Federal Government Debt

[August1991]

If the federal government cuts my taxes, I will pay down my mortgage faster. My kids will inherit a house with a smaller mortgage. Then again, I could treat my house as an ATM and spend the money.

If you own a house (and most Canadians do), think clearly about this. Whatever the federal government chooses as a tax or deficit policy, you can undo its effects for your children through your house, and your mortgage. Harper cut the GST. Well, you got more money and what did you do with it? You could have paid down your mortgage, or maybe you took a holiday.

Your choice.

Here's the point that Leftists (and Rightists) fail to understand. It doesn't matter how Harper pays for what he wants: he can tax you, or borrow (sell government bonds) in your name. In effect, Harper can pay Visa, cash, Mastercard, debit or American Express - it doesn't matter, it's all the same. (This is hard for many people to understand but Stephen Harper does not spend money the way you or I do. He spends other people's money.)

If Harper cuts our taxes (eg GST), we can pay down the mortgage with the extra money and leave more to our kids/nephews/nieces. If we choose. But then, we can also spend the money on a cruise and leave nothing to our kids - but that choice has nothing to do with Harper. How much you leave your kids is your choice. The question is not taxes; The question is how much government spends, IOW why Harper is spending the money in the first place.

Why is Stephen Harper spending the money? For example, why did he spend $1 billion on a summit in Toronto? For a family of three, Harper spent about $100 for this nonsense. I am appalled, and Harper has probably lost my vote on this single wasteful foolishness.

I don't care about the federal deficit or the federal debt -except maybe in macroeconomic terms. But I hate to see pointless federal spending.

----

I simply don't care about government debts or deficits, except in a macroeconomic context. In general, I want my government to spend money wisely.

As a simple rule, I endorse roads and bridges. $1 billion on hotels and limousines in Toronto, you lose my vote.

Edited August 20, 2010 by August1991

[Guest TrueMetis]

Consider that tax cuts don't pay for themselves and the deficit is shrinking.

[August1991]

Consider that tax cuts don't pay for themselves and the deficit is shrinking.

Tax cuts don't pay for themselves, and yet you say that the deficit is shrinking.

Hmm.

I agree that we usually stand on one side of a street in a line. But if we all stand on one side of a boat, it may well sink. So, why?

Consider that tax cuts don't pay for themselves and the deficit is shrinking.

TM, you miss a broader point. Do tax cuts matter to you?

----

If Harper cuts taxes, we have a government deficit. But you have more money to buy government bonds - if you choose.

The better question is what did Harper do with the money?

Edited August 20, 2010 by August1991

[Guest TrueMetis]

Tax cuts don't pay for themselves, and yet you say that the deficit is shrinking.

Hmm.

Spending cuts, and economic increases. Though it's possible that without the tax cuts a lot of the spending cuts wouldn't have been necessary.

TM, you miss a broader point.

Do tax cuts matter to you?

Nope.

[August1991]

Nope.

I would love to be in a zero tax bracket. Does CRA treat you as a foreign resident? Do you have native status? Do you have no income?

What's the trick?

Edited August 20, 2010 by August1991

[Smallc]

If Harper cuts taxes, we have a government deficit. But you have more money to buy government bonds - if you choose.

And if a government becomes more and more burdened with debt, its spending becomes unsustainable. I doubt you're an economist, August.

[Yesterday]

I wonder too sometimes what it would be like if we all got to keep our taxes and just worked municipally with funding infrastructure needs. I honestly bet it would lessen the personal contribution levels needed, I do agree that to some extent, if not a lot of extent, that we could spend collected money better. As for lowering taxes and government deficit...if I remember correctly the deficit was reduced during the 90s by some 100 billion and since then it has been re-spent and more. Tax cuts were not what allowed the deficit repayment, neither will they now. On the other hand...tax collection was not what allowed the repayment in the first place. From what I've read so far taxes have more to do with yearly budgets and GDP growth is what affects the deficit.

Edited August 20, 2010 by Yesterday

[Shady]

Why is Stephen Harper spending the money? For example, why did he spend $1 billion on a summit in Toronto?

Didn't you start a thread on this very subject before the summit? Which was what, a month ago?

[nicky10013]

Didn't you start a thread on this very subject before the summit? Which was what, a month ago?

The real question is why has the budget of the PMO gone up by 20% in the past year.

[eyeball]

The real question is why has the budget of the PMO gone up by 20% in the past year.

20% must correlate with the increase in the number of questions they've had to avoid. Secrecy ain't cheap I guess.

[Shady]

The real question is why has the budget of the PMO gone up by 20% in the past year.

Two reasons. Econimic stimulus (which I disagree with) but more importantly, because of the opposition. To avoid an election, some budget concessions were necessary. I'm glad you hate them as much as I do. Vote for a conservative majority, and we'll finally get real cuts in government spending. The opposition won't be able to hold us hostage.

[Visionseeker]

The fiscal situation in Ottawa is worse than currently reported. The anemic performance of the TSX is a strong indicator that losses were either being cut in order to reset portfolios or that losses were being realized to satisfy immediate capital needs.

We sold some under-performing stocks and paid-off our mortgage with the proceeds. Our claim for capital-loss carry back has yet to be settled because of a "glitch in the calculation algorithm" as per CRA. So assessments will only be issued "sometime after September". Then I discovered this:

CRA fixing carry-back loss glitch

If you understand how the government's current accounts are calculated, then you recognize that the existing balance sheet is wholly inaccurate. Traditionally, about 90% of carry-back losses are recorded by the end of June, but the "glitch" has delayed the reporting of any such liabilities until the fall.

We're small fish. Our Capital Loss carry back will come in around $12,000. But analysis of market activity has given rise to estimates on capital depreciation that will add anywhere between $7 and $10 billion in additional refund liabilities. Simply put, either an unfortunate and unprecedented glitch (in a system that has worked flawlessly since implemented in 1991), or a deliberate order to hold back carry back loss claims will necessitate a substantial correction of the nation's balance sheet sometime in the fall. Further, this will only account for loss realization in 2009; losses recorded in 2010 will necessarily dampen government revenues even further.

In fairness to the government, predicting investor behavior is difficult in the best of times let alone the turbulent market we have today. But I can’t shake the idea that this “glitch” wasn’t a designed maneuver intended to defer fiscal bad news to a later and maybe more politically convenient date.

[dre]

If the federal government cuts my taxes, I will pay down my mortgage faster. My kids will inherit a house with a smaller mortgage. Then again, I could treat my house as an ATM and spend the money.

If you own a house (and most Canadians do), think clearly about this. Whatever the federal government chooses as a tax or deficit policy, you can undo its effects for your children through your house, and your mortgage. Harper cut the GST. Well, you got more money and what did you do with it? You could have paid down your mortgage, or maybe you took a holiday.

Your choice.

Here's the point that Leftists (and Rightists) fail to understand. It doesn't matter how Harper pays for what he wants: he can tax you, or borrow (sell government bonds) in your name. In effect, Harper can pay Visa, cash, Mastercard, debit or American Express - it doesn't matter, it's all the same. (This is hard for many people to understand but Stephen Harper does not spend money the way you or I do. He spends other people's money.)

If Harper cuts our taxes (eg GST), we can pay down the mortgage with the extra money and leave more to our kids/nephews/nieces. If we choose. But then, we can also spend the money on a cruise and leave nothing to our kids - but that choice has nothing to do with Harper. How much you leave your kids is your choice. The question is not taxes; The question is how much government spends, IOW why Harper is spending the money in the first place.

Why is Stephen Harper spending the money? For example, why did he spend $1 billion on a summit in Toronto? For a family of three, Harper spent about $100 for this nonsense. I am appalled, and Harper has probably lost my vote on this single wasteful foolishness.

I don't care about the federal deficit or the federal debt -except maybe in macroeconomic terms. But I hate to see pointless federal spending.

----

I simply don't care about government debts or deficits, except in a macroeconomic context. In general, I want my government to spend money wisely.

As a simple rule, I endorse roads and bridges. $1 billion on hotels and limousines in Toronto, you lose my vote.

Thats a very short term outlook that will cost you in the long term. Canadian citizens have to fund their government... if you lower taxes now and fund the government with borrowed money all youre really doing is putting off the payment, eventually that the government will have to pay that money back with revenue they collect through taxes. In fact this philosophy will guarantee that you actually have to pay MORE taxes in the long run because not only are you still on the hook for the cost of government programs, but youre on the hook for a bunch of interest as well.

[eyeball]

Two reasons. Econimic stimulus (which I disagree with) but more importantly, because of the opposition. To avoid an election, some budget concessions were necessary. I'm glad you hate them as much as I do. Vote for a conservative majority, and we'll finally get real cuts in government spending. The opposition won't be able to hold us hostage.

What does the PMO's budget have to do with stimulus spending? I think you've confused the PMO's budget with the whole country's budget. Unless I'm mistaken the PMO budget comes out of the same budget the stimulus spending does.

[August1991]

Thats a very short term outlook that will cost you in the long term. Canadian citizens have to fund their government... if you lower taxes now and fund the government with borrowed money all youre really doing is putting off the payment, eventually that the government will have to pay that money back with revenue they collect through taxes. In fact this philosophy will guarantee that you actually have to pay MORE taxes in the long run because not only are you still on the hook for the cost of government programs, but youre on the hook for a bunch of interest as well.

But dre, interest rates on government debt are at historic lows now. But that's really not germane to my point.

We sold some under-performing stocks and paid-off our mortgage with the proceeds.

Who is going to benefit from this paid-off mortgage - you or your children when you die? And the fact is, we are all going to die and most Canadians will die with positive net assets. Somebody is going to inherit alot of wealth in the future. Of course, they will also inherit future tax liabilities too - as dre points out above.

So, if you pay down your mortgage (with money from Harper's GST cuts, let's say), you have in effect covered your kids' future tax liabilities since they will inherit a mortgage free house.

Didn't you start a thread on this very subject before the summit? Which was what, a month ago?

I probably did Shady. It still bugs me that Harper spent a billion dollars on a three day summit so that bureaucrats and politicians and various hangers-on can feel important.

But I started this thread to argue that raising taxes to pay off the debt makes no sense. I argue instead that how governments spend our money (whether borrowed or taxed) matters far more - and I gave the example of the Toronto summit as wasteful government spending.

Shady, this is an old pet peeve of mine but the example of a mortgage made me think of it again.

-----

There is a macroeconomic perspective on this. If you believe that at times such as this when people hoard cash and monetary policy can no longer stimulate the economy, then the government should employ active fiscal policy - or what journalists now call a stimulous package. For this, the government could boost spending (the federal government's Action Plan) or cut taxes. In either case, the government deficit will increase. I am arguing that this increase in the deficit (and the government debt) is not something to be feared.

Paul Krugman refers to these fear mongers as "bond vigilantes".

[Visionseeker]

There is a macroeconomic perspective on this. If you believe that at times such as this when people hoard cash and monetary policy can no longer stimulate the economy, then the government should employ active fiscal policy - or what journalists now call a stimulous package. For this, the government could boost spending (the federal government's Action Plan) or cut taxes. In either case, the government deficit will increase. I am arguing that this increase in the deficit (and the government debt) is not something to be feared.

Paul Krugman refers to these fear mongers as "bond vigilantes".

Situational deficits are arguably a reasonable fiscal mechanism when the times call for one, but structural deficits are nothing more than theft by one generation from those that follow.

I agree with the notion of active fiscal policy but cannot fathom why governments insist on "blow-a-load in a year" approaches. It is much better to spread larger commitments over a longer horizon (3 to 4 years) than to cram a near overdose of stimuli inside a single year. In fact, I hate the "stimulus" moniker because it minimizes the objective to an act of spending as opposed to investing. It's as if the goal is to spend with little to no expectations of enduring results. Like building gazebos off county roads in Huntsville!!!

Harper's GST cut is meaningless to 80% of consumers while significant in terms of bringing the federal government into a structural deficit situation. It was, is, and shall always remain a stupid fiscal policy decision.

[August1991]

Situational deficits are arguably a reasonable fiscal mechanism when the times call for one, but structural deficits are nothing more than theft by one generation from those that follow.

You can steal from your children, but don't blame the government if you do.

When you refer to "theft by one generation from those that follow", what do you mean? The State is taking from some people and giving to others? The State does this all the time.

No one, not even the State, has the power to steal from the future and give to the present.

-----

There is one way the present could steal from the future. We could leave the future a polluted world. Of course, the future will inherit with luck from the past, at no cost to the future, alot of accumulated knowledge - including perhaps ways to deal with pollution. (Think of how much knowledge we inherited from the past - at no cost to us.)

Edited August 22, 2010 by August1991

[Smallc]

August, you are remarkably short sighted.

[August1991]

I agree with the notion of active fiscal policy but cannot fathom why governments insist on "blow-a-load in a year" approaches. It is much better to spread larger commitments over a longer horizon (3 to 4 years) than to cram a near overdose of stimuli inside a single year.

On the contrary, the purpose is to use fiscal policy to overcome ineffective monetary policy. So, the government wants quick, immediate action.

Frankly in this macro context, if I had been Obama or Harper, I would have gone with a mix of major tax cuts and modest, focussed increases in government spending. (Did I just post that?)

[Smallc]

Frankly in this macro context, if I had been Obama or Harper, I would have gone with a mix of major tax cuts and modest, focussed increases in government spending. (Did I just post that?)

Tax cuts aren't immediate enough. They don't really do much until the following year.

[August1991]

August, you are remarkably short sighted.

How? It makes sense for you as an individual to pay off your debts. But we as Canadians collectively will always have debts and it would be absurd/harmful if a government aimed to eliminate debt in Canada. This is called the fallacy of composition.

My example above is perhaps easier to understand. If you have a mortgage (and most Canadians do), and if you win a small lottery, you can pay use the lottery money to pay off your mortgage - or you can spend the lottery money on a world cruise with the hubby. When all is said and done, only your children will notice the difference.

When you die, how much money do you plan to leave to your children in your will? In discussions of government debt, this strikes me as the key question.

----

Canada is a very rich country. There are millions of Canadians about to leave millions to their children. Some will leave more than others.

Overall, Canada is not in debt and so the federal government is not in debt. It can tax any Canadian at any time.

Edited August 22, 2010 by August1991

[August1991]

Tax cuts aren't immediate enough. They don't really do much until the following year.

And how much of the stimulus money has been spent?

According to some people, such as Krugman, the problem with tax cuts is that they are typically perceived as temporary and so often people use the money to pay down debts. In a Keynesian world, that's bad because we now suffer from a lack of aggregate demand. Krugman (for example) prefers government spending because it means more buying, and more shopping. If Americans don't go to the mall, the government should do it for them.

Whatever. As a stimulus package, I prefer tax cuts because I hate more government spending.

[Smallc]

How? It makes sense for you as an individual to pay off your debts. We as Canadians will always have debts and it would be absurd/harmful if a government aimed to eliminate debt in Canada.

So how did Australia do it, then?

The federal government is not in debt. It can tax any Canadian at any time.

The federal government is in debt. If it wasn't, you'd have lower taxes. The same goes for the Quebec government (outside of the debt it carries on behalf of Hydro Quebec).

[Smallc]

And how much of the stimulus money has been spent?

Quite a bit. Some of it begins entering the economy immediately.

Whatever. As a stimulus package, I prefer tax cuts because I hate more government spending.

And I generally hate ideology that clings to something no matter what.

[August1991]

And I generally hate ideology that clings to something no matter what.

And I generally hate nonsense.

Smallc, in this thread, I am defending a Left Wing point of view but you don't seem to realize it. You, OTOH, seem to be doing the opposite. You seem to favour more government spending but you want more balanced government budgets. You want to raise taxes? In a recession?

I am not afraid of government deficits or government debt, certainly not in Canada now, and even agree with Krugman that we are in something close to a liquidity trap where everyone and his sister is deleveraging. They are paying down debt, going to cash or bonds, or safety. So, monetary policy is now ineffective. The Fed is using Quantitative Easing (Version 2.0).

-----

If I were Harper or Obama, I would aim for a major broad-based tax cut now or just before an election. Sure, it would increase the federal budget deficit but as I say, the government deficit doesn't matter given the wealth of Canadians. For those who worry, I would call it a democratic fiscal stimulus measure.

On this, politically, Harper has probably more room to manoeuvre than Obama.