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Old 07-07-2011, 04:10 PM   #1
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Default The Republicans are playing a cynical political game with hugely high economic stakes

http://www.economist.com/node/18928600

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IN THREE weeks, if there is no political deal, the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers. That would be damaging enough at a time of economic fragility. And the longer such a default went on, the greater the risk of provoking a genuine bond crisis would become.

There is no good economic reason why this should be happening. America’s net indebtedness is a perfectly affordable 65% of GDP, and throughout the past three years of recession and tepid recovery investors have been more than happy to go on lending to the federal government. The current problems, rather, are political. Under America’s elaborate separation of powers, Congress must authorise any extension of the debt ceiling, which now stands at $14.3 trillion. Back in May the government bumped up against that limit, but various accounting dodges have been used to keep funds flowing. It is now reckoned that these wheezes will be exhausted by August 2nd.

The House of Representatives, under Republican control as a result of last November’s mid-term elections, has balked at passing the necessary bill. That is perfectly reasonable: until recently the Republicans had been exercising their clear electoral mandate to hold the government of Barack Obama to account, insisting that they will not permit a higher debt ceiling until agreement is reached on wrenching cuts to public spending. Until they started to play hardball in this way, Mr Obama had been deplorably insouciant about the medium-term picture, repeatedly failing in his budgets and his state-of-the-union speeches to offer any path to a sustainable deficit. Under heavy Republican pressure, he has been forced to rethink.

Now, however, the Republicans are pushing things too far. Talks with the administration ground to a halt last month, despite an offer from the Democrats to cut at least $2 trillion and possibly much more out of the budget over the next ten years. Assuming that the recovery continues, that would be enough to get the deficit back to a prudent level. As The Economist went to press, Mr Obama seemed set to restart the talks.

The sticking-point is not on the spending side. It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take. This is economically illiterate and disgracefully cynical.

A gamble where you bet your country’s good name

This newspaper has a strong dislike of big government; we have long argued that the main way to right America’s finances is through spending cuts. But you cannot get there without any tax rises. In Britain, for instance, the coalition government aims to tame its deficit with a 3:1 ratio of cuts to hikes. America’s tax take is at its lowest level for decades: even Ronald Reagan raised taxes when he needed to do so.

And the closer you look, the more unprincipled the Republicans look. Earlier this year House Republicans produced a report noting that an 85%-15% split between spending cuts and tax rises was the average for successful fiscal consolidations, according to historical evidence. The White House is offering an 83%-17% split (hardly a huge distance) and a promise that none of the revenue increase will come from higher marginal rates, only from eliminating loopholes. If the Republicans were real tax reformers, they would seize this offer.

Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note.

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Old 07-07-2011, 04:12 PM   #2
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You could tax the top 5% of americans 100% of their income and it wouldn't pay for this year's defecit.

increased taxes just means more revenue they'll use to spend it on something else they cannot afford, not including the defecit.


Let use local gov't as an example:



Reagan in 1988 cut 275 billion in taxes while adding 132 in other places, for a grand reduction of 143 billion.



It takes simple math to figure out you can't spend more than you can possibly take in, Americans can't print paper money and call it valuable.
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Old 07-07-2011, 04:19 PM   #3
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increased taxes just means more revenue they'll use to spend it on something else they cannot afford, not including the defecit.
True words from brainey.
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Old 07-07-2011, 04:21 PM   #4
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Taxing the gainfully employed is a great idea for politicians. First of all, they are likely to pay the increase. Second, there are fewer high way earners so you don't have to worry about losing their votes. Third, Katrina Syndrome affected people vote.
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Old 07-07-2011, 04:22 PM   #5
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Where is the break point? When will it be realized by the rest of the world that the USA's debt is no good? Can we hurry up and get there rather than keep talking about it? I'm trying to get ready for agriculture and our new lives of modesty and community.
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Old 07-07-2011, 04:23 PM   #6
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tax the Blacks!
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Old 07-07-2011, 04:23 PM   #7
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yeah i said it.
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Old 07-07-2011, 04:25 PM   #8
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I'd love a default. It's going to happen sooner or later; the longer we delay it, the worse the correction is going to be.
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Old 07-07-2011, 04:28 PM   #9
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tax the Blacks!
Then who will vote for Hussein bin-Obamakahn?.

BTW, this author is clearly in love with Romney.
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Old 07-07-2011, 04:31 PM   #10
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Oh I thought taxing minority groups was the cool thing to do.
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Old 07-07-2011, 04:46 PM   #11
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increased taxes just means more revenue they'll use to spend it on something else they cannot afford, not including the defecit.

if you had a blanket 3-5% tax increase on every income level, and used it to close the deficit in combination with heavy spending cuts, I'd be fine with it.
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Old 07-07-2011, 04:54 PM   #12
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OP: What do you think is a fair cost of gov't, as a % of GDP? The Fed Gov has always been around 30-32%, and States AFAIK are around 5%.

Should it be 40%? 50%? Or 15%?

Talk of how taxes should be distributed, are less important than the total cost of gov't as a 5 of GDP.
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Old 07-07-2011, 05:03 PM   #13
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if you had a blanket 3-5% tax increase on every income level, and used it to close the deficit in combination with heavy spending cuts, I'd be fine with it.

you'd need to start collecting taxes form 51% of the population first.
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Old 07-07-2011, 05:51 PM   #14
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That article, like most that deal with the issue of taxation, is - at best - a bit disingenuous as it fails to make clear the distinction between tax receipts and tax rates, seeming to use them interchangeably. They also seem to indicate that there is a direct correlation between rates and receipts. That is not always the case.

The Republicans are not against raising tax receipts. They are against net raises of tax rates.
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Old 07-07-2011, 06:00 PM   #15
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If low income earners would start paying their fair share, they might start realizing that there's a problem.
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Old 07-07-2011, 06:03 PM   #16
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my video pwns btw.
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Old 07-07-2011, 06:25 PM   #17
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I vote for colonization of europe.
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Old 07-07-2011, 09:54 PM   #18
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my video pwns btw.
+1
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Old 07-07-2011, 10:04 PM   #19
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Would a flat tax be fair?
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Old 07-07-2011, 10:06 PM   #20
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So when are we going to burn Boehner and McConnel at the stake? Seriously, why are these two weak ******s leading our party on Capitol Hill? If that "deal" they struck today gives away an income tax increase, that could very well be the end of their careers. I say "very well" because the Tea Partiers are too busy eating the ******* of epic historian Bachmann to pay attention to the bullshit of our leadership.
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