Fiscal responsibility: suppose the govt "doesn't spend money it doesn't have."

[green]

There is a difference between not spending money on programs (military, welfare, whatever) that you don't have versus building needed infrastructure (i.e.) that will be utilized for generations to come. If an interstate is necessary for a given population and by building said interstate it brings greater efficiency/profits from transportation (i.e.), should we wait 50 - 100 years to come up with the money to build it? Not necessarily. If a study suggests that the greater efficiency, profits, and well-being that is created by the interstate outweighs the interest of the loan, then you should do it.

Here's a real world example that can be easily understood by all of us;

Your next door neighbor has a home that is worth $200,000 (current market value) and they lose it to foreclosure. Your local banker knows you and likes you and approaches you to see if you'd like to rid them of the asset for only $100,000. You say you'd love to but don't have the $100,000. Banker says he'll give you a loan with 25% down. Do you wait to raise the other $75,000, or do you buy the house for 1/2 market value through a loan?

I get your point, and I understand why people think the NEED debt, but your example still isn't better than paying cash. Let's say your neighbor friend offers you the house for $100,000 and you do the loan. Your interest is probably around 3%. Which means over 15 years, you lost $24,000 in interest. NOW, you are hoping that the house appreciates more than the $24,000 you lost, and you feel that you can sell the house for $200,000 (even though your neighbor can't). Let's say you pay cash on the house. Over the next 15 years, you made money off the appreciation and NEVER lost any money to interest.

Interest is a tool that some people use to build wealth. It's not better than cash, which takes us back to my original point, if you spend less than you make, you will always have cash. You might not be able to pay cash for a house right off the bat, but it is stunning how fast your wealth increases when you operate with no debt.

 

[green]

The vast majority of money is created through debt. The other options are barter or congress printing and spending at will. The second is a horrible idea loaded with moral hazard & the first is so limiting that we'd be crushed economically by other superpowers.

A third option is increasing velocity to the point that debt is less necessary & is repaid much easier when taken on. That strategy requires a government wealth leveling mechanism.

Which option do you consider best, green?

No debt. Yes, it takes a little longer to get the ball rolling when you try to go with no debt. But your risk is essentially zero, and once that ball gets rolling, it will roll faster than you could have ever imagined.

It comes down to are you willing to do the work, make the sacrifices, and have the patience to go debt free. Most people aren't, and smart people (who are debt free) get rich off those people.

 

[northeast]

as has been mentioned elsewhere, I would think a great first step would be to simplify the tax code by equalizing rates across different income categories,

that is, to combine carried interest, qual divis, ord divis, cap gains, income, fica all into one category, "income tax"
it'd be great to combine state and fed and city taxes too, one return, no gaming one with another

add a tiny trading tax that no one would notice except for high frequency traders

 

[Dr. Jones]

I get your point, and I understand why people think the NEED debt, but your example still isn't better than paying cash. Let's say your neighbor friend offers you the house for $100,000 and you do the loan. Your interest is probably around 3%. Which means over 15 years, you lost $24,000 in interest. NOW, you are hoping that the house appreciates more than the $24,000 you lost, and you feel that you can sell the house for $200,000 (even though your neighbor can't). Let's say you pay cash on the house. Over the next 15 years, you made money off the appreciation and NEVER lost any money to interest.

Interest is a tool that some people use to build wealth. It's not better than cash, which takes us back to my original point, if you spend less than you make, you will always have cash. You might not be able to pay cash for a house right off the bat, but it is stunning how fast your wealth increases when you operate with no debt.

I feel like this argument will simply keep coming back to 'cash is better than debt' and to that there is no debate. There just isn't always cash available and sometimes opportunities arise that make sense to take on debt .. and I believe that that, too, is undebatable.

I feel that we are BLOWING (for literally no net gain) around 10% of our total annual budget through nothing more than stupid mismanagement. What would that extra do for us? A ton. THEN, I could get behind maybe raising taxes .. if I knew there wouldn't just be that much more waste.

 

[Stoked]

as has been mentioned elsewhere, I would think a great first step would be to simplify the tax code by equalizing rates across different income categories,

that is, to combine carried interest, qual divis, ord divis, cap gains, income, fica all into one category, "income tax"
it'd be great to combine state and fed and city taxes too, one return, no gaming one with another

add a tiny trading tax that no one would notice except for high frequency traders

I'd go so far as to say that the vast majority of Americans agree with you there.

Second bolded part. Is the amount of "fica" still privately recorded or is it just income tax? I was wondering about how that affects the accounts of Medicare and Social Security...

 

[Dr. Jones]

No debt. Yes, it takes a little longer to get the ball rolling when you try to go with no debt. But your risk is essentially zero, and once that ball gets rolling, it will roll faster than you could have ever imagined.

It comes down to are you willing to do the work, make the sacrifices, and have the patience to go debt free. Most people aren't, and smart people (who are debt free) get rich off those people.

I think that's naive. I have 3 billionaire (literally) friends and each of them carry at least $200MM in debt because they can borrow money drastically cheaper than they can get in returns.

 

[green]

jazzfan - I have no problem with raising taxes...as long as you raise taxes for EVERYBODY.

I would gladly up my tax burden 5% if EVERYONE paid 5%. I have a problem with me working hard, producing something that other's need, and being successful at it, then being told all this is my fault and I need to pay more to fix it. I will pitch in with everyone else if EVERYONE else is willing to pitch in. Why should I pay what other's aren't willing to pay, because I put in the 100+ hours a week for 10+ years building this? Oh, that's right, it is because I didn't do that work, the government did and I did as much to provide my successes and the guy flipping burgers with meth mouth.

********.

Also, could you imagine what would happen worldwide if we cut our military? How many countries can pretend to afford to provide national healthcare because they rely on our military?

 

[franklin]

There are parties within a hedge fund that I do believe should have the same capital gains benefits.

Agreed, & as a side, I don't think having money should entitle you to a lower tax rate in the first place. Money is not private property but a medium of exchange owned by we the people and carries rules on its use. As such, I don't consider capital gains as double taxation. You don't pay them unless you use the medium of exchange to facilitate your trade activities, & must pay associated costs for it's convenience in order to maintain system integrity & health.

With that said, I enjoy every bit of my 0% tax rate on stock sales. It's also reassuring knowing that if I were to land a whale I wouldn't lose 35% of it + push my current income into that bracket. That would be messed up and take my investing incentive completely away.

 

[Dr. Jones]

Agreed, & as a side, I don't think having money should entitle you to a lower tax rate in the first place. Money is not private property but a medium of exchange owned by we the people and carries rules on its use. As such, I don't consider capital gains as double taxation. You don't pay them unless you use the medium of exchange to facilitate your trade activities, & must pay associated costs for it's convenience in order to maintain system integrity & health.

With that said, I enjoy every bit of my 0% tax rate on stock sales. It's also reassuring knowing that if I were to land a whale I wouldn't lose 35% of it + push my current income into that bracket. That would be messed up and take my investing incentive completely away.

A lot of good in that post.

 

[green]

I think that's naive. I have 3 billionaire (literally) friends and each of them carry at least $200MM in debt because they can borrow money drastically cheaper than they can get in returns.

I get that. BUT, the risk is higher. They are taking the risk that a loan at 2% will yield returns at 8%, giving themselves a 6% profit. It is the same reason why we borrow for houses and banks lend. We believe that even though I will pay double for my house over 30 years, after 30 years my house will be worth more than double what I paid for it.

I'll give you an example. RC Willey was owned by two brothers. When they had TWO stores, they decided that they would get debt free. They did that, and wondered what to do with their cash. They decided that they would loan their customers the cash they had, with 18% interest.

A few years ago, Warren Buffett bough RC Willey 175 million. Was it because he had interest in the furniture side of things? NOPE. It was because RC Willey was the fourth largest bank in Utah. They got out of debt in 1978. Their net worth was 2 furniture store business. What would that be? Let's aim high and say a million a store. So, in twenty years, their net worth went from 2 million (which is probably ridiculously high) to 175 million. Your billionaire friends aren't getting returns off their debt like that.

I get debt. It is useful, and risky. It is nowhere as good as cash.

 

[northeast]

I sympathize with green. If you guys really want to crack down on wasteful spending , a pay as you go system might do the trick. It is not clear to me that the benefits of debt outweigh the costs. Of course, the world would be very different. PKM and Franklin might have to find different lines of work. The transformation might involve lots of discontent -- something along the lines of the Lord of the Rings Trilogy.

 

[NAOS]

Agreed, & as a side, I don't think having money should entitle you to a lower tax rate in the first place. Money is not private property but a medium of exchange owned by we the people and carries rules on its use. As such, I don't consider capital gains as double taxation. You don't pay them unless you use the medium of exchange to facilitate your trade activities, & must pay associated costs for it's convenience in order to maintain system integrity & health.

I just repped this once. And I'll rep him again for this when I'm able.

 

[Dr. Jones]

I get that. BUT, the risk is higher. They are taking the risk that a loan at 2% will yield returns at 8%, giving themselves a 6% profit. It is the same reason why we borrow for houses and banks lend. We believe that even though I will pay double for my house over 30 years, after 30 years my house will be worth more than double what I paid for it.

I'll give you an example. RC Willey was owned by two brothers. When they had TWO stores, they decided that they would get debt free. They did that, and wondered what to do with their cash. They decided that they would loan their customers the cash they had, with 18% interest.

A few years ago, Warren Buffett bough RC Willey 175 million. Was it because he had interest in the furniture side of things? NOPE. It was because RC Willey was the fourth largest bank in Utah. They got out of debt in 1978. Their net worth was 2 furniture store business. What would that be? Let's aim high and say a million a store. So, in twenty years, their net worth went from 2 million (which is probably ridiculously high) to 175 million. Your billionaire friends aren't getting returns off their debt like that.

I get debt. It is useful, and risky. It is nowhere as good as cash.

Your example also had risk. The Willey's purchased the furniture with cash and then loaned it out .. same risk as borrowing money to purchase the furniture and then selling it for cash, sans the interest rate.

I did the same thing. A company I had sold in '04 was purchased less for the business, less for the physical assets, and much more because I had millions in performing consumer loans averaging 16% interest.

 

[Dr. Jones]

I sympathize with green. If you guys really want to crack down on wasteful spending , a pay as you go system might do the trick. It is not clear to me that the benefits of debt outweigh the costs. Of course, the world would be very different. PKM and Franklin might have to find different lines of work. The transformation might involve lots of discontent -- something along the lines of the Lord of the Rings Trilogy.

At the risk of sounding like a total dick .. I don't care what rules are changed/enacted .. I'll be successful, so have at it.

 

[franklin]

No debt. Yes, it takes a little longer to get the ball rolling when you try to go with no debt. But your risk is essentially zero, and once that ball gets rolling, it will roll faster than you could have ever imagined.

It comes down to are you willing to do the work, make the sacrifices, and have the patience to go debt free. Most people aren't, and smart people (who are debt free) get rich off those people.

That's not an option. Do you think we all have magical money trees growing in our back yard or are you being a simpleton on purpose? Your pretending money magically appears out of thin air is everything that scares me about the current republican party.

 

[NAOS]

@PKM,

how much do you "donate" to the Kentucky BBall team? I kid, I kid, I kid, I kid.

A'ight gents, I'm off again for a while. If we sign Howard and don't trade Jefferson you'll hear me cry from the jungle.

 

[northeast]

I think that's naive. I have 3 billionaire (literally) friends and each of them carry at least $200MM in debt because they can borrow money drastically cheaper than they can get in returns.

In this case, debt is the means for the gov't to subsidize the rich.

 

[NAOS]

That's not an option. Do you think we all have magical money trees growing in our back yard or are you being a simpleton on purpose? Your pretending money magically appears out of thin air is everything that scares me about the current republican party.

it scares me how the average voting citizen doesn't understand that "money" doesn't equal "cash."
The republican party is making a lot of confusion and noise about debt. It's particularly noisy because nobody knows how to make sense of their "claims."

 

[franklin]

@PKM,

how much do you "donate" to the Kentucky BBall team? I kid, I kid, I kid, I kid.

A'ight gents, I'm off again for a while. If we sign Howard and don't trade Jefferson you'll hear me cry from the jungle.

You're pissed that a rich white guy gives tons of money to help poor black kids play college ball? (J/K)

 

[Dr. Jones]

That's not an option. Do you think we all have magical money trees growing in our back yard or are you being a simpleton on purpose? Your pretending money magically appears out of thin air is everything that scares me about the current republican party.

No, but I have a few in my attic under grow lights.