On Apr 11, RogerDodger <n...@[EMAIL PROTECTED]
> wrote:
> >> > You are confused.
> >> > We're talking about deferred taxes, not a
> >> > car purchase. =A0If the gummit runs a deficit,
> >> > that money stays in your bank account; a
> >> > float. =A0You 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. =A0You are confused.
>
> >You owe a tax debt to the gov't
> >The uncollected tax is in your bank
> >account, no problem. =A0It's called a float.
>
> >They sell bonds to finance the deficit,
> >that's your gov't interest. =A0You PURCHASE
> >bonds, with your float. =A0That pays the
> >interest which you must eventually
> >cough up. =A0It'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. =A0
>
> The present value of that $500 annually paid forever is $10,000,
> exactly, self-evidently. =A0Your 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? =A0If 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
>
> 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.
>
> There ain't no free lunch for taxpayers in deficit spending and buying
> bonds. =A0
This is astoni****ng, someone actually gets it!
That's right, no free lunch - but no extra cost lunch,
either. Pay now, pay over time, same. i.e. gov't
borrowing and debt incurs no "burden on our children"
(for the umpteenh time).
> >> 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. =A0Look it up.
>
> When you liquidate your other investment to buy the govt bonds you
> lose the income the other investment earned. =A0I.e....
>
> The govt sends you a tax bill for $500 every year to pay off your
> share of the interest =A0its 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. =A0But 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! =A0
huh? You're wandering off...
Look, if you don't pay the entire tax bill this year
(because they run a deficit), you put the float
($10000), into a separate account. Then buy
T bills. Pay future taxes with the income. That's all.
> 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. =A0Present value computations assume you will live long enough
> to pay all those annual future tax payments to service the debt.
No. There is no need to live forever, to make
"all those future tax payments." You only need
to pay the annual interest, with the income from
=2E... drum roll .... the float. Total time and payment
is irrelevant, for present value accounting.
In fact, there is no need to ever pay off the
principal, that's how finance works.
> 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. ;-)
You are confused.
The debt is serviced with income from .... you'll
never guess .... the float, which is in a separate
escrow account. You leave it to your children -
it's called your estate. Then they pay...
--
Rich
|
