Bush economic plan a "disaster" for U.S. treasury department

[Gimpy]

Treasury Says U.S. Could Face Default

By JEANNINE AVERSA
The Associated Press
Tuesday, April 29, 2003; 7:17 PM


WASHINGTON - The Treasury Department says the United States could face the prospect of not being able to pay its bills in late May unless Congress raises the government's borrowing authority, now capped at $6.4 trillion.

Treasury's debt managers have taken a number of steps since February to prevent the government from defaulting on the national debt, but "on current projections, the extraordinary measures taken since Feb. 20, 2003, will only be adequate to meet the government's needs until the latter half of May," said a statement released Tuesday.

After that - absent a boost in the government's borrowing authority by Congress - Treasury would breach the current $6.4 trillion ceiling on the national debt.

"The Treasury will continue to work with Congress to ensure the government's ability to finance its operations," Treasury said.

Treasury has asked Congress to boost the government's borrowing authority, although it has not suggested a specific amount. A proposal is pending on Capitol Hill that would raise the debt ceiling to $7.38 trillion.

Last year, Congress boosted the old debt limit by $450 billion, from $5.95 trillion to the current $6.4 trillion.

At that time Treasury warned that Congress would need to again increase the government's borrowing authority.

Boosting the debt limit is more a matter of politics.

Economists doubt Congress will refuse to raise the limit. A federal default is considered unimaginable because it would rattle bond markets, force interest rates higher, weaken the world economy and deliver a political blow to President Bush.

Democrats point to the government's need to borrow more because of President Bush's tax cuts, his handling of the economy and ballooning federal government budget deficits, which are expected to hit records this year and next.

Republicans blame the lingering effects of the 2001 recession and the costs of fighting terrorism for the need to extend the debt limit.

By Memorial Day, Republicans hope to have pushed through Congress a tax-cut bill with a price tag of between $350 billion and $550 billion through 2013.

If Congress must approve a debt-limit extension during the same period of time, it could play into Democrats' political argument that the new tax cut will only make the government's red ink worse.

The government had to borrow a record $111 billion in the January-March quarter to cover the shortfall between expenses and tax revenue. It expects to borrow another $79 billion in the current quarter.

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[Gimpy]

You'll sure be "happy" with your wondeful "new" tax cut, huh??

[MORTARDUDE]

http://usconservatives.about.com/gi/...2001Mar15.html
Keepers of The JFK Copyright



By Charles Krauthammer
Friday, March 16, 2001; Page A21


Ransacking the legacy of former presidents is about as venerable a political technique as there is. If you can go all the way back to Thomas Jefferson, as Democrats did in the 1980s in opposing Reagan's "entangling" anti-Communist engagements in Central America, so much the better. Democrats and Republicans routinely invoke the two Roosevelts, Truman and Eisenhower in supporting everything from environmentalism to resisting the military-industrial complex.

But, oh, tamper with the memory of John F. Kennedy and the guardians of the flame will strike you down for sacrilege. The Sopranos aren't half as fast defending their own.

Consider: A private conservative group has been running regional radio ads supporting the Bush tax plan, citing Kennedy's across-the-board tax cut and using clips of his December 1962 speech to the Economic Club of New York.

Well. You'd have thought the Taliban had blasted away the giant JFK bust in the Kennedy Center. Brother Teddy and daughter Caroline shot off an angry letter (1) denouncing the ad and (2) demanding that the perpetrators "cease from using President Kennedy's image and voice in any political advertising you are running in support of President Bush's proposed tax cut."

The denunciation is fair enough. The demand is comic, though characteristic, Kennedy presumption.

Note first that the letter is not from associates, say, former Treasury secretary Lloyd Bentsen, the man who famously told Dan Quayle: "I knew Jack Kennedy. Jack Kennedy was a friend of mine." This is from kin. This is personal.

The official reason for the attack on the ads is their alleged intellectual dishonesty. Yet Teddy betrayed the deeper reason when he called the ads "rather indecent." The Boston Globe echoed that sense of hallowness breached. It pronounced guilty of "bad taste" those daring "to dragoon a revered former president into their service in such a misleading fashion."

This is ridiculous. It is yet another instance of this family appropriating for itself the legacy of the 35th American president. By what right? Divine? "If President Kennedy were here today, he would vigorously oppose President Bush's irresponsible tax scheme," sayeth Ted and Caroline. They can be no more certain of that, especially given what JFK said and did in 1962, than anyone else.

The family is clearly playing on his martyrdom. Martyred he was. But regarding the political use of his official record, that is an irrelevancy. Like all other presidents, Kennedy left a record. It belongs to all Americans. For what other president would someone dare claim that the use of his "image and voice" be prohibited?

In fact, the ads are perfectly reasonable. The ostensible reason for Teddy and Caroline's outrage is that Kennedy's tax cut returned fewer aggregate dollars than would Bush's to those earning over $300,000. But today, the class of wealthier people is larger than 40 years ago -- in part because of prosperity set off by the Kennedy tax cuts.

Sure, the aggregate amount of money returned to the wealthy is higher. So what? The key point is that the Kennedy tax cut returned to the wealthiest Americans 26 cents on every marginal dollar they earned. The Bush tax cut would return less than 7 cents.

Kennedy cut rates for the very wealthiest by almost one-third (from 91 percent to 65 percent). Bush cuts them by only one-sixth (from 39.6 percent to 33 percent).

Moreover, the ads showed President Kennedy defending the principle of cutting even the highest marginal rates. The "current tax system," he says in the speech, "exerts too heavy a drag on growth" and "reduces the financial incentives for personal effort, investment and risk taking." Investment and risk taking are precisely the activities of the wealthy. Indeed, in one clip Kennedy says that the poorer Americans will spend the tax refund, while the richer ones will invest it.

That is the heart of the tax argument today: lower tax rates for the wealthy. Citing Kennedy on this question is a perfectly legitimate recourse to history.

Today's Democrats, unlike Kennedy, oppose cutting the highest marginal rates as an affront to fairness because the rich invariably benefit disproportionately. The logic of that position, however, is that one can never cut the upper rates. They can only be ratcheted higher. That is precisely how we got to the 91 percent rate that Kennedy decried -- and cut.

Having signed on for a tidy $900 billion tax cut of their own, the Democrats (to paraphrase the famous dinner repartee between the gentleman and the willing lady) have established the principle and are now only haggling over price. The fact that we hear cries of sacrilege about a perfectly reasonable analogy to JFK's tax cut is a sign of how at sea the Democrats find themselves, shorn of power and recovering from Clinton.


? 2001 The Washington Post Company

[Gimpy]

from 1962 and today----the ENORMUS size of the "deficit". I think I'd be more "imclined" to agree with Caroline & Ted. NO WAY JFK would attempt a "tax-break" of this magnitude with the current "state" of "deficit spending".

Nice try---but totally irelevant to todays "conditions".

[MORTARDUDE]

>>> Note : From 1990 to 2003 SPENDING has increased 70%
( 22% in the past 2 years alone )
Tax reform and relief is a must. A reduction in federal spending at the same time is the key to real fiscal balance.
>>>


http://www.cse.org/informed/issues_t...81.htmCitizens for a Sound Economy
March 6, 2003


The Case for Budget Deficits
Deficits are bad, but right now they're necessary to get tax reform and relief.


?This nation can afford to reduce taxes - we can afford a temporary deficit - but we cannot afford to do nothing. For on the strength of our free economy rests the hope of all free men. We shall not fail their faith - and God willing, free men and free nations shall prosper and prevail.?
John F. Kennedy - December 14,1962 speech to the Economic Club of NY.


John F. Kennedy was right about tax cuts back in 1962, and a lot of today?s elected leaders would do well to heed his advice today. After the Kennedy tax cuts, federal tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent after adjusting for inflation.

Compared to 1962, the U.S. tax burden is higher and vastly more complicated today. That makes the case for tax cuts even stronger: simplification and marginal rate tax relief will most certainly boost revenues over the medium term.

The Return of the Budget Deficit

So, what stands in the way? Unfortunately, among political elites and the media, there?s increasing concern about the size of the budget deficit, which will soar past $300 billion in 2003, and our ability to ?afford? the Bush tax cut plan.

Many of these same tax cut naysayers also happen to be some biggest spenders in Washington. That?s irony, or maybe hypocrisy. The folks arguing that the Bush tax cut proposal is ?too large, reckless, and we can?t afford it? are simultaneously working on a spending binge that is truly reckless and unsustainable? in fact, they?ve managed to grow government spending by 22% in the last two years alone!


Indeed, as the chart BELOW shows, government spending has grown faster than Yao Ming over the past decade. There?s a budget deficit alright, and it is largely the result of unsustainable spending growth, and a soft economy. As the White House Budget Director Mitch Daniels says, ?It?s now clear that the unexpected surge in revenues toward the end of the last decade was temporary, and that revenues are returning to historic levels? it is absolutely essential that we set aside business as usual and keep tight control over all other spending.? Spending is simply too high, and unchecked spending is the primary cause of all this new red ink.

Liberals ignore this evidence and instead claim that the Bush tax cuts from 2001 are the cause of the current red ink. That claim is wrong. According to the U.S. Treasury Department, the 2001 tax cut accounted for less than ten percent of the shift from surplus in FY 2001 to deficits in FY 2002. By comparison, lower revenues from the weak economy and the sudden drop in capital gains tax revenues (due to the bursting of the stock market bubble) accounted for roughly two-thirds of the swing. The remainder of the shift was due to increased spending for national priorities such as national defense and homeland security. It?s the spending, spending, spending!

The fix to the soft economy and to the budget deficit is President Bush?s proposed tax relief plan. The tax code?s complexity and high rates are a major drag on our economy. That?s especially true for the high taxes on savings and investment?especially the double taxation of capital formation found in the death tax, the capital gains tax, and the dividend tax. Americans pay taxes when we earn money; we should not be forced to pay additional taxes when we invest that money in businesses that create jobs and grow the economy. All forms of double taxation should be repealed.
Full repeal is exactly what President Bush wants to do for the tax on dividends. That may increase the deficit in the near term, but it will spark new investment and long-term economic growth.
New Treasury Secretary John Snow is carrying this message to Capitol Hill and elsewhere. On Tuesday, he told the House Ways and Means Committee, ?It was a surplus on paper, it was never there in reality?[Deficits] don't disrupt financial markets, they don't lead to higher interest rates and they're clearly manageable. The fact of the matter is a lot of people?don't want the [President?s tax] plan, and the deficit is an argument that is convenient but it's not a substantive attack on the merits of the plan."

Secretary Snow address another common argument in Washington: that budget deficits will drive up interest rates, because the government is competing for scarce capital. Since interest rates are just a measure of the price of money, more demand for money by the federal government will drive up interest rates.

While this relationship is a staple of Economics 101, the United States is very lucky because interest rates are determined by the global capital market. Fortunately, there are plenty of foreign investors willing to buy our government bonds and invest in the United States. In fact, foreign investors hold more than thirty percent of U.S. government debt. Further, a recent paper by the U.S. Department of Treasury found that ?International evidence shows no relationship between government debt and interest rates.?

Of course, my own belief is that the budget should be balanced. As a matter of moral principle, the government shouldn?t spend more than it takes from taxpayers every year. We shouldn?t push the burden of today?s spending on future generations. I?d love to pass the Bush tax plan and still balance the budget by cutting spending. Unfortunately, Congress is not prepared to take that step. So the only option is running a relatively short-term budget deficit in order to pass tax relief and tax reform. Because of the long-term economic growth that will result, the deficits caused by passing the Bush tax plan are a deal worth making.

As President Bush says, ?I do not accept the assumption that it is somehow ?risky? to let taxpayers keep more of their own money.? Let?s work hard and get this tax package passed, and get the economy growing again.

[MORTARDUDE]

Richard Allen from Homestead, Florida
2003-03-09
"The Problem is NOT the amount of Taxes we pay - It is the Way we are FORCED to pay them. The RULES keep changing, with Congressional Legislators CARVING TAX BREAKS for friends - while HEAPING the DEFICIT onto the Backs of the Remaining Tax Payers. We absolutely MUST REFORM THE TAX SYSTEM or we will NEVER get the DEFICITS under Control. The Tax System must be Transformed from one of FORCED EXTRACTION from the Public (in the form of INCOME TAX) to one of PUBLIC Control and Participation. (The National Retail Sales Tax). A System where the actual Wage Earner / Voter/ Taxpayer has CONTROL over his Tax Burden. We need a National Retail TAx System where the taxes are collected at the final RETAIL Point of Sale. The more you can afford to Spend, the more you can afford to pay. The LESS you can afford to spend the LESS you pay in Federal Tax. There is even a form of National Retail Sales Tax (sitting in the House Ways and Means Committee) called THE FAIRTAX (H.R.25) whereby the Poor, Elderly and Low Earning Workers are REBATED all taxes paid on wages BELOW the Poverty Level."

[MORTARDUDE]

U.S. Deficit History
It all started in 1777. The Continental Congress tried to raise tax revenue to buy needed supplies for the war against Britain. Unsuccessful, it resorted to printing ?paper money? (the Continental dollar) and debt financing. By 1783 the new nation had borrowed over $8 million. From 1790-1812 the government incurred some additional debt but promptly repaid it. However, the unpopular War of 1812 raised the national debt to over $129 million by 1816. But fearful of rising debt, U.S. leaders used budget surpluses to eventually pay off the national debt by 1835.2

From 1835 to 1860 the national debt reappeared, notably induced by the Mexican- American War (1846-48). Just prior to the Civil war it reached $65 billion. But the Civil War (1861-1865) was essentially financed by printing unbacked ?greenbacks? and incurring $2.6 billion in debt! Again, fearing public debt, the debt was reduced about 60% in thirty years to $1 billion in 1895. It stayed in this $1 billion range until World War I when it exploded. By 1920 the national debt exceeded $24 billion. Following historic precedent, the government ran surpluses during the 1920s and thereby reduced the national debt to $16 billion by 1930.3

But the 1930s Great Depression and the advent of Keynesian macroeconomic ideology changed everything. Deficits and ?easy money? became ?tools? to manage the economy. The economic A.I.D.S. disease was contracted. Thus, by 1940 the national debt approached $43 billion. Then the Keynesian influence and World War II combined to explode the national debt to $259 billion by 1945, a 500% increase in five years. By 1960 it had grown to $285 billion.4

The 1960s, with its ?Great Society? programs and Vietnam War, caused the debt to reach $370 billion by 1970. Another $544 billion was added to the total debt in the decade of the 1980s. When President Reagan came into office in 1981 the national debt was nearly $1 trillion. By 1990 it had tripled to $3 trillion!

A brief summary statement would be that the historical accumulation of the national debt reflected war financing followed by a gradual repayment until the 1930s when Keynesian economic analysis legitimatized deficit spending as a means to manage the economy, and in the process, expand big government programs.

National Debt And Deficit Facts
It is important to understand that the U.S. national debt consists of U.S. Treasury bills, notes, and bonds. As of 1999, 60% of U.S. debt was owned by private institutions or investors ? banks, corporations, insurance companies, etc. Federal agencies, like the Social Security Administration, owned 31.7% while the Federal Reserve owned 8.3% (This figure is important because it drives new injections of money into the economy when the Fed purchases government securities). Finally, almost 22.5% of the national debt was held by foreigner investors ? foreign governments, banks, corporations, and individuals.5

Another interesting fact concerns interest on the national debt. For fiscal 2000, the interest expense was $362 billion. Net interest of $223.2 billion, the amount the government pays to private investors, is now the fourth largest expenditure in the government?s budget behind Social Security, National Defense, and Income Security payments.

Notice also the federal budget expenditures for 2000 in the table below. Social Security accounts for 23% of the budget; National Defense for 16.0%; net interest for 12%; Medicare for 11%; Medicaid for 7%; and Income Security Payments (Unemployment, Disability, and other income security payments) for 14%. Total transfer payments (redistribution) is approximately 55%, excluding net interest. Including net interest it is 67%. Robin Hood is alive and well!

Consequences of Deficits
Confusion over the effects of deficits is eliminated by distinguishing between productive debt and consumptive debt. A productive debt is incurred by a borrower for the purpose of earning income. Clearly most business debt is productive. Such debt is self-financing; it is paid off out of earnings. However, consumptive debt is incurred with no purpose to earn income; it uses up income and must depend on another source of income to pay it off. Consumer borrowing for an auto loan or home mortgage are examples of consumptive debt.

Productive debt is a major source of economic growth and progress. Through it firms acquire the money capital needed to accumulate machinery, equipment, and new technology to expand productive capacity. The loan?s principal and interest are paid off out of the revenue the investment generates.

U.S. Government Expenditures 2000
In Billions


1. National Defense $293.9
2. Medicaid $117.9
3. Medicare $197.1
4. Unemployment, Disability and Income Security $247.4
5. Social Security $409.4
6. Net Interest $223.2
7. Other $299.2


Total Expenditures:
$1,788.00



On the other hand, consumptive debt is not a means to economic growth. Surely the use of the new car or new home provides enjoyment and benefits to the owner. But it was productive investment that was the essential means to create the car or home in the first place. Productive debt and investment, not consumptive debt, is the means to a higher standard of living.

Virtually all government debt, with few exceptions, is consumptive, even their so-called capital investment. Government programs and activities are rarely intended to be self-financing, even when user fees are sometimes charged. (The U.S. Postal Service generally runs deficits, for example). All consumptive activities rely on a productive source. Logically, then, government deficit spending must be at the expense of the private economy. It must crowd out private production. There is no such thing as a free lunch! The cost or burden of deficit spending is what the money could have produced in the private economy.

Deficit spending is, by straight-forward logic, a triple burden on the private economy. First, private consumption and production is replaced by government resource-using programs. Secondly, there is an additional burden (sacrifice or cost) in the future when the government either borrows again, raises taxes, or prints money to pay interest and principal. Thirdly, the nation?s standard of living must be lower than it otherwise would have been as private productive activities are diverted to government consumptive activities.

In other words, the U.S. deficits of the last forty years have diminished productive debt (a source of wealth creation) in favor of consumptive debt (an action that uses up wealth). This is known as crowding out ? crowding out private investment and consumption. Thus, deficit spending and the national debt did reduce our nation?s standard of living compared to what it would have been had not consumptive debt crowded-out productive debt. Fortunately, foreign saving through investment into the U.S. ?saved the day,? so to speak, and made possible continued economic growth.

Answering Critics
The oft quoted clich? that the growth in the national debt is not a serious problem because ?we owe it to ourselves? can now be seen for the obvious fallacy that it is. Truly the national debt represents a transfer of money from some Americans to other Americans, from lenders to the beneficiaries of the government spending and from taxpayers to bondholders to pay interest. But this ?transfer? is not neutral to the economy. It represents a change in how economic resources are used by diverting savings from primarily productive purposes (productive debt) to consumptive purposes (consumptive debt).

Thus the national debt should be a serious concern for all Americans. It signals the consumption of economic resources for political ends. It represents factories not built, businesses not initiated, and jobs not created. It represents a transfer of land, labor and capital from wealth-creating ventures to wealth-using activities. Surely deficits and debts do matter to the nation.

Another mischievous argument is that past deficits and national debt are not at alarming proportions when adjusted for price inflation or when taken as a percentage of GNP. Truly the depreciation of the dollar (now worth less than 8 cents of the 1933 dollar) is itself a great evil and is caused, for the most part, by past deficits that have been monetized. That is, deficits are financed by selling securities in the open market. To the extent the Federal Reserve purchases these U.S. Treasury securities, new money is created. But this monetization of the national debt causes price inflation, not to mention a redistribution of income and wealth to the favored recipients, and the business cycle!

To claim that national debt is not at historic levels ? because of price inflation ? is to be blind to the fact than monetized deficits cause price inflation in the first place. These economists then use the inflation index to deflate the national debt figure to demonstrate their argument. Incredible!

The argument that the national debt should be considered as a percentage of GNP also misconstrues the real economic concern over deficits and debt. Deficits consume savings and hinder productive debt. An appropriate ratio would be the percentage of the nation?s saving taken by government debt (the debt/savings ratio). It is this latter ratio that rose sharply in the 1980s and early 1990s as individual and business savings dwindled while deficits skyrocketed.

Remember this point for the future: economic growth depends on savings and successful investment. If the 21st century sees a return to deficit spending, and should the ?government debt/savings ratio? increase significantly, the economy will decline through capital consumption, regardless of the debt/GNP ratio.

Deficits And Debts Do Matter
Loose U.S. fiscal policy, along with a ?now generation? attitude, has caused our nation to live beyond its means. Foreign savings or investment have ?saved the day? so far. But this can?t be expected to last forever. The consequences of our past deficits and national debt have been higher interest rates and capital consumption than our nation otherwise would have had. It has meant higher inflation rates as well as the Federal Reserve was pressured to monetize a good portion of the deficits. And since monetary inflation causes the business cycle, we can anticipate a major downturn in the economy and stock market in the future.

Americans must learn the lesson that living beyond our means via loose fiscal and monetary policy will eventually mean living below our means tomorrow. A day of reckoning will come.

Solution?
Many solutions were tried and found wanting during the ?high deficit? 1980s and 1990s: the Gramm-Rudman-Hollings Act and increases in the national debt ceiling. Lively discussions during this period addressed the possibility of passing legislation for either a balanced budget Constitutional Amendment and/or giving the President line-item veto power in the budget process. But recent budget surpluses have quieted this debate and concern over budget deficits. The present concern is over what to do with the surpluses. Pay down the national debt, cut taxes, or spend the surpluses?

The answer to that public policy question is simple, do both: pay down the national debt and cut taxes while simultaneously cutting government expenditures. The bigger concern is that the economic A.I.D.S. disease that could return with its big government budget-busting expenditures and annual deficits. Whether it does or not depends on the American people.

Conclusion
The U.S. national debt had been the product of war financing and the advent of Keynesian economics in the 1930s that justified deficit spending as a means to (supposedly) manage and stimulate the economy in downturns. The Keynesian legacy is an intractable economic A.I.D.S. disease that, for the moment, is in remission. It could return at anytime. The consequence of this disease, though, has been a national debt that consumed, and is still consuming the nation?s substance by crowding out private productive activity.

Nevertheless, there is a cure to the economic A.I.D.S. disease so that it will never return. The American people must embrace a change in thinking and values. Collectively they must pull their hands out of the public treasury. That is, they must initiate a benefit rebellion, not a tax rebellion. They must once again prefer to earn income in the marketplace by serving others, not by seeking political income through consumptive policies of dependence ? transfer payments and redistributive schemes. Then expenditures can be slashed and the budget balanced easily year after year.

Government deficits and debt do matter greatly. Let?s be a part of the solution and not a part of the problem.

[MORTARDUDE]

It takes the federal government 4 hours and 29 mins to spend $ 1 billion dollars !!!!!!!!!!!!!!!!!


Prophecy For Today?
Historian Alexander Tytler (1747-1813) wrote a book entitled, The Decline and Fall of the Athenian Republic. His words are still thought-provoking for Americans today. He wrote: ?A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the Public Treasury. From that moment on the majority always votes for the candidates promising the most benefits from the Public Treasury with the result that a democracy always collapses over loose fiscal policy always followed by dictatorship. The average age of the world?s greatest civilizations has been 200 years. These nations have progressed through the following sequence:

from bondage to spiritual faith;

from spiritual faith to great courage;

from courage to liberty;

from liberty to abundance;

from abundance to selfishness;

from selfishness to complacency;

from complacency to apathy;

from apathy to dependency; and

from dependency back into bondage.?

[Gimpy]

You're "pontificating" about as much as I do, ain't ya??

I think I'll stick with Alan Greenspan (you know that old feller what heads up the US treasury)---he DOES NOT AGREE with old GEE-DUBYAS "tax-cut"---and me-thinks him is a pretty fair "economist", ya know?

[MORTARDUDE]

I believe he agrees with eliminating the tax on dividends...will have to hunt up the exact quote...as for tax cuts, he is irrelevant anyway...he has lowered interest rates so far they almost don't exist..OK for borrowers... not Ok for folks with savings...... I get 1/4 of one % interest on my checking account now !!

Gimpy :

I appreciate the back and forth with you. I apologize if I have posted anything out of line recently. You know how it is sometimes in the "heat of battle" on the boards. We all need to direct our energies to getting the VA squared away !!

Take care,

Larry