On Mon, 14 Apr 2008 19:11:34 -0700 (PDT), RichD
<r_delaney2001@[EMAIL PROTECTED]
> wrote:
>On Apr 11, RogerDodger <n...@[EMAIL PROTECTED]
> wrote:
>> >> > 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. 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
>>
>> 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.
>
>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).
Well, to the extent that instead of you paying the full cost of a
government expenditure today through a tax bill, the government issues
debt that your children will have to service into the future, obvously
you *are* dropping a debt "burden on your children".
Duh.
The total present value of the tax payments is the same either way,
measured as of today.
But if one way you are paying all of them today, 100%, and your
children aren't paying any, $0, while the other way you are paying a
lot less than 100% and the children are paying the difference way into
the future, now much > $0, well ... who is winning and losing there
financially is pretty self-evident.
>> >> 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!
>
>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.
And where was that $10,000 located *before* you put it into that
separate account? Eh??
Did you pull it out of the aether??
Noooo... it was already in an account, earning a return, like 6% from
cor****ate bonds or a 10% long-run average from stocks.
Because if it wasn't, then you'd have no money to use to buy the
T-bonds. Right?
(OK, maybe it was stuffed in your mattress not earning any return --
but then you'd hardly be the person to giving financial advice to
anyone else. <g>).
So when you have to cash in the corp bonds/stocks/whatever to get the
funds to buy the T-bonds, you lose the return *from them*, right?
You liquidate your $10,000 of corp bonds or stocks, use the $10,000
proceeds to buy the T-bonds, collect $500 of interest from the
T-bonds, use that $500 to pay your federal taxes -- and *lose* the
$600 or $1,000 each year from the corp bonds or stocks you no longer
own.
Hey ...that ain't no "float"! ;-)
Unless you are figuring on floating over mighty Fiscal Falls to enjoy
the rocks below.
Bottom line:
If the govt issues new bonds and sends you a tax bill increase of $500
a year to service the interest on $10,000 of them, you are going to be
**poorer by $500 per year** -- period.
There ain't no way to float, flip, flap or flop your way out of it.
Options:
1) Pay the $500 straight out of your income, and your net income goes
down $500. Your net: -$500.
2) Liquidate $10,000 of current investment holdings paying more than
5% to obtain cash to buy $10,000 of T-bonds paying 5%. Lose the income
from the former investments. Use the income from the T-bonds to pay
the tax.
Tax cost: -$500
Income from T-bonds +$500
Income forgone from sold investments: - more than 500.
Your net: - >$500
You ain't floating. Blub blub blub.
>> 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.
>
>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
>.... 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.
No need to ever pay off the principal. Just a need to pay the interest
forever . ;-)
Let's see...
Year 1: The govt spends $10,000 for me but instead of sending me a
$10,000 tax bill to cover the cost it borrows the money and sends me a
tax bill for only $500 covering the interest. What a great deal!
I pay only $500 to get $10,000!
Year 2: Same thing. Now I pay $1,000 but get another $10,000 spent on
my behalf. Still a great deal.
Year 3: Same thing. Now I pay $1,500, but it's still a very good deal.
Year 4: Same thing. Now I pay $2,000....
....
Year 21: Now I pay $10,500 in taxes just to cover interest before the
government pays even a penny for me!
Hey, what haopped to "Total time and payment
is irrelevant, for present value accounting."
They're looking pretty damn relevant now!
AND you'd have me coming up with another $10,000 of cash *each year*
to invest in T-bonds for 21 years and counting, to use your "float" --
where the heck am I supposed to get all that $210,000+ from???
And why are my grandkids -- who are inheriting this tax bill from me
to pay forever, without the govt ever spending a penny for them --
sharpening those knives???
What's Soylent Green??
>> 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...
No, you've confused yourself.
To recap reality:
You can't buy $10,000 of T-bonds unless you have $10,000 invested in
something else -- like corp bonds -- to begin with, or you don't have
the $10,000 it takes to do so.
Duh.
And if you do have $10,000 invested in corp bonds to begin with, you'd
pretty clearly be better off just using the interest from that to pay
the income tax.
You'd save the transaction fees of selling the corp bonds to buy the
T-bonds, and since corp bonds pay a higher rate you'd probably wind up
with an extra $100 or so in your pocket each year.
But then, alas, it would be very clear that there ain't no float here
at all, you are just paying a new $500 in taxes each year from your
pre-existing investment income. Reducing your net income by $500.
Trading the corp bonds/stocks/whatever for the T-bonds, and then
paying the tax bill with the interest from them instead, of course
doesn't change that at bit.
So your buying T-bonds makes no difference to the cost of taxes to you
at all, zip, $0.00. You are still out of pocket, made poorer, by the
$500 of tax each year.
All it does do is enable you to confuse yourself into believing in a
bogus "float" that comes to you from buying the T-bonds with money
that somehow floats to you from nowhere -- instead of coming from
another investment you liquidate, forfeiting the return thereon.
But boy, really -- if every time the government issued new debt I
could buy new T-bonds with *free money* that came from nowhere ...
wow! ... nobody'd need Keynes to justify deficit spending to me!!
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