below, I'll assume you are trying to claim those are typical 1%ers. But they aren't. To get into the 1% requires somewhere around $400,000 and the average 1%er makes about $1 million. Those guys you cited (Romney, Trump) are in a different league (0.1%? 0.01%? Not sure). Your implication that they are typical paints a vastly misleading picture. The average 1%er pays an effective income tax rate of 23%, not 14% or 0%. Your attempt to paint the situation as if the typical American pays higher income tax rates than the "rich" is just flat-out wrong. Way, way wrong.
    Right, since no one claimed it was untoward, thanks for bringing it up and then acknowledging it is irrelevant!
     
    Last edited: Aug 30, 2016

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