On Fri, 11 Apr 2008 16:52:09 -0700 (PDT), RichD
<r_delaney2001@[EMAIL PROTECTED]
> wrote:
>On Apr 11, AR- <Ginger.Gr...@[EMAIL PROTECTED]
> wrote:
>> >>>>I would rather pay my bills on time and live within my
>> >>>>means so that my children (or their children) do not
>> >>>>end up suffering the
>> >>>>consequences of my irresponsible behaviour.
>>
>> >>>Your children won't suffer due to any
>> >>>such debt. That's a simple fallacy.
>> >>>Pay cash, pay over time, same same...
>>
>> >>>It's the spending, the SPENDING, that's
>> >>>irresponsible, not the payment method.
>>
>> >>So, paying interest in order to get immediate
>> >>gratification is responsible, but saving up to
>> >>make a purchase is irresponsible.
>>
>> > You are confused.
>> > We're talking about deferred taxes, not a
>> > car purchase. If the gummit runs a deficit,
>> > that money stays in your bank account; a
>> > float. You loan that out to collect interest,
>> > which you can use to pay the interest on
>> > the debt, later.
>>
>> I may or may not be saving any money.
>> What is certain is that the government
>> debt incurs interest and thus, a dollar borrowed
>> today will cost me 1+ tomorrow to pay off,
>> and this will continue to grow as time p*****.
>
>uh, no. You are confused.
>
>You owe a tax debt to the gov't
>The uncollected tax is in your bank
>account, no problem. It's called a float.
>
>They sell bonds to finance the deficit,
>that's your gov't interest. You PURCHASE
>bonds, with your float. That pays the
>interest which you must eventually
>cough up. It's a wash... no loss.
The government incurrs an expense of $X.
Your share as a taxpaying citizen is $10,000.
Options:
1) The govt sends you a tax bill for $10,000 and you pay it.
Your cost out-of-pocket: $10,000.
2) The gov't borrows $X. It then sends you a tax bill every year for
the interest, say 5%, on your share of $X, $10,000 -- so you pay $500
per year forever.
The present value of that $500 annually paid forever is $10,000,
exactly, self-evidently. (Or investors wouldn't lend $10,000 in
exchange for a flow of annual payments of $500).
Your cost out-of-pocket: $10,000.
Results of options...
1) You are out of pocket $10,000 exactly, paid now.
2) You are out of pocket $10,000 present value exactly, paid over
time.
New idea: Option 2*, you decide to avoid being out $10,000 present
value of taxes for interest payments by collecting the same amount of
interest, by buying $10,000 of US bonds.
Is this the proposition? If so...
Now you collect $500 of interest on the bonds every year to offset the
$500 of taxes you pay to finance the interest -- since you've bought
your own share of the bonds!
Alas, to buy that $10,000 of bonds you had to liquidate $10,000 of
other investments -- CDs, corp bonds, stocks, mutual funds, whatever.
Thus, you lose the annual return on that $10,000, which on the risk-
adjusted basis that equalizes returns from different investments,
equals, at present value ...yes ... exactly $10,000 (and which, if
this money was invested in a higher-risk/higher-return option like
equities, may in reality cost you a good deal *more* than $500 a year
on average over time).
Results of options...
1) You are out of pocket $10,000 paid now.
2) You are out of pocket $10,000 present value, paid over time.
2*) You are out of pocket $10,000 present value by best estimate
(possibly a good deal more in reality) paid over time.
It all reduces to:
If your share as a taxpayer of what the government spends is $10,000,
you will pay out of pocket $10,000.
There ain't no free lunch for taxpayers in deficit spending and buying
bonds.
>> Writing checks for which one does not have the
>> money to cover, is fiscally irresponsible whether
>> you're the government of an individual.
>
>You do have the funds to cover that check...
>it's called a float. Look it up.
When you liquidate your other investment to buy the govt bonds you
lose the income the other investment earned. I.e....
The govt sends you a tax bill for $500 every year to pay off your
share of the interest its bonds.
Your net: - $500 per year, all tax cost.
You now go out and buy $10,000 of US gov bonds to get that $500 of
interest back, +$500. But to do so you must sell $10,000 of cor****ate
bonds paying 6%, -$600.
Your net is now (-$500 taxes, +$500 interest, -$600 interest) - $600.
I don't see you benefiting from any "float" there!
Not when I look it up, or down, sideways, wherever I look for it!
OTOH, if you really *do* want to benefit from the govt borrowing
instead of spending, the thing to do is make sure you don't live
forever. Present value computations assume you will live long enough
to pay all those annual future tax payments to service the debt.
IF instead you are about 65 years old and soon to retire -- dropping
your tax bracket rate and thus reducing the size of your share
of the national debt to service -- and you also figure to be dead in
about 15 years...
THEN you can urge the gov't to go out and *borrow* long-term to pay
its current operating costs (most assuredly including *your* up front
SS transfer payments and Medicare benefits, and other goodies for you,
etc.) ... and then when you kick off, after paying much less than your
pro****tional share of the cost of servicing the debt for them for a
few years, you can leave the bulk of the cost of servicing that debt
incurred to finance your consumption for your children and
grandchildren to service with their taxes forever.
And those future generations, stuck paying off the bill you had the
govt incur to pay you, will remember you fondly forever more. ;-)
So there *can* be a free lunch for some taxpayers in having the govt
incur debt to cover its bills -- you just have to play the game the
right way!
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