The Ides of April or why I lost my sense of humor

Finally, David has completed the tax forms. Today, he takes our checks in hand to the bank, writes one check to the IRS, and puts the packages (Federal plus check and State…VA owes us money) in the mail. Finally.

We no longer have the deductions we had for years, and our income is greatly reduced. Without Social Security (1/2 of our income) we would be paupers. We are not thrilled with the new proposal by Obama that SS be “chained” thus reducing slightly our monthly take. However, we will live with it, if Republicans are willing to bend on closing tax loop holes and putting caps on things like home mortgage interest (yes, I know the arguments pro and con for doing this).

David and I both worked like dogs for years. Both of us have annuities from former employers (two each). Believe me, no one pays a better annuity than Social Security. Which begs the question…how can a Government afford this?

I know some people say Social Security doesn’t add one dime to the national debt, but that is not true.  The “surplus” David and I contributed to during the 1980s and 1990s funded everything from soup to nuts (SS contributions paid for government bonds which paid for federal programs). Today payments to pension holders, widows and orphans, and others on disability,  exceed the payments garnered by the payroll tax.  Money to cover the shortfall must come from somewhere.

Currently, the money comes from borrowing and printing more money.

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In the 1980s, Tip O’Neil (Dem Speaker of the House) and Ronald Reagan (Republican President) cut a deal to raise SS taxes on workers (David and me and millions of others) to fund a budget surplus…to be held in “trust” for future pensioners and others. The money was “invested” in government bonds, i.e. used to finance government spending, during the Clinton years (why there was a budget surplus).

Today, by borrowing, primarily from government bond holders, the Federal government pays the money it owes to SS recipients.

Bonds transferred to bond holders are exchanged for money in another form.

Because the Federal Government buys back some of the bonds, it pays with currency it prints. In other words, some of the money comes from printing presses here in Washington DC (quantitative easing) as well as old bills from abroad resulting from trade imbalances…China, Europe, and elsewhere. 

One of the reasons the European Union is having difficulty is that it lacks a central bank that can float currency (devalue it).  Germans and Dutch who are net savers, are terrified of inflation and object to this “cure” which, as they see it, would subsidize the less thrifty ways of others.

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The interest the US government pays for borrowed money is linked to the scores bond rating agencies assign. A high score from a bond rating agency means a bond is a safe bet…although the safer the bond, the lower the interest the debtor pays its creditors.

(Bond scores are tied to credit-worthiness. National credit worthiness is tied to an income/debt ratio (what is earned versus owed)….why economists pay attention to the ratio of annual deficits versus the GDP (Gross Domestic Product or national system of accounts).

I know this is complicated and I could go on and on and on, but will stop for now. I want to go on record by saying that although I did not vote for Mr. Obama, I know he means well when it comes to Social Security. So did Mr. Romney.

The time for Republicans to bend a bit, is at hand, however. Closing tax loop holes (proposed by Mr. Romney and Mr Bohner) is one way to increase the federal government’s “take” of revenue.

I don’t agree that if taxes are increased for the wealthy and corporations it will necessarily lead to higher unemployment. A multiplier effect works whether the money is spent by the wealthy or by those receiving redistributed income….like me and David.  If we spend money, it drives businesses to prosper.  Remember, personal consumption is 2/3 of GDP.

On the other hand, if corporations are more heavily taxed they will pass the extra cost onto consumers, including other companies and governments. 

Yes, Economics is a dismal subject. And, now you know why I lost my sense of humor.  

  

      

 

14 thoughts on “The Ides of April or why I lost my sense of humor

  1. Kay said it perfectly. I do have one annuity…with a little from that plus 400 a month from SS I’m living a riotous life above the beach. Right now I got the widget to work, but instead of inputting books into my “good reads”, I am shelving them here discarding many. One I am struggling with is JK Galbraith’s latest.

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    • These days, you have much to do with “real” books.

      I add books I have read in the past to Good Reads as I remember the titles. Still trying to remember the title of one I really loved about magic, the color green, the PreRaphelites and absinthe. Involved green fairies.

      JKG was okay, but being a Keynesian, incredibly optomistic about debt. I wish he was correct. We read Keynes in several of the classes I took at GMU. Don’t forget, when Keynes developed his theory, the US had comparatively little debt.

      Dianne

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