If anybody cares, this is the budget simulator I've been using

[Fern]

If you'd read further you'd see that the limit is and always has been inflation. The control of money supply. When you pay your taxes, the Fed eliminates some amount from your banks holding at the reserves. When the gov't pays someone, someone's bank account at the reserve is credited. Taxes and spending are the government's means to control the money supply. You should've read further.

I already know the "limit" is inflation.

To make a blanket statement like his absurd.

Fern

 

[First]

If you acknowledge that the US can simply print money, then what I'd like you to think about what it means to have debt in the first place. What is debt to the US if it is, by definition, always solvent (that is, it can always pay dollars)?

Certainly debt is more pliable and flexible when it's a government, but it's still money the Feds must pay back, with interest, and they don't print money to solve that problem as their first recourse here in the U.S. Certainly no administration has made that claim or used their monetary/fiscal policy influence to make that their go-to debt reduction goal, as inflation and the signal that would send to the business community would be quite chilling. That's why governments generally choose not to employ said tactic and tend to find ways to get tax receipts in line with spending (or at least, good gov't does).

Another little thought experiment... if you have a currency that is non-convertible and you want your neighbors to use it in their transactions, how would you do it? One of the ways (if you had monopoly force, like the US govt) would be to tax them and thus make them all demand your currency to fulfill their obligations. However, you can't tax money from people if they don't have it. In other words, the nature of government spending is that the gov't has to spend first and then tax, otherwise how would dollars actually get into the hands of the people? That initial spending would be called a debt and the difference between what you taxed back and what you initially spent would be called a deficit. But it doesn't really mean anything as all it's really measuring is the amount of money still out there circulating among your neighbors as they transact with each other.

Yeah I get that, and it's good for the strength of the dollar if more and more people (Americans or otherwise) use those dollars. But I'm not really sure your point about it not really mattering is really accurate given no matter whether it's me or a neighbor, the gov't would still be in debt to us from the bonds we bought from them (as one example). Besides, as a matter of accounting, the federal government so far as I know doesn't pay people by overtly cranking up the printing presses. Treasury has a fixed dollar amount they print based on population, etc. So as a practical matter your thought experiment I don't believe is applicable but I could be wrong.

 

[First]

Goldman Sachs CEO Lloyd Blankfein on CNN just now says he'd support 39.6% top rate in exchange for entitlement cuts. Wants a balanced approach.

Frankly, Republicans are going to lose again on this issue, and lose badly.

 

[Fern]

This.

Also, not sure how Fern ignores Reagan's 6 tax increases during his tenure, including one of the biggest in U.S. history. To say nothing of the reality that he goosed economic growth (and thereby tax receipts) by doubling the national debt in 8 years.

I'm more than familiar with the tax acts passed under Reagan. The poster I responded to was implying tax cuts result in revenue losses that are not regained for years. Clearly, that is not always true.

Reagan is also the one that cut the top rate of 70%.

Also, mentioning 9-11 or the tech bubble is nonsensical, as recessions like those are common, having occurred 10 years prior in the early 90's, and of course 10 years prior to that in the early 80's. It's not an excuse for 0% tax receipt growth for 10 years.

No it's not (but it does have an effect). But a tax cut is no reason for 0% receipt growth either (unless the rate is cut to zero). A tax cut, all things remaining equal, results in a one-time drop. Thereafter, unless in a recession, you should see growth over the previous year(s).

Fern

 

[First]

I'm more than familiar with the tax acts passed under Reagan. The poster I responded to was implying tax cuts result in revenue losses that are not regained for years. Clearly, that is not always true.

Reagan is also the one that cut the top rate of 70%.

What was the total net difference difference in dollars from his tax rate reduction at the top compared to his tax increases (I'm asking because I actually don't know).

No it's not (but it does have an effect). But a tax cut is no reason for 0% receipt growth either (unless the rate is cut to zero). A tax cut, all things remaining equal, results in a one-time drop. Thereafter, unless in a recession, you should see growth over the previous year(s).

Fern

I'd say there's little to no evidence that tax cuts lead to higher revenue than would have occurred had the rates remained the same or been increased slightly. All that matters is the magnitude of the increase. Not sure how many times Warren Buffet has to say it to people, but no one passes up a great business opportunity because of tax rates. Well, at least not enough people to be noteworthy.

 

[BigDH01]

Ultimately, it does come down to inflationary concerns since the fed govt can, theoretically, just print up as much money as it wants. But very high inflation will destroy an economy. No one will want your money, no one will lend etc.

To avoid hyper inflation you must find a way to fund deficit spending other than just printing up more money. There are two choices: borrow or raise taxes/revenue.

Given current capacity utilization and unemployment, is demand-pull inflation a real risk?

Raising taxes takes money, and demand, out of the private sector. We now need more demand in the private sector, not less. More demand means GDP growth and more jobs, both of which produce more revenue for the govt from increased tax revenue and also result in less spending on things such as Medicaid and welfare/unemployment type programs. I.e., raising taxes is counter-productive.

MMT doesn't say what programs to fund or taxes to raise, it just explains how monetary policy works.

The ability to borrow is affected by deficits and debt. This has been demonstrated in several European countries. Debt levels considered too high by lenders will result in paying higher interest rates on debt issued. This is undesirable for obvious reasons, additionally to the extent the debt is owned by foreigners it is an outbound drain of our wealth to other countries. In the extreme, debt levels that are too high mean no more borrowing (See Greece). No more borrowing, in the absence of just printing up more money and causing inflation, means drastic cuts to govt spending. Drastic cuts to govt spending means less demand and all that entails (shrinking GDP, decreased tax revenue, more spending for welfare and unemployment etc.)

And here you go again. The government doesn't need to borrow at all. Greece's issue is that they don't have monetary independence. Other countries that do have monetary independence (like the UK) are shrinking their economies by chasing austerity, which is foolish when you understand what a sovereign debt and deficit really is.

Once your deficits get too high or remain too long you will end up with debt that is too high. Once the latter happens 'painful medicine' is inevitable. It becomes a matter of 'when' not 'if'.

You've taken one step and realized that the government doesn't really need debt or deficits, but you haven't take the subsequent step to ask yourself what those numbers really mean in a country that has its own sovereign currency (and is always solvent).

 

[BigDH01]

Certainly debt is more pliable and flexible when it's a government, but it's still money the Feds must pay back, with interest, and they don't print money to solve that problem as their first recourse here in the U.S. Certainly no administration has made that claim or used their monetary/fiscal policy influence to make that their go-to debt reduction goal, as inflation and the signal that would send to the business community would be quite chilling. That's why governments generally choose not to employ said tactic and tend to find ways to get tax receipts in line with spending (or at least, good gov't does).

Right now, a huge portion of those bonds are being purchased by the Fed. In effect, one government agency is just printing money for the other. And government rarely has tried to run a balanced budget and rarely has our country actually had one and those years in which we had one are rarely followed by good times.

Government has a hard time getting tax receipts in line with spending in times of slow aggregate demand without shrinking the economy. It's a simple identity really.

The national accounts concept underpin the basic income-expenditure model that is at the heart of introductory macroeconomics. We can view this model in two ways: (a) from the perspective of the sources of spending; and (b) from the perspective of the uses of the income produced. Bringing these two perspectives (of the same thing) together generates the sectoral balances.

So from the sources perspective we write:

GDP = C + I + G + (X – M)

which says that total national income (GDP) is the sum of total final consumption spending (C), total private investment (I), total government spending (G) and net exports (X – M).

From the uses perspective, national income (GDP) can be used for:

GDP = C + S + T

which says that GDP (income) ultimately comes back to households who consume (C), save (S) or pay taxes (T) with it once all the distributions are made.

So if we equate these two perspectives of GDP, we get:

C + S + T = C + I + G + (X – M)

This can be simplified by cancelling out the C from both sides and re-arranging (shifting things around but still satisfying the rules of algebra) into what we call the sectoral balances view of the national accounts.

(I – S) + (G – T) + (X – M) = 0

That is the three balances have to sum to zero. The sectoral balances derived are:

The private domestic balance (I – S) – positive if in deficit, negative if in surplus.
The Budget Deficit (G – T) – negative if in surplus, positive if in deficit.
The Current Account balance (X – M) – positive if in surplus, negative if in deficit.

This equation is played out in the UK here:

Yeah I get that, and it's good for the strength of the dollar if more and more people (Americans or otherwise) use those dollars. But I'm not really sure your point about it not really mattering is really accurate given no matter whether it's me or a neighbor, the gov't would still be in debt to us from the bonds we bought from them (as one example). Besides, as a matter of accounting, the federal government so far as I know doesn't pay people by overtly cranking up the printing presses. Treasury has a fixed dollar amount they print based on population, etc. So as a practical matter your thought experiment I don't believe is applicable but I could be wrong.

You didn't really take the time to think about what I wrote. I'm not making any statement about the strength of the dollar, I'm asking you to fundamentally question what taxation, spending, debts, and deficits really are and what they really mean in a country with a sovereign national currency. In this case, if you wanted to raise money from your neighbors by selling bonds, how can they buy them unless you had already printed at least some money to give them in the first place? Think about it. How can people even buy bonds unless the government had already gone into debt to give the people dollars to buy bonds with?

 

[Acanthus]

Where does it get spent you mean?

Not really.

You are suggesting that somehow money that goes to the government is taken out of the economy.

Where would it go if not right back in?

 

[buckshot24]

Not really.

You are suggesting that somehow money that goes to the government is taken out of the economy.

Where would it go if not right back in?

The problem with the government spending money is that markets get distorted. People spend their own money more wisely than people spend somebody elses which makes it, generally, more productive since it is spent more wisely.

 

[Arkaign]

Ultimately, it does come down to inflationary concerns since the fed govt can, theoretically, just print up as much money as it wants. But very high inflation will destroy an economy. No one will want your money, no one will lend etc.

To avoid hyper inflation you must find a way to fund deficit spending other than just printing up more money. There are two choices: borrow or raise taxes/revenue.

Raising taxes takes money, and demand, out of the private sector. We now need more demand in the private sector, not less. More demand means GDP growth and more jobs, both of which produce more revenue for the govt from increased tax revenue and also result in less spending on things such as Medicaid and welfare/unemployment type programs. I.e., raising taxes is counter-productive.

The ability to borrow is affected by deficits and debt. This has been demonstrated in several European countries. Debt levels considered too high by lenders will result in paying higher interest rates on debt issued. This is undesirable for obvious reasons, additionally to the extent the debt is owned by foreigners it is an outbound drain of our wealth to other countries. In the extreme, debt levels that are too high mean no more borrowing (See Greece). No more borrowing, in the absence of just printing up more money and causing inflation, means drastic cuts to govt spending. Drastic cuts to govt spending means less demand and all that entails (shrinking GDP, decreased tax revenue, more spending for welfare and unemployment etc.)

Once your deficits get too high or remain too long you will end up with debt that is too high. Once the latter happens 'painful medicine' is inevitable. It becomes a matter of 'when' not 'if'.

Fern

The quoted is both true and untrue simultaneously. Yes, at the point of taxation, that $ is taxen from individuals and corporations. Then it goes to the gov't, which often spends it on idiotic things. But a certain portion of this, varying wildly depending on program/etc, will go directly back into the general economy, through private corporations that have gov't contracts, through paying public employees who unless they're the rare sort that make $100k+ will spend most of their $ on things like food, housing, clothes, automobiles, insurance, etc. There is a certain liquidity. Obviously the worst-case scenarios for gov't spending are things that send $ overseas (foreign aid, foreign wars), or $ that gets funneled into the idle rich (congress critters, lol).

I'm not advocating huge gov't spending, my ideal is to vastly curtail spending in many areas along with returning tax rates to more sane levels (perhaps somewhere in the middle of Reagan/Clinton eras?). Running in the black and building up a budget surplus to help us weather any potential future global recessions/etc would be fantastic. It'd also be great to have a serious rainy-day fund of hard assets should a legitimate major war break out.

That said, $ doesn't just vanish into this air when the IRS gets it. It circulates. In some cases better than when a corporation gets huge profits. In many cases less.

The bigger concern to me is that for 30+ years now the middle class have seen basically zero growth, while the very top earners have seen staggering increases in income and acculmulative wealth. This at the same time with a receding manufacturing base and 'free' trade that seems to benefit international corporations and outsourcers at the expense of US workers. Solution? I have no idea.

 

[Acanthus]

The problem with the government spending money is that markets get distorted. People spend their own money more wisely than people spend somebody elses which makes it, generally, more productive since it is spent more wisely.

One could argue that most government employees (typically) don't have the resources to hoard cash and take it out of the market. That same money in the hands of the financial sector would do exactly that in tough times.