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Just the Facts: S&P's $2 Trillion Mistake

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Re: Just the Facts: S&P's $2 Trillion Mistake

#191

Post by Tsagadai »

Maascamp wrote: post #120
alnayyir wrote: post #117

Earlier quoted context omitted.

Our tax burdens are not the lowest by any means. My total tax rate partially due to living in California (although it is mostly Federal) is ~40%. There are plenty of countries in Europe that would be happy to tax me less. My buddy in Singapore pays about 8% all told and he's in the same income range. The temptation to become an expat gets stronger as I earn more money. My sin is not being a fat cat living off capital…

Singapore's not quite the oasis you make it out to be. Have a look at how much it will cost you for a car once you get over there.

You really don't need a car to live in Singapore. Most of the time, driving will take you longer than getting on the metro. Remember that Singapore is an extremely small country and you can easily commute to anywhere on the island with a pushbike (even in the rain, most offices have showers).

Renting or buying property is the expensive part of living in Singapore. However, it is quite inexpensive to get a live-in maid/nanny.

Re: Just the Facts: S&P's $2 Trillion Mistake

#192

Post by michaeldhopkins »

jeffreymcmanus wrote: post #160
_delirium wrote: post #155

Earlier quoted context omitted.

How do you manage to get an effective 40% tax rate in California? I could see that as a marginal rate on the last few dollars, but you'd have to make in the millions to get there for your overall tax rate. For example, if you make $100k and take only the standard deduction, you'll pay $19k in federal taxes (19%) and $6k in California taxes (6%), for 25% total. If you include payroll taxes, that's another ~7.5%, so 32…

Unless he's a multi-millionaire who has one of the worst tax preparers in history, he doesn't have a 40% tax rate. The reason why he thinks his tax rate is 40% is because he's making the mistake that common among financial illiterates, which is confusing the maximum tax rate with the marginal (i.e., actual) tax rate. The highest Federal tax rate is currently 35%. That bracket applies to people who earn $379,150 or mo…

This is true, yet often when it is brought up as you have done it is a straw man. The OP has in his mind that taxes collected are excessive. If you show him that rates are progressive, he won't decide that enough money is being collected after all. He is only using the tax rate as a rhetorical point -- he points elsewhere for proof that too much is collected.

Edit: should clarify I prepare taxes among other things. I'm NOT saying the brackets aren't progressive, just that this guy isn't saying, "gee, if only we progressed up to 35% things would be fine."

Re: Just the Facts: S&P's $2 Trillion Mistake

#193

Post by [deleted] »

jerf wrote: post #104
lucisferre wrote: post #100

Earlier quoted context omitted.

Hate to just post a +1, me too, but this, it seems, just isn't be said or recognized enough. The US, with one of the lowest tax burdens in the western world ( the lowest?) can easily afford to pay down it's debts but without any support for raising taxes in the slightest, not just amongst republicans but from what it seems are a vocal and loud minority (majority?) of Americans, no one can really act surprised by S&P'…

It isn't our current debts that have people concerned. It's the combination of current debts and unsustainable future obligations, which are so large that they in fact can't be paid down by just raising taxes. Barring an adjustment in what they are, they grow to the point that they eventually consume 100% of the economy in something like 40 years in conjunction with interest payments, but of course they become comple…

[deleted]

Re: Just the Facts: S&P's $2 Trillion Mistake

#194

Post by yummyfajitas »

mscarborough wrote: post #176
jerf wrote: post #104

Earlier quoted context omitted.

It isn't our current debts that have people concerned. It's the combination of current debts and unsustainable future obligations, which are so large that they in fact can't be paid down by just raising taxes. Barring an adjustment in what they are, they grow to the point that they eventually consume 100% of the economy in something like 40 years in conjunction with interest payments, but of course they become comple…

> It isn't our current debts that have people concerned. It's the combination of current debts and unsustainable future obligations, which are so large that they in fact can't be paid down by just raising taxes. Who is proposing that we only raise taxes, without cuts? The entire Democratic 'compromise' is effectively all cuts. > The "evil Republicans" are the only ones taking actions that may mean that Social Securit…

As a result of the spending cuts, the discretionary budget will be 0.6% lower in 2012 than it was in 2011 and 18% higher in 2021 than it is in 2012.

http://www.economist.com/blogs/democracyinamerica/2011/08/de...

Those democrats, how could they agree to such harsh cuts!

(The media is describing it as a "cut" because the growth rate of government spending has been cut.)

Re: Just the Facts: S&P's $2 Trillion Mistake

#195

Post by gareim »

burgerbrain wrote: post #134
gareim wrote: post #105

Earlier quoted context omitted.

What were the illegitimate reasons? I suppose the one about someone else accidentally taking my homework? I don't think I could have helped that and any reasonable teacher might have given me half credit. I got a bad grade for lots of reasons. I hated the class. This was a teacher that tried telling me light travels at 300 meters a second. She also arbitrarily handed out grades, marking one of my answers wrong (0m/s^…

"I suppose the one about someone else accidentally taking my homework? I don't think I could have helped that and any reasonable teacher might have given me half credit." If I were your teacher and you told me that story you would be lucky if I didn't accuse you of academic dishonesty on the spot and filed the relevant paperwork. In the absolute best case scenario, assuming your total honesty, it's yet another lame v…

The Units (that's what they're called) are passed back to our tables the schoolday before we turn them in (she makes us turn them in 3 days before that so she can spot check them in for some reason). I was talking to her while they were being passed back and by the time I get back, it's nowhere to be found and 5 minutes later, class ends. Turns out that my friend had grabbed hers to take home but accidentally grabbed both mine and hers. Monday comes and I don't have anything to turn in and when my friend gets back on Tuesday (she was sick), she apologizes to me profusely and proceeds to explain everything to the teacher who SMILES and says "too bad". So no, it's not a lame variation of "my dog ate my homework" because my friend admitted her mistake and begged the teacher to give me more than a zero.

Re: Just the Facts: S&P's $2 Trillion Mistake

#196

Post by yzhengyu »

alnayyir wrote: post #117
lucisferre wrote: post #100

Earlier quoted context omitted.

Hate to just post a +1, me too, but this, it seems, just isn't be said or recognized enough. The US, with one of the lowest tax burdens in the western world ( the lowest?) can easily afford to pay down it's debts but without any support for raising taxes in the slightest, not just amongst republicans but from what it seems are a vocal and loud minority (majority?) of Americans, no one can really act surprised by S&P'…

Our tax burdens are not the lowest by any means. My total tax rate partially due to living in California (although it is mostly Federal) is ~40%. There are plenty of countries in Europe that would be happy to tax me less. My buddy in Singapore pays about 8% all told and he's in the same income range. The temptation to become an expat gets stronger as I earn more money. My sin is not being a fat cat living off capital…

As a Singaporean, all I can say is that once you become more aware of how the incumbent government generates most of its revenue, you will be rendered speechless. Americans often exaggerate and say that their nation is turning into a corporate state - come to Singapore, and you will realize that the state is administered exactly like a corporation.

Re: Just the Facts: S&P's $2 Trillion Mistake

#197

Post by fauigerzigerk »

shahan wrote: post #172
shahan wrote: post #150

Earlier quoted context omitted.

I was wondering about the exact same thing. Ability and willingness to pay should mean ability and willingness to pay in real terms. Anything else doesn't seem to make sense. Also: If the US defaults, how does it go down? Here's why I'm confused: Given that the US can't default on its nominal obligations, how does it default on its real obligations, so to speak? Printing money, aka inflation, is one way, but there's…

Oh, I think I answered my own question. The lenders probably factor in inflation when they lend the US money. That would actually mean that the loans are in real money, and that there is no such thing as a nominal obligation. Anyone know if this is correct?

I'm not sure I understand your question correctly. There is definitely such a thing as a nominal obligation.

When the treasury wants to borrow money, it conducts an auction to determine who gets to lend it how much at what interest rate. If, at the end of that auction, a particular lender agrees to lend the treasury USD 1bn for 10 years at a yield (interest rate) of 3%, you can calculate the exact nominal dollar amounts that are to be paid back. These amounts never change from then on come what may.

Every year the treasury has to make a USD 30 million coupon (interest) payment to the lender. After 10 years the treasury has to pay back the principal, that is the original 1bn amount. That's it.

If the average inflation rate in that 10 year time period is 2%, the lender's return on investment is 1% (10 million dollars). If the inflation rate turns out to average at 3%, the lender makes zero. If inflation is 5%, the lender makes a loss of 2% (20 million).

If the inflation rate is somewhat higher than the yield and the lender makes a loss, it is not formally a default. I'm not sure what happens in terms of formal default if a borrower deliberately and aggressively inlfates away its debt faster than lenders can react by demanding higher interest rates at the next auction.

I believe this has never happened in modern times because borrowers who would do that cannot usually borrow in their own currency. What would definitely happen is that this borrower would have to pay much higher interest rates as soon as he comes to the market again, so nobody wants that.

There is another type of treasury bonds called TIPS, which are inflation adjusted. They have a lower yield but are protected against rising inflation.

Re: Just the Facts: S&P's $2 Trillion Mistake

#198

Post by yummyfajitas »

orijing wrote: post #88
fauigerzigerk wrote: post #68

Earlier quoted context omitted.

I believe that the US government has an obligation under current law to make payments to Medicare and SS recipients. It's not a voluntary donation. I don't think the government can simply stop making those payments tomorrow without violating current law. You see, it is this entire attitude of political parties negotiating in the 11th hour about whether or not to honor this or that obligation that isn't exactly encour…

How can that be? Suppose our debt limit were hit. Law says we can't issue more debt; another law says we must pay social security. Until more taxes start rolling in, we'd be breaking one law or the other.

No, SS can be paid without affecting the debt ceiling.

"By law the Treasury is bound to redeem any bonds presented to it by the Social Security Administration. And when the Treasury does, total government debt subject to the debt limit falls by the amount of the redemption—thus freeing up the Treasury's ability to issue new bonds equal in amount to the redeemed Trust Fund bonds."

http://online.wsj.com/article/SB1000142405311190355490457645...

Re: Just the Facts: S&P's $2 Trillion Mistake

#199

Post by JeffL »

_delirium wrote: post #155
alnayyir wrote: post #117

Earlier quoted context omitted.

Our tax burdens are not the lowest by any means. My total tax rate partially due to living in California (although it is mostly Federal) is ~40%. There are plenty of countries in Europe that would be happy to tax me less. My buddy in Singapore pays about 8% all told and he's in the same income range. The temptation to become an expat gets stronger as I earn more money. My sin is not being a fat cat living off capital…

How do you manage to get an effective 40% tax rate in California? I could see that as a marginal rate on the last few dollars, but you'd have to make in the millions to get there for your overall tax rate. For example, if you make $100k and take only the standard deduction, you'll pay $19k in federal taxes (19%) and $6k in California taxes (6%), for 25% total. If you include payroll taxes, that's another ~7.5%, so 32…

Total tax burden includes sales tax that you pay on what you spend, property tax, gas tax, payroll taxes, taxes on utility bills, dog license fees, etc. I don't think 40% is completely far fetched.

Not sure how exactly one would calculate this, though, other than looking at taxes as percentage of GDP and maybe trying to fit yourself in there somehow based on your tax bracket as a ratio to other people. But with an average total tax burden of 26.9% (http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenu...), 40% for someone in an upper bracket doesn't sound so crazy.

Re: Just the Facts: S&P's $2 Trillion Mistake

#200

Post by JeffL »

orijing wrote: post #75
fauigerzigerk wrote: post #50

S&P's mistake is certainly incredibly embarrassing but apart from that I'm asking myself a much more fundamental question: Why is the ability to pay considered at all when it comes to the US? A country that is indebted in its own currency can theoretically never default on its nominal obligations. Not due to inability to pay at least. I don't think that credit rating agencies even try to pass judgement on the likelyh…

"We can pay back our debt since it's denominated in dollars" is a meme thrown around online blogs, but it is misguided. If the way the debt is paid back is through currency devaluation, it's safe to say that the investors were not truly paid back--i.e. there was a loss of principal measured in purchasing power. So while it's true that the US can always pay back the full dollar amount of how much it owes, it's less tr…

I forgot who said it recently, but I thought it was a really interesting point that printing money to pay the debt is like partially defaulting.
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