

White House, congressional leaders reach debt deal - sidwyn
http://www.cnn.com/2011/POLITICS/07/31/debt.talks/index.html?hpt=hp_t1

======
ebaysucks
"One might think that the recent drama over the debt ceiling involved one side
wanting to increase or maintain spending with the other side wanting to
drastically cut spending, but that is far from the truth. In spite of the
rhetoric being thrown around, the real debate is over how much government
spending will increase. No plan under serious consideration cuts spending in
the way you and I think about it. Instead, the cuts being discussed are
illusory and are not cuts from current amounts being spent, but cuts in
prospective spending increases. This is akin to a family saving $100,000 in
expenses by deciding not to buy a Lamborghini and instead getting a fully
loaded Mercedes when really their budget dictates that they need to stick with
their perfectly serviceable Honda."

Quote from [http://www.ronpaul.com/2011-07-31/ron-paul-freeze-the-
budget...](http://www.ronpaul.com/2011-07-31/ron-paul-freeze-the-budget-and-
stop-plundering-the-american-people/)

~~~
ddw
Please, no more family analogies. This metaphorical family can't increase
their income by taxing better off families and most families don't have such a
debilitating, unnecessary monthly payment like numerous wars to pay off.

~~~
tzs
Ron Paul follows the Austrian school of economics. They believe that economics
cannot be mathematically or statistically modeled, and the economic theories
cannot be tested experimentally.

Family analogies are probably the best you are going to get for "analysis"
from these people.

~~~
ebaysucks
They believe law and economics i.e. human action is a field of logic.

They don't say you can not model the economy, they do say whatever
correlations occur in your models can not invalidate logical necessities.

------
mberning
You may or may not agree with a progressive tax system, but I wonder how on
earth so many people have been convinced that a regressive tax system is good
for the country. It's patently absurd that politicians are fighting tooth and
nail to preserve tax havens and loopholes that allow the filthy rich to pay a
15-20% income tax whilst the rest of the 'middle class' is paying upwards of
30.

I was thinking the other day that people just don't understand how oppresive
our current system of taxation is. We had a civil rights movement in the past,
it's about time for a 'fiscal rights' movement.

~~~
Cushman
Easy answer: Most people do not have an accurate idea of who has money.

[http://steadfastfinances.com/blog/2010/10/09/behavioral-
econ...](http://steadfastfinances.com/blog/2010/10/09/behavioral-economics-
real-vs-perceived-wealth-distribution/)

What's shocking about that chart is that the difference between what liberals
and conservatives think the wealth spread should be is dwarfed several times
over by the difference between the average of what they both want and what it
_actually_ is. We should be able to come together on bipartisan tax increases
for the wealthiest quintile— but people just don't know the facts.

~~~
ataggart
It's not clear to me why, if someone has a vastly incorrect notion about the
_actual_ state of the world, we should put much stock in their opinion of how
the world _ought_ to be.

The best you could hope for is to infer some directionality. If I think the
temperature of a room is 15C, and I say I think it ought to be 10C, but the
actual temperature is 25C, then one should probably not infer anything beyond
that I want the room cooler.

~~~
Cushman
How is that relevant to my comment? The point is that Americans are voting
against their self interest, not because of values, but because of ignorance.

------
btilly
Ironically the size of this deal is only about half of what S&P said that they
need to see to avoid a credit downgrade for the USA from AAA to AA.

Such a credit downgrade is likely to cause our interest rates to arise. A back
of the envelope calculation suggests that the increased interest costs could
cost us in the neighborhood of $2 trillion over the next decade. (See
[https://plus.google.com/u/0/114613808538621741268/posts/b7uw...](https://plus.google.com/u/0/114613808538621741268/posts/b7uwPS2H7g7)
for a line of reasoning suggesting that it could cost us that much.)

So the end result over the next decade is that we cut government by $2
trillion, raise the debt ceiling by $2 trillion, and pay $2 trillion more in
interest. Thus leaving our actual deficit about the same, but causing our
government to deliver $2 trillion less.

I hope the tea party is proud. Unfortunately the general public doesn't
understand the numbers well enough to see how stupid this whole exercise was.

~~~
ars
I'm not sure that math is quite so simple. Interest rates for an entity as
large as the US government are not decided by ratings.

They are decided by supply and demand.

Since there are no other AAA rated markets as large, people will have no
choice but to buy US debt. That demand will keep interest rates low.

~~~
btilly
Take another look at the graph.

Historically US debt traded at a substantially lower interest rate than
_other_ AAA debt. In fact we even hit a negative interest rate. _People paid
to loan us money!_ (They were willing to do it because markets were incredibly
volatile, and buying treasuries was cheaper than putting large amounts of
money in a warehouse, paying for a guard, and risking theft. I'm not joking.)

With the USA downgraded to AA and widespread awareness that stupid politics
can result in us not paying, it is hard to conceive of a way that our interest
rate will not rise.

Don't get me wrong. We'll still have a large and liquid debt market. But we
won't enjoy the absurdly low interest rates that we have gotten used to.

~~~
gbhn
I can easily conceive of it. Where else are you going to put it? Europe? The
interest rates are set at auction, and if the stock market is really sour, and
European bonds are less attractive, capital will pour into US bonds no matter
what these ratings clowns say. (Aren't these the same folks that brought us
AAA rating for MBSs less than five years ago, BTW?)

------
protomyth
My problem with this whole incident is the crappy reporting like this
statement from the article "Without an increase in the debt limit, the federal
government will not be able to pay all its bills next month. President Barack
Obama recently indicated he can't guarantee Social Security checks will be
mailed out on time."

The key word in the first sentence is "all" and the second sentence is not
exactly true. The US Gov would not of actually had to default, but would have
had to cut spending in other areas. The modern press cannot actually claim to
informing the electorate of anything but hyperbole and repeated, unexamined
words of politicians.

------
Synthetase
It's depressing that some of America's most important fiscal matters must now
be negotiated at the point of a gun. The dearth of start ups focused on the
public sector seems somewhat surprising to me. It seems that Silicon Valley
should have a role to play in easing Washington's dysfunction that we are not
playing.

~~~
dave_sullivan
I dunno, blood out of a turnip? Even if there's a need ( and there absolutely
is ), the gov has no money. Doesn't sound like a business I'd want to get
into.

~~~
pdebruic
Its not that there's no money. Its that there's no cost effective way for
small organizations to negotiate the contract discovery, bidding, and award
process

~~~
dave_sullivan
That's fair, saying there's _no_ money was an exaggeration. Maybe no _new_
money for new companies would have been more accurate, not to mention the
issues you mentioned (which were dead on).

------
steins
I'm sick of hearing about deficit reduction. We need actual debt reduction
instead.

~~~
sliverstorm
You can't get to debt reduction until you get through deficit reduction...

------
redthrowaway
He is looking significantly grayer than he did a month ago. It'll be
interesting to see what happens in 2013 when the positions are reversed and
the Bush tax cuts will expire without agreement in both houses.

~~~
bluedanieru
Won't it just be the same as last time, i.e. they will be extended? Why should
it be any different?

~~~
redthrowaway
I suspect this sorry affair has hurt Obama's power and credibility within his
own party. They would be in a much better position to decide how the US will
balance its budget had Obama simply declared the debt ceiling
unconstitutional, as Bill Clinton advised him to. Now, they've ceded
legitimacy to the Tea Partiers and will have to acknowledge them (and their
demands) in future negotiations. To the Democratic senators and congressmen
who have been around long enough to know what a bad idea that is, this deal
comes off as a betrayal, one made worse by the president's flat refusal to
consider the constitutional option. Even if Obama wanted the Senate to
capitulate on the Bush tax cuts, he could well face a revolt. The Senate will
hold absolute power on that one; they need simply do nothing to see them
expire.

It was pretty clear that the Tea Party wing of the GOP was willing to see the
US default if it meant no increase in revenue and steep cuts to entitlements;
I wouldn't be surprised to see Reid et al stick to a "keep the tax breaks for
middle income Americans and close loopholes and subsidies for corporations"
line, then blame the Republicans for the raise in taxes on the middle class
when they don't accept his proposal. After that, it's simply a matter of what
a tax break will look like. Democrats have quite clearly stated their
willingness to cut taxes for "working Americans" (ugh), so the Republicans
would have to argue why they think corporate subsidies and tax breaks for the
rich should be enacted when they will further worsen the deficit. If you're
Reid et al, that's a much nicer position to argue from than if you accept
Obama's near dogmatic insistence on compromise, or, as many Democrats see it,
giving everything away.

~~~
bluedanieru
That requires a great deal more self-awareness than I think the Democratic
leadership is capable of. Rather, I think the Republicans will get whatever
they want, minus some token concession. There's not a great deal of analysis
coming from me on that (that sort of thing has gotten too depressing), just a
cynical look at the last 30 years and an expectation of the same for the next
30.

That said, it's probably good news. If the Tea Party drives America into
irrelevance it will be better for everyone in the long run. A monopole world
is a terrible idea.

------
tedkimble
Can we flag this already? The last place I want to hear commenters praise
supply-side economics is HN.

------
Jarred
"The deal includes no tax increases"

This might be a good thing, it could force the government to be creative with
their budgeting (and maybe even produce better results)

~~~
Tsagadai
Looking at all of human history, can you see a trend of governments becoming
more efficient without money? If you look at the economic history of the last
two centuries it is far more likely that a government with less income will
just go bust under its weight and default. Government and efficiency is almost
an oxymoron. Larger companies generally become less efficient the bigger they
become, the same is true for governments.

I would like to know why you are optimistic about the situation and why you
think this time will be different than other similar (albeit on a smaller
scale) situations in history?

~~~
Jarred
When people are forced into an unfavorable situation that they feel needs to
be gotten out of, they generally try very hard to do that.

This makes it different because the government's kind of been like "We're just
going to pretend to have money and not worry about it". Now, they are
realizing that they actually have to deal with it. That's what I'm hoping for
at least.

------
drivebyacct2
A "compromise" with no tax increases when "Only 34% [of Americans] preferred a
debt reduction plan based solely on spending reductions."

And what percentage of that 34% is enjoying a higher quality of life than 10
years ago AND makes under $250K a year?

I have to wonder. (yes, even knowing the [perceived] political alignment of HN
and risk I'm taking with my vital karma.)

~~~
sliverstorm
If you're trying to imply that those 34% must be the wealthy, remember that
the vast majority of wealth in America is held by something like 1% of the
population, not 34%.

~~~
drivebyacct2
Heh, no, quite the contrary. I'm at a loss as to why the 34% is as high as it
is. My point was that I'm sure the 34% is full of people that make
significantly less and yet pay a higher tax rate than those they're
idealistically defending (meanwhile enjoying unemployment and having their
benefits put at risk due to "compromise" tactics and the in-fighting)

------
cletus
Let's say you earned $200,000 a year. You live a lifestyle that costs you
$350,000 a year and currently owe $1.5 million. The interest payments on that
are probably $30,000 a year (15% of your income). Your solution? Borrow more?
What bank would lend you money?

Multiply those numbers by a million and you have the current situation of the
US government.

Non-discretionary spending is spiraling out of control. I had this discussion
at dinner last week where someone suggested it was crazy not to raise taxes. I
disagreed. My argument is basically this:

1\. People on low incomes currently pay little, no or even negative tax
(factoring in government benefits);

2\. Such a system creates a disincentive to work with the _marginal_ rate of
tax. If you earn $10,000 and get $2,000 from the government but by $20,000 you
are paying $2,000 in tax with no benefits, the marginal rate of tax is
actually 40%;

3\. The problem isn't the top rates of tax, it's all the exemptions and the
complexity of the tax system.

So how about instead of populist pleas of taxing the rich we simply make
everyone pay their fair share? What about 25 cents in every dollar for every
dollar you earn each year above $20,000 (and nothing below)?

Congress seems beholden to special interests and pork barrel politics. In the
90s Congress tried to surrender their power to the executive branch by passing
the line item veto measure. In previous years they were unable to close
military bases and had to establish the Base Realignment and Closure
Commission.

Will it take a similar commission for Congress to distance themselves from
similarly hard decisions? The longer this goes on, the harder it's going to
get.

What I see happening in the coming years:

1\. Retirement age being raised to 70 _or even higher_ ;

2\. Federal sales tax similar to the consumption tax every other OECD nation
has. State sales taxes are too complex. Interstate sales tax exemptions are
fighting a losing battle to continue to exist; and

3\. The US adopting a more isolationist foreign policy, including a continued
decline in the US military that is already well underway (compare the size of
the US armed forces today to what they were 20-25 years ago).

~~~
tzs
> So how about instead of populist pleas of taxing the rich we simply make
> everyone pay their fair share? What about 25 cents in every dollar for every
> dollar you earn each year above $20,000 (and nothing below)?

That kind of misses the point. It's still a progressive rate structure--it
just has fewer brackets than the current rate structure. If we are going to
have a progressive rate structure, it's hard to make a sensible argument that
fewer brackets are better[ _]. The most logical would be to have an infinite
number of brackets, with your tax being the integral of continuous monotonic
increasing function that starts at 0 and raises to whatever the highest
marginal rate is.

[_] Some people argue that fewer brackets simplify the tax code. They do, but
in a trivial manner. All having fewer brackets does is reduce the number of
entries in a table on page 1. All of the complexity in the tax code comes from
determining what is income and who owes tax on it.

------
ars
Just a reminder to people: Do not downvote people based on your or their
political beliefs.

Downvote worthless comments. Comments that you disagree with are not
worthless.

If you agree with the comment vote it up, otherwise leave it alone.

