Wednesday, March 31, 2010

State and Federal Debt

I was thinking about finding an Excuse not to write anything this morning, then I ran across this article. I feel that the Reader must evaluate this piece, which is all about State debt. One can take the sensible tradition, and suggest that contraction of debt is an idiocy in the first place. Debt is debt, and has to be repaid someday, and the medium of repayment here is by taxation. There is no realistic Expectation that State expenses will decline in the future, and higher taxation remains the only medium by which revenue can be raised. There has never been a clear indication that reduced current taxation will garner greater Productivity and higher tax revenues in the future; this meaning that current tax codes will likely never pay for themselves. The more realistic program may be higher taxes now, so that Interest on State debt can be deducted from the overall State expenses; saving most States an extreme amount of diverted revenue.

The countervailing argument states that higher taxation will lower Productivity from economic activity, and thereby increase Welfare Costs for the States. There is also the subsidiary argument that when the States are already in debt, they face both the higher Costs, reduced Tax revenues from lower Productivity, and Interest on what debt does already exist. It is the Scenario faced by almost all States, and includes the federal government by the way. The Question becomes What to Do under these conditions, and I remember an economic argument I had with a economics professor in graduate school; who would not budge from his position of simply selling more Treasuries. I think somewhere in the back of his mind, he believed in some concept of forced sale of Government debt; which would be a much trickier program than would be higher taxation, though Bernanke and Geithner seem to hold the same ideation.

I much prefer a Government enactment of some kind which would impel all Government Treasuries to issue a Taxation scale which outlined the level of taxation necessary to fully pay for Government expenditures, whenever they issued any information on proposed future or past debt. The anger against Taxation might be lessened if Taxpayers could understand the exact Costs to themselves from a program of sustainable Government activity. Statement of potential Tax rates would cancel a great amount of the Taxpayer anger, and produce high pressure to actually reduce Government expenditures. The demand for such information should insist on a standardization of information; I suggest a 10-year Tax schedule for total repayment of debt, with the Tax rate Schedules set over this Period. It should also include a potential impact to the average Household from taxation over the 10 years. It would be simple for Congress to pass this demand, and it would provide serious information necessary for realistic discussion of the issues of debt. lgl

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