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How bad are America's finances?


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So with the downgrade by S&P and the newly passed debt ceiling, where are we today and going forward? How bad is the problem and how will it affect Americans in the near, medium , and long term?

 

If you could recommend anything, and not have to worry about partisan politics and grandstanding, what would it be? I want to focus on ideas, not republican, democratic, tea party, liberal, conservative, and libertarian past mistakes and ideologies.

 

Here is a link to a NPR article that discusses a much larger debt number - NPR Link -211 Trillion

 

"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," he says. "That's our true indebtedness."
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Why the Global Economy Is Tanking - The New Repulic

 

The overriding problem that most wealthy nations face is they have promised far more in public sector spending than they are currently willing to pay for in taxes. In the United States, the federal government spends 1.7 times its total revenues, leaving the country with a 9-10 percent 2011 GDP budget deficit, and little route to a solution if, as the Republicans demand, no further revenues are raised. It remains unclear how anyone decided that the federal government must not collect revenues exceeding 18 percent of GDP, irrespective of what happens as the society ages, but influential Republicans are pushing for a constitutional amendment that would set this limit in stone. Even tax reforms that would raise revenues, while lowering distortions, are apparently out of the question

 

Japan’s problems, on the other hand, are longer term but similarly incontrovertible. Their population is aging rapidly, and the number of workers is now in decline. Instead of planning for the coming demographic challenges, however, the political leadership has run large budget deficits, ramping up their debts just as the tax-paying population begins to fall. If they stay on the current trajectory, a few lonely taxpayers will be responsible for massive debts. The solution to Japan’s problems (advocated both by the IMF and the Bank of Japan, as well as many in Japan’s Ministry of Finance) is harsh but simple: They need to increase the sales tax substantially to close the budget deficit. Despite this, successive Japanese governments have failed to deal with the problem. Instead, they continue to build up debt in an unsustainable manner.

 

In this context, the debate in the United States seems par for the course. The U.S., unlike Europe but like Japan, does not face imminent collapse. Yet the country’s fiscal issues are daunting. Even if we accept the Congressional Budget Office’s optimistic economic growth forecasts, on our current policy track America’s net debt will increase to 100 percent of GDP by 2020. This is up from just 40 percent of GDP at the end of 2008.

 

As in Japan and Europe, the American political process has proved incapable of dealing with this issue resolutely. The final agreement announced late Sunday evening offers no credible solutions to control healthcare costs, nor did it face the question of sensible ways to boost revenues. In order to even get a deal, economic projections were based on far more rosy scenarios than most in Washington truly believe are plausible. If one simple decision and relatively small deal take such crisis mongering and brinkmanship, how will America deal with the far more serious decisions to come?

 

When faced with daunting problems, politicians in industrialized countries are struggling to adapt to their new realities in which their borrowing becomes finite. So far, not one is proving remotely capable of dealing with this task.

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From your link

 

http://www.tnr.com/article/economy/93219/debt-ceiling-stock-market-downturn

 

" In the United States, the federal government spends 1.7 times its total revenues, leaving the country with a 9-10 percent 2011 GDP budget deficit, and little route to a solution if, as the Republicans demand, no further revenues are raised. It remains unclear how anyone decided that the federal government must not collect revenues exceeding 18 percent of GDP, irrespective of what happens as the society ages, but influential Republicans are pushing for a constitutional amendment that would set this limit in stone. Even tax reforms that would raise revenues, while lowering distortions, are apparently out of the question."

 

The obvious need to raise taxes seems to escape the cult like group that has seized the GOP....it is the one of the only solutions to the fiscal problem in America.

 

Another solution would be found in the Ron Paul camp. Complete closure of all military bases and every other government function.....even then taxes would have to go up to pay for the already accumulated debt.

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From your link

 

http://www.tnr.com/article/economy/93219/debt-ceiling-stock-market-downturn

 

" In the United States, the federal government spends 1.7 times its total revenues, leaving the country with a 9-10 percent 2011 GDP budget deficit, and little route to a solution if, as the Republicans demand, no further revenues are raised. It remains unclear how anyone decided that the federal government must not collect revenues exceeding 18 percent of GDP, irrespective of what happens as the society ages, but influential Republicans are pushing for a constitutional amendment that would set this limit in stone. Even tax reforms that would raise revenues, while lowering distortions, are apparently out of the question."

 

The obvious need to raise taxes seems to escape the cult like group that has seized the GOP....it is the one of the only solutions to the fiscal problem in America.

 

Another solution would be found in the Ron Paul camp. Complete closure of all military bases and every other government function.....even then taxes would have to go up to pay for the already accumulated debt.

 

Increased tax revenue will have to be part of the solution. A decrease in foreign intervention will probably need to occur. Entitlement spending will need to go on the blocks as well. "Austerity" will be the buzz word of the next election cycle.

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The obvious need to raise taxes seems to escape the cult like group that has seized the GOP....it is the one of the only solutions to the fiscal problem in America.

 

Tax Policy Link - revenue and expenditures

In 2010 the US collected 2.16 Trillion dollars. In 2016, the US is projected to collect 3.82 Trillion dollars - a 77% increase. We'll still be nowhere near a balanced budget. Considering GDP rose at 1.3% annual rate in the 2nd quarter, and a .4% rate in the 1st quarter, there will need to be increased rates just to get to the projected numbers. Hopefully the OMB wasn't overly optimistic with the economic recovery when they set their projections, or else we'll be worse off than projected.

 

bea link - GDP data

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If you could recommend anything, and not have to worry about partisan politics and grandstanding, what would it be?

 

Trade law reform. Our tax base has been decimated by corporate America offshoring.

Can't blame them, they are in the business to make $, bottom line.

 

We need fair trade, not free trade..

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We need to look at entitlements...but not just individual ones.

 

Why do we subsidize certain things? Both through direct subsidies and "tax expenditures"?

 

Do we need to subsidize big oil, big agriculture, rich peoples mortgage interest etc?

 

If subsidies were targeted to increase the tax base (job creation) and were short term they might be worthwhile.

 

Why is mortgage interest deductible?

 

Why does ethanol get subsidized and lower our MPG?

 

Why do highly profitable oil companies need a tax break and a depletion allowance?

 

Why do huge agriculture corporations need a subsidy since the Reagan days?

 

Why do corporate jet owners need a subsidy?

 

I'm sure I missed many more.

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Trade law reform. Our tax base has been decimated by corporate America offshoring.

Can't blame them, they are in the business to make $, bottom line.

 

We need fair trade, not free trade..

I recently read the Canada is the new "off-shore" location for American companies......they have a 12% corp. tax rate and R&D tax incentives......and yet we have people on here who still want to raise taxes on corps.......it's like "biting the hand that feeds you"

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We need to look at entitlements...but not just individual ones.

 

Why do we subsidize certain things? Both through direct subsidies and "tax expenditures"?

 

Do we need to subsidize big oil, big agriculture, rich peoples mortgage interest etc?

 

If subsidies were targeted to increase the tax base (job creation) and were short term they might be worthwhile.

 

Why is mortgage interest deductible?

 

Why does ethanol get subsidized and lower our MPG?

 

Why do highly profitable oil companies need a tax break and a depletion allowance?

 

Why do huge agriculture corporations need a subsidy since the Reagan days?

 

Why do corporate jet owners need a subsidy?

 

I'm sure I missed many more.

 

You brought up many good points. The agricultural subsidies reminded me off this couple who made a documentary on trying to live on $50 week but wanted to have nutritious food. Food Stamped

 

They mentioned the government subsidiezed certain crops - Corn, Wheat, Rice- which end up being made into low cost but unheathy junk foods. The gov't then provides a limited subsidy through food stamps to purchase these foods. There are options, but if you only have $40 in food stamps you are going to look at calorie dense food. These choices are leading toward increases obesity and increased health costs, which again are subsidized by the government. Is our national food policy creating more obesity?

 

45.8 million Americans used food stamps in May. The average benefit was $133.80 per person. Chicago Tribune Link

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Why is mortgage interest deductible?

 

Mortgage interest deductions are an interesting topic. I've questioned them for may years, especially when compared to CAFE laws in the auto indsutry. We charge a gas guzzler tax to vehicles like a Dodge Viper due to the amount of fuel they use. We likely give a larger subsidy to someone who buys a 5000 sqft home than a 1500 sqft home, and the 5000 sqft home likely costs 2x as much to heat, cool, and light. Why the disconnect in energy policy?

 

How do we get away from the mortgage interest subsidy without crushing home prices further? Do we set a level like the FHA with jumbo mortgages or allow the first "X" amount to be deductible? If housing values drop further, will the decrease in property taxes offset any gains from the mortgage interest?

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Mortgage interest deductions are an interesting topic. I've questioned them for may years, especially when compared to CAFE laws in the auto indsutry. We charge a gas guzzler tax to vehicles like a Dodge Viper due to the amount of fuel they use. We likely give a larger subsidy to someone who buys a 5000 sqft home than a 1500 sqft home, and the 5000 sqft home likely costs 2x as much to heat, cool, and light. Why the disconnect in energy policy?

 

How do we get away from the mortgage interest subsidy without crushing home prices further? Do we set a level like the FHA with jumbo mortgages or allow the first "X" amount to be deductible? If housing values drop further, will the decrease in property taxes offset any gains from the mortgage interest?

 

 

Quite a bit of info on the mortgage interest deduction here

 

http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction

 

With this proposed change

 

"One solution that offers a potential compromise would be to cap the MID so that homeowners can deduct up to the first $7,000 of interest they pay each year, then not allow any deductions above that amount. With a 30-year loan at 5% fixed interest, this cap would only allow the interest on the first $140,000 to be deducted. With the average home price in the United States in 2010 at $272,900, [24] 50% of Americans would see a tax increase of at least $983 per year (the lowest marginal tax rate of 15% with $6,554 in interest that is no longer deductible). It is alleged that this will make a substantial dent in the Federal Budget Deficit, allow low-income and moderate-income homeowners to keep their full deduction (for principal amounts under $140,000), and allow wealthier homeowners to keep part of their tax break."

 

 

Of course this means more tax for the rich, something that would be resisted by the Republican Party and other hired agents of the wealthy.

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Quite a bit of info on the mortgage interest deduction here

 

http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction

 

With this proposed change

 

"One solution that offers a potential compromise would be to cap the MID so that homeowners can deduct up to the first $7,000 of interest they pay each year, then not allow any deductions above that amount. With a 30-year loan at 5% fixed interest, this cap would only allow the interest on the first $140,000 to be deducted. With the average home price in the United States in 2010 at $272,900, [24] 50% of Americans would see a tax increase of at least $983 per year (the lowest marginal tax rate of 15% with $6,554 in interest that is no longer deductible). It is alleged that this will make a substantial dent in the Federal Budget Deficit, allow low-income and moderate-income homeowners to keep their full deduction (for principal amounts under $140,000), and allow wealthier homeowners to keep part of their tax break."

 

 

Of course this means more tax for the rich, something that would be resisted by the Republican Party and other hired agents of the wealthy.

 

The goal is to keep partisan politics out of the thread. Your last statement added no value to your post. Here is a link to an Economist article on MID - "Don't defend this deduction" Please ignore the comments that Pelosi is against the removal of MID that Boehner proposed.

 

The MID is almost impossible to defend on distributional grounds. It only goes to people whose income is high enough to merit itemising deductions, and its value rises with their tax bracket. A study for the Urban Institute and Tax Policy Center by Eric Toder, Margery Austin Turner, Katherine Lim and Liza Getsinger estimates that its elimination would cost the average household an average of $559 more per year in tax. But the impact is highly progressive: for bottom quintile the average increase would be just $2 or 0.01% of after tax income; for the middle quintile, $215 or 0.49% of income; and for those in the top quintile minus the very richest 1%, it would average $1,723 to $4,234, or 1.59% to 1.63%. Only for the richest 1% does its relative importance decline. The study notes that the MID has not been found to increase home ownership, which makes intuitive sense: the families that benefit are precisely those most able and likely to buy a home regardless of the tax treatment. It only encourages them to buy larger homes, and to do so with more debt; anyone who pays off their mortgage gets no benefit.

 

It appears that removal of the MID would not have a great impact on housing prices for the majority of the market. Any effect would likely be psychological.

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Any discussion on the nation's finances MUST include Health Care....the largest and fastest growing cost to all levels of government and Americans .

 

What do we think of Vermont's move to single payer as a huge cost saver?

Edited by Aces
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Any discussion on the nation's finances MUST include Health Care....the largest and fastest growing cost to all levels of government and Americans .

 

What do we think of Vermont's move to single payer as a huge cost saver?

Agreed. Health care costs are currently about 20% of our GDP. There needs to be a way to reign in costs while providing quality, needed services to more people.

 

Here is a link to an article on the passing of the Vermont single pay bill - Vermont governor signs single-payer health law

The legislation, when fully enacted, will guarantee every Vermont resident the right to enroll in a state-sponsored insurance plan, Green Mountain Care.

 

The law is set to become operational in 2014. In the meantime, the legislation establishes a five-member board that will develop the health care system and ready it for implementation. The board will also be charged with figuring out how to pay for the plan, and must submit an outline for doing so to the legislature for approval by Jan. 15, 2013.

 

"I realize that people have legitimate questions about how a single payer will be financed and operated, and we will answer those questions before the legislature takes the next step," Shumlin said on Thursday. "We'll be getting input from all Vermonters moving forward, which is essential to the success of this effort... But input from providers, businesses and health care consumers will be especially important to assuring that our reforms are good for our health care system and good for our economy."

 

In order to implement the new law, Vermont will need to secure a waiver from the Affordable Care Act, the federal health care overhaul Congress passed in March of 2010. Under that law, states are not permitted to launch alternative plans until 2017. However, in February, President Obama expressed his support for the idea of moving that date up to 2014.

 

I think it is too early to determine if it will cut costs as - a. it appears that they have not figured out how to fund it. b. it may not be legal with current federal law - they'll need a waiver.

 

I do like the idea of individual states providing solutions as opposed to the federal government. I'd also like to see the Green Mountain Care as an option in a market exhcange of private choices that individuals from Vermont could choose from. If the gov't can provide more care for less money, I think it is a great option. If they need to raise taxes more than the offset in savings, it does not seem like a sustainable plan.

 

I do think the single payer in Vermont will create more conversation which should be good. I don't think health care needs to be brought up again before more job creation issues are addressed.

 

I think everyone would prefer to see revenue raised from more people working and less people collecting unemployment and food stamps.

Edited by Marginal Economist
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Agricultural subsidies?

 

Back ground

 

From the Cato Institute

 

http://www.downsizinggovernment.org/agriculture/subsidies

 

" Agriculture Would Thrive without Subsidies. It is normal for people to fear economic change, but many industries have been radically reformed in recent decades with positive results, including the airline, trucking, telecommunications, and energy industries. If farm subsidies were ended, and agriculture markets deregulated and open to entrepreneurs, farming would change—different crops would be planted, land usage would change, and some farms would go bankrupt. But a stronger and more innovative industry would likely emerge having greater resilience to shocks and downturns.

 

Interestingly, producers of most U.S. agricultural commodities do not receive regular subsidies from the federal government. In fact, commodities that are eligible for federal subsidies account for 36 percent of U.S. farm production, while commodities that generally survive without subsidies, including meats, poultry, fruits, and vegetables, account for 64 percent of production.32 And, of course, most other U.S. industries prosper without the sort of government coddling that farmers receive.

 

Another point to consider is that farm households are much more diversified today and better able to deal with market fluctuations. Many farm households these days earn the bulk of their income from nonfarm sources, which creates financial stability. USDA figures show that only 38 percent of farm households consider farming their primary occupation."

 

 

From Wikipedia

 

http://en.wikipedia.org/wiki/Agricultural_subsidy

 

"Impact of subsidies

 

Farm subsidies have the direct effect of transferring income from the general tax payers to farm owners. The justification for this transfer and its effects are complex and often controversial."

 

 

 

From a Canadian source.....perhaps biased as the study group is funded by the Canadian dairy industry

 

However they claim $180 BILLION US in subsidies.

 

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/for-us-farmers-subsidies-the-best-cash-crop/article1813425/

 

"A new report finds that $62 of every $100 that U.S. farmers earn comes from one level of government or another. In 2009, that added up to a staggering $180.8-billion (U.S.).

 

“The U.S. continues to provide massive -- sometimes unreported to the World Trade Organization -- support at the federal, state and local government level to U.S. agriculture,” said Ottawa trade consultant Peter Clark, who wrote the report for the Dairy Farmers of Canada.

 

The report identified a number of indirect subsidies to U.S. farmers via programs for irrigation, export credits, nutrition food aid and loan guarantees.

 

Nearly $20-billion of the $180.8-billion flows to U.S. dairy farmers, or fully half of their revenues, according to Mr. Clark."

 

 

 

 

Why is this not a talked about issue?....politics.

 

Subsidies for votes.

Edited by Aces
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I would ask both of you a pertinent question, and I want anyone reading this I do NOT believe in subsidies!

 

THE QUESTION-------->The subsidies that are paid to farmers, does that LOWER the cost of the final product to the consumer? Since most farmers are not rich, I am going to believe that it does, or certainly allows more farmers to stay in businees, meaning because of their product being added to the whole, it does push the cost of the total product down.

 

Let me put it this way------------>if the subsidies have no effect on cost at the delivery point to the consumer, than the question on if/or if not to cut them is a no brainer.

 

BUTTTTTTTTTTTT, if it does effect cost at the delivery point, it will open a very, very, VERY large can of worms. Should we now subsidize the poorer people directly, since their food bill has gone up significantly? At what level of income should be give them no help? While it shouldn't, what if that program ends up costing MORE than farm subsidies......and since the government would handle it, the odds are 50/50 they would, lol. ORRRRRRRRRRRR, should we just cut everyone loose? Which of you thinks that would happen if the price at the delivery point went up-)

 

Farm subsidies are a quagmire no matter which way you look at them. So is a lot of other government spending. Years upon years of spending bills, subsidies, special interest groups, etc........to be unraveled will take stronger people than what we have in Washington now. We have seen that with this budget deal. The strong suggest we cut away, the weak suggest we raise taxes to pay for all of this idiocy to keep everyone happy......who doesn't have to pay for it.

 

Personally, I do not believe there will ever be much agreement between the two groups as long as they can print money. If you take that away from them and force them to live within the means of the countrys bank account, you would see more harmony. Instead of blaming one another, the only chance they would have then is to make deals............which is what the writers of the constitution envisioned. That is the way to go, balanced budget. so they have to do what is best for the country as whole, and not what is best for their followers.

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Another large component of America's spending is Defense.

 

Some is waste.

 

http://www.nytimes.com/2011/03/30/business/30military.html

 

"Audit of Pentagon Spending Finds $70 Billion in Waste"

 

 

 

Some is foreign bases

 

http://www.fpif.org/reports/the_cost_of_the_global_us_military_presence

 

"The final bill: The United States spends approximately $250 billion annually to maintain troops, equipment, fleets, and bases overseas."

 

 

 

I am not one of these "close 'em all" guys ...after all my eldest son lives in South Korea and the American presence there is essential.

 

But I'm also sure that we could reduce our presence in most places..and eliminate it in some.

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Agricultural subsidies?

 

Back ground

 

From the Cato Institute

 

http://www.downsizinggovernment.org/agriculture/subsidies

 

" Agriculture Would Thrive without Subsidies. It is normal for people to fear economic change, but many industries have been radically reformed in recent decades with positive results, including the airline, trucking, telecommunications, and energy industries. If farm subsidies were ended, and agriculture markets deregulated and open to entrepreneurs, farming would change—different crops would be planted, land usage would change, and some farms would go bankrupt. But a stronger and more innovative industry would likely emerge having greater resilience to shocks and downturns.

 

Interestingly, producers of most U.S. agricultural commodities do not receive regular subsidies from the federal government. In fact, commodities that are eligible for federal subsidies account for 36 percent of U.S. farm production, while commodities that generally survive without subsidies, including meats, poultry, fruits, and vegetables, account for 64 percent of production.32 And, of course, most other U.S. industries prosper without the sort of government coddling that farmers receive.

 

Another point to consider is that farm households are much more diversified today and better able to deal with market fluctuations. Many farm households these days earn the bulk of their income from nonfarm sources, which creates financial stability. USDA figures show that only 38 percent of farm households consider farming their primary occupation."

 

 

From Wikipedia

 

http://en.wikipedia.org/wiki/Agricultural_subsidy

 

"Impact of subsidies

 

Farm subsidies have the direct effect of transferring income from the general tax payers to farm owners. The justification for this transfer and its effects are complex and often controversial."

 

 

 

From a Canadian source.....perhaps biased as the study group is funded by the Canadian dairy industry

 

However they claim $180 BILLION US in subsidies.

 

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/for-us-farmers-subsidies-the-best-cash-crop/article1813425/

 

"A new report finds that $62 of every $100 that U.S. farmers earn comes from one level of government or another. In 2009, that added up to a staggering $180.8-billion (U.S.).

 

“The U.S. continues to provide massive -- sometimes unreported to the World Trade Organization -- support at the federal, state and local government level to U.S. agriculture,” said Ottawa trade consultant Peter Clark, who wrote the report for the Dairy Farmers of Canada.

 

The report identified a number of indirect subsidies to U.S. farmers via programs for irrigation, export credits, nutrition food aid and loan guarantees.

 

Nearly $20-billion of the $180.8-billion flows to U.S. dairy farmers, or fully half of their revenues, according to Mr. Clark."

 

 

 

 

Why is this not a talked about issue?....politics.

 

Subsidies for votes.

1st - thanks for the variety of links. I never thought I'd see you post something from Cato.

 

I haven't looked very hard at farm subsidies. From what I recall reading, there are twice as many farmers over age 65 than under 35. The top 2% of US farms produce 50% of the food. Most of the corporate subsidies are for 5 crops, including wheat, corn, and cotton. Very little if any subsidies go to meat or veggies.

 

Things I'd like to know - how do our grocery prices compare to other countires? Can individual farmers as a Co-op produce the same efficiencies of scale as a corporation - Monsanto or Archer Midland? What percentage of our food do we export and are the subsidies in effect lowering the price for foreing countries? If we held back subsidies to agricultural and increased food stamps or other food aid, would that be more or less beneficial to the poor and middle class?

 

Farming seems to be following manufacturing in the US, and this is probably not good. World population is growing exponentially and there will be limited food supplies. How we address pricing and supply going forward could be much more improtant in the coming years.

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Oil company tax breaks...do we need them?

 

Some good background here

 

http://www.taxpayer.net/user_uploads/file/Energy/OilandGas/2011/Oil_and_Gas_Report_05-17-2011.pdf

 

I read most of the article - the appendicies seem to have some good info without the spin from the article.

 

Most of the issues seem to be from how they expense their operations. LIFO accounting is not a oil industry exclusive, and if each project is required to use the same accounting method I don't see an issue. The inventory costs should be on a curve and should even out over the long run. In some instances it seems like they let oil companies take standard deductions instead of itemizing. If the numbers are close, I'm not sure the extra work in itemizing would make a big difference vs the additional costs. Most of the pieces look like depreciation schedules and R&D credits. I'm OK with losing R&D credits - they should have to invest if they want to profit.

 

I don't know if most of the financial problems are going to come from discretionary spending and tax items. The interest on the debt and entitlement programs are much bigger than all discretionary spending combined.

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I read most of the article - the appendicies seem to have some good info without the spin from the article.

 

Most of the issues seem to be from how they expense their operations. LIFO accounting is not a oil industry exclusive, and if each project is required to use the same accounting method I don't see an issue. The inventory costs should be on a curve and should even out over the long run. In some instances it seems like they let oil companies take standard deductions instead of itemizing. If the numbers are close, I'm not sure the extra work in itemizing would make a big difference vs the additional costs. Most of the pieces look like depreciation schedules and R&D credits. I'm OK with losing R&D credits - they should have to invest if they want to profit.

 

I don't know if most of the financial problems are going to come from discretionary spending and tax items. The interest on the debt and entitlement programs are much bigger than all discretionary spending combined.

 

So let's keep doing the same thing. If we change it, we'd be forcing Grandma to eat kitty food.

 

Or that's what the democrats say whenever talk of entitlement reform is broached.

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