My rebuttal to a winger about the tax burden and defecit issues.

[rockymountaindem]

This is in reguard to that other thing I posted here the other day about that e-mail forum I'm in. Some of you may have seen it.


Here's what I think and here's what I said:

I did not say that the super-rich should pay more than their fair share.
I said they should pay their fair share. Back to what I was saying earlier,
Kerry voted in favor of a version of the $87 billion bill in which half of
the costs would have been payed for by reducing the tax cut to those making
more than 400,000 thousand dollars a year. No, it wasn't about making them
pay more taxes, it was about giving them less of a tax cut. Examine the
numbers. Those making more than 400,000 dollars a year were supposed to get
an 87 thousand dollar tax reduction. Half of the 87 billion was to be paid
by reducing the amount by which these people's taxes would be lowered. They
were still going to be paying less than before anyway. Without getting into
the argument of progressive vs. regressive taxes, let's look at the
alternatives. The way it is now, the 87 billion is coming right out of the
treasury, while we are still paying out tax reductions to rich people who
don't need them. That means that the defecit has just grown by 87 billion
dollars. How can we pay for that? Well, we can finance the defecit by
selling bonds to US citizens, banks and foreigners. However, bonds are a
risk for investors, technically. If the US government were to go bankrupt
(which we edge closer to every time we increase the defecit) then those
holding bonds would lose all their money. Don't think that the US treasury
can't go bankrupt. It can. In 1982, every nation in Latin America defaulted
on loans (bonds are a form of loans) except for Chile (which at the time was
being propped up by the US because we supported their dictator's persecution
of leftists). Any government can go bankrupt. Because some major financial
institutions own billions in US bonds, a US bankruptcy would cost them
dearly. Therefore, their must be a proft to justify the risk. The greater
the risk, the more profit they will want. That profit is paid for in
interest, which is currently at 1%. As the defecit grows (i.e. as we get
into more risk of default) the borrowers will demand more profit to offset
the risk. That means that the Federal Reserve will have to increase the
interest rate. That will make it more expensive for domestic businesses to
get loans, thereby slowing down the economy. That would be pretty bad, as
the economy is fragile enough already. Furthermore, many of these bonds are
held by foreign banks and financial institutions, especially in Japan. They
could decide to sell off these bonds at any time, pushing us further into
deficit. Make no mistake about it, IF THESE BANKS SELL OUR BONDS EN MASSE WE
ARE IN HUGE TROUBLE. That's not me talking, that's plain economics.

Alternatively, the government could just pay off the defecit instead of
financing it with bonds. This means everyone's taxes will increase,
including those of the poor and middle class (that part about the middle
class, that means all of us, unless some of you have a mansion in
Switzerland you're not telling me about) who are less able to carry the load
than people who make 400,000 dollars a year or more. Are you starting to see
why the defecit is a bad thing? If you are interested in getting into the
old argument of taxing the rich vs. taxing the poor, go ahead and let me
know.