Friday, July 3, 2009

The U.S. Debt is No Big Deal

I checked out someone’s blog today and ran across the idea of looking at the U.S. debt clock, which increases as fast as a clock moves in a cartoon. We’re supposed to be scared by this. But it’s all hooey.

The national debt is up. So what? Millions of people have lost jobs, and as a result, are paying no or lower taxes. Some businesses have shut, and are paying no taxes. Others are suffering very low sales, let alone profits, and as a result are paying very little in taxes, too. But when this whole foreclosure-fueled mess clears up, there will be more employment, thus more individuals paying higher taxes. And there will be increased consumerism, thus more companies paying higher taxes.

Isn’t this just going to get worse and worse? No. Why I am so confident? The stock market crumble is based on phony values of cheesy financial instruments finally falling apart. That means that certain of these instruments can eventually be determined to have zero value. It’s paper money; it gets assigned a value.

But the real estate bubble that popped has a big silver lining. “Real estate” is called that because it is based on land, on buildings, on items you can see and touch that have intrinsic value. And guess what? Even as we speak, the millions of people who have some extra money saved up are nosing around the many houses and condos and businesses for sale, looking for bargains. They will eventually buy all the real estate that isn’t totally cursed (such as, with a stream running through the basement and a freeway easement through the front yard). Even bad real estate will eventually be sold, too. Haven’t you ever driven or walked through a city where even the meanest little crooked lot has a building on it...with a business on the first floor and apartments upstairs? Of course you have. Even condemned, tumbledown houses get purchased, to be cleared away for new building.

Yes, overpriced real estate will eventually sell at bargain prices, and someone will take a financial loss on it. But as stupid as the banks have been about going ahead with foreclosures when they should have compromised (it always profits them more to keep the homeowner in the home), the foreclosed houses are selling. Some are even selling like hotcakes. Eventually, this new money in flow will get to individuals who used to have jobs, and they will work again. And then they can go shopping again. Maybe we won’t all be able to spend like drunken sailors anymore. But spending will increase. And then jobs will increase again. And then the tax money will pour into the U.S. government, and the national debt can be brought down.

So here’s the reality: All this country needs for the national debt to get paid down very quickly is more people with good jobs and more businesses making a profit. If we earn more money, we pay more taxes. Thus the national debt gets wiped out. End of story.


Anonymous said...

Oh dear, I hope you don't expect people to think! You're so unreasonable.

Mary Turzillo said...

Plus, a lot of middle income couples got hit with the alternative minimum tax, and people who inherit get hit with cost-basis capital gains. I met a man who had a stock he'd had a long time and had to sell it -- at a loss -- but because he couldn't find the paperwork to show how much he'd paid originally, he wound up paying tax on the entire amount he sold the stock for!

So, I am pretty sure the feds are not going bankrupt any time soon -- the tax money keeps rolling in, even if it isn't what it was in the flush years.

Hopeful Lily said...

Argh. This man should have made a good faith guess. Usually, the IRS does not see the original paperwork. He could still file an amended tax form and get it right. (He has three years from the date the return was due.) Plus, this year, with so many people having lost huge amounts on the stocks they bought, no one would think twice about his amended return.

But yes, taxes are always with us. The price of government. I'll take it any day over anarchy.