Taxes and Spending

[finknottle]

I've touched on this before but never got a bite, so I'll ask the question one last time in a slightly different way:

 

 

38% of households currently pay no income tax. That number is expected to rise to 50% under Obama's plan.

 

If you pay no income tax, what incentive do you have to oppose increasing federal spending? Why would you oppose a politician that promises yet more, knowing that the bill will never fall on your shoulders directly? What happens when it becomes a clear majority of the electorate?

 

(They will pay, of course, through the creep of alternate popular taxes such as payroll, gasoline, whatever. Ironically, these are regressive...)

[YellowLinesandArmadillos]

I've touched on this before but never got a bite, so I'll ask the question one last time in a slightly different way:

 

 

38% of households currently pay no income tax. That number is expected to rise to 50% under Obama's plan.

 

If you pay no income tax, what incentive do you have to oppose increasing federal spending? Why would you oppose a politician that promises yet more, knowing that the bill will never fall on your shoulders directly? What happens when it becomes a clear majority of the electorate?

 

(They will pay, of course, through the creep of alternate popular taxes such as payroll, gasoline, whatever. Ironically, these are regressive...)

And that is the answer? Guess you can't get out of those mandatory taxes... or what you would call flat taxes!

 

Because unless there is an increase in benefits, the biggest tax increaser the last 10-30 years have been states. I am waiting for a tax revolt on that level.

[finknottle]

And that is the answer? Guess you can't get out of those mandatory taxes... or what you would call flat taxes!

 

Because unless there is an increase in benefits, the biggest tax increaser the last 10-30 years have been states. I am waiting for a tax revolt on that level.

 

I don't understand what you are saying -

[YellowLinesandArmadillos]

I don't understand what you are saying -

Sorry my finger never did catch up with what I wanted to say. Now I figure it is unimportant considering I can't remember exactly, fatherhood disease.

 

Real incentive non directly, but spending creates deficits, especially under Republicans causing a drag on the economy lowering my earning power regardless of my tax level. I am sure there are others and having to pay taxes is much more of tangible incentive but there are incentives, just not as understandable. Kind of like the tax code.

[/dev/null]

Sorry my finger never did catch up with what I wanted to say.

 

My finger is usually the first to express what I want to say. Well one finger anyway.

 

4 down and 1 up

[Booster4324]

I've touched on this before but never got a bite, so I'll ask the question one last time in a slightly different way:

 

 

38% of households currently pay no income tax. That number is expected to rise to 50% under Obama's plan.

 

If you pay no income tax, what incentive do you have to oppose increasing federal spending? Why would you oppose a politician that promises yet more, knowing that the bill will never fall on your shoulders directly? What happens when it becomes a clear majority of the electorate?

 

(They will pay, of course, through the creep of alternate popular taxes such as payroll, gasoline, whatever. Ironically, these are regressive...)

 

Fair enough, I have touched on this before, never received an answer either.

 

Once you factor out the bare minimum cost of living

• Rent in a dilapidated shack
  
• Cheapest foods available
  
• Using the hospital for medical care (some bills are paid although a small percentage)
  
• Utility Bills
  
• Transportation to and from a job
  

 

What is the percentage of taxation on available income considering total taxation after the bare minimum is met? The guy with 6 houses and a tax shelter in the Caymans (do those still exist? Irregardless, there are tax shelters) fares far better, I am willing to bet, when the same numbers are applied to him.

 

Essentially, IMO, if you are considering total percentage of taxation, you should consider what they have available after the bare minimums are met. This view of course favors the poor, which is admittedly not a Republican stance. Perhaps we should remove their right to vote? I mean they contribute nothing other than brute labor and we can get that cheaper from Mexico.

 

To answer your question, if Obama ups the tax rate on the "rich" (which seems doubtful at this point, considering the economy of the country will go in the tubes in a few months probably with any tax increase) you will be proven right. McCain merely prolongs it IMO. He is Dem-Lite and the fact that you support him when you should be advocating a change in the process speaks volumes, again IMO, about your personality, intellect, and general knowledge.

[finknottle]

Essentially, IMO, if you are considering total percentage of taxation, you should consider what they have available after the bare minimums are met. This view of course favors the poor, which is admittedly not a Republican stance. Perhaps we should remove their right to vote? I mean they contribute nothing other than brute labor and we can get that cheaper from Mexico.

 

To answer your question, if Obama ups the tax rate on the "rich" (which seems doubtful at this point, considering the economy of the country will go in the tubes in a few months probably with any tax increase) you will be proven right. McCain merely prolongs it IMO. He is Dem-Lite and the fact that you support him when you should be advocating a change in the process speaks volumes, again IMO, about your personality, intellect, and general knowledge.

 

Thanks for the answer.

 

But I'm not asking from the perspective of 'optimal fairness,' nor as a criticism of the Obama plan per se.

 

I'm really just trying to get to the question of how would a democracy behave legislatively if a clear majority of voters paid no income tax? Would the temptation to propose spending programs to be paid for exclusively by increasing in income taxes (on those who pay them) rather than other sources become irresistable to politicians and voters alike? What would be the check on that form of 'tyranny of the majority,' other than opaque economic arguments unlikely to sway the common voters short-term interests?

 

To me the idea of 50% of households paying no income taxes is a sort of psychological alarm bell.

[molson_golden2002]

Should we "pay as we go" for the bailout or just toss it on the debt?

[finknottle]

Should we "pay as we go" for the bailout or just toss it on the debt?

 

I'd say pay as we go, except the bailout plans are not fixed costs. I assume they are authorization celings, so you really can't budget for them the way you can other programs.

[molson_golden2002]

I'd say pay as we go, except the bailout plans are not fixed costs. I assume they are authorization celings, so you really can't budget for them the way you can other programs.

That's the lovely thing about running $450 billion deficits, we always have something to pay for. How about paying for Iraq now, then?

[Gavin in Va Beach]

When you rob Peter to pay Paul you can always count on the support of Paul.

[/dev/null]

When you rob Peter to pay Paul you can always count on the support of Paul.

 

Except Ron

[DC Tom]

Should we "pay as we go" for the bailout or just toss it on the debt?

 

It's already being tossed on the debt.

 

Hell, at this point, I'd be okay with a government-owned corporation to buy up those mortgage bonds and service them. Pocket the P&I, refinance people in default according to what they can afford (but if they sell for more, the government keeps the difference), foreclose and sell (to people with FHA/VA backed loans) when you can't refi. A rationally run program like that would probably turn a tidy profit.

 

Of course, this being OUR government, it wouldn't be run as anything remotely rational, and would lose a ton of money.

[molson_golden2002]

It's already being tossed on the debt.

 

Hell, at this point, I'd be okay with a government-owned corporation to buy up those mortgage bonds and service them. Pocket the P&I, refinance people in default according to what they can afford (but if they sell for more, the government keeps the difference), foreclose and sell (to people with FHA/VA backed loans) when you can't refi. A rationally run program like that would probably turn a tidy profit.

 

Of course, this being OUR government, it wouldn't be run as anything remotely rational, and would lose a ton of money.

Clinton was on the Daily Show last night saying that same thing

 

And I saw some experts say that the gov might win or lose on this loan. Clinton said that the Mexican bailout had actually made money for the government.

 

Be interesting to see what interest rate they charge for these loans if that's the way they go

[DC Tom]

Clinton was on the Daily Show last night saying that same thing

 

And I saw some experts say that the gov might win or lose on this loan. Clinton said that the Mexican bailout had actually made money for the government.

 

Be interesting to see what interest rate they charge for these loans if that's the way they go

 

Except that at this point, the government's only buying the securities, NOT the mortgages. There's a big difference. People's mortgages are held and pooled by a separate company, that company takes the pooled principal and interest payments every month and pays it out to the bond holders. There's complexities involved in that, of course, but that's the basic principle.

 

The government, in this bailout, is becoming the bond holder. NOT the servicer. So they don't have direct access to the homeowners. (Important to note, also, they they're not bailing out the direct lenders. They're bailing out the current bond holders - specifically because the bonds are illiquid. The idiots who wrote bad mortgages to begin with are still on the hook for being idiots - they're still committed to paying the bond payments no matter WHO defaults on the backing mortgages).

 

So what I was saying is that, IF they could get their hands on the mortgages directly, and IF they could manage them rationally, it might be sensible. Right now, with the plan they're talking about...they can't. Which is why they're trying to tack on a "homeowner bailout".

 

And I'm sure Clinton's too much of a tool to know that. Don't even know which Clinton you're referring to...they're both tools.

[bills_fan]

Clinton was on the Daily Show last night saying that same thing

 

And I saw some experts say that the gov might win or lose on this loan. Clinton said that the Mexican bailout had actually made money for the government.

 

Be interesting to see what interest rate they charge for these loans if that's the way they go

 

 

Change interest rate to discount rate and you just hit the trillion dollar question.

 

These securities are debt instruments. The way to properly value one of these things (once it is unwound) is a method called the discounted cash flows model learned in Finance 101.

 

Basically, you take all the cash flows that the instrument will pay from now through maturity, and discount them to present day. The whole time value of money concept. Once unwound/unbundled/sorted out, the cash flows are pretty easy to determine.

 

The determination of the discount rate is far more art than science, and one reason why fortunes are made on Wall Street. The discount rate would factor in such things as risk of default, interest rate risk, market risk etc. It make a huge difference if you use, say 6% versus 8%, especially when talking trillions.

 

If I could figure out the discount rate, I'd start my own hedge fund buying these things.

 

Treasury will buy these things at a discount (not the mark-to-market, pennies on the dollar) price they currently sell at. Treasury will then hold or pay someone to administer and then sell at a profit (hopefully, if done right).

[DC Tom]

Change interest rate to discount rate and you just hit the trillion dollar question.

 

These securities are debt instruments. The way to properly value one of these things (once it is unwound) is a method called the discounted cash flows model learned in Finance 101.

 

Basically, you take all the cash flows that the instrument will pay from now through maturity, and discount them to present day. The whole time value of money concept. Once unwound/unbundled/sorted out, the cash flows are pretty easy to determine.

 

The determination of the discount rate is far more art than science, and one reason why fortunes are made on Wall Street. The discount rate would factor in such things as risk of default, interest rate risk, market risk etc. It make a huge difference if you use, say 6% versus 8%, especially when talking trillions.

 

 

Mortgage bonds are doubly hard to predict, because you have to be able to predict the behavior of home owners as well (e.g., how many people can and will refinance as interest rates drop?) Part of the problem we're seeing now is that no one's ever managed to put a real, demonstrable value on that either way. That's why the market for them tanked - these things obviously have real, tangible value (they're ultimately backed, though several steps removed, by real tangible property). But no one can translate that to a cash value right now.

 

If I could figure out the discount rate, I'd start my own hedge fund buying these things.

 

Same here.

 

Except that whole "insider trading" thingie keeps getting in my way, too.

 

 

Treasury will buy these things at a discount (not the mark-to-market, pennies on the dollar) price they currently sell at. Treasury will then hold or pay someone to administer and then sell at a profit (hopefully, if done right).

 

"If done right". Republican White House and a Democratic Congress in an election year. Want to put money on that one?

[taterhill]

Bill Gross was giggling like a school girl when they asked him if he would like to manage this behemoth

[HopsGuy]

Mortgage bonds are doubly hard to predict, because you have to be able to predict the behavior of home owners as well (e.g., how many people can and will refinance as interest rates drop?) Part of the problem we're seeing now is that no one's ever managed to put a real, demonstrable value on that either way. That's why the market for them tanked - these things obviously have real, tangible value (they're ultimately backed, though several steps removed, by real tangible property). But no one can translate that to a cash value right now.

 

 

Same here.

 

Except that whole "insider trading" thingie keeps getting in my way, too.

 

 

 

 

"If done right". Republican White House and a Democratic Congress in an election year. Want to put money on that one?

 

The risk can be quantified if you know the zip codes associated with those MBSs. Tom apparently has access to that info. I had this discussion with a guy two weeks ago about how these next few weeks would be the time to start scooping up distressed debt. Warren Buffett is starting to think the same thing. He's also 'betting on America' by buying all sorts of Goldman Sachs convertibles (discounted as though they're not convertibles).

[GG]

Add the factoids that even subprime MBS issued pre-2006 are running at normal default rates of about 5%...