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We're both right. In percentage terms, lower income consumers benefit more,
but in absolute terms, the wealthy will benefit more. The reason I focused
on the impact in absolute terms is because the same logic applies to tax
rate reductions
The Republicans recently proposed cutting all tax brackets by 2 percentage
points. Just to use even numbers, if you reduce a 40% tax bracket to 38%
and a 20% tax bracket to 18%, someone in the lower bracket has clearly
benefited more in percentage terms. Their tax bracket has dropped 10%,
while the higher one has only dropped 5%. However, someone earning $500K in
the higher bracket has received a $10K reduction, while someone earning $50K
in the lower bracket has only gotten $1k.
As I said, the same logic applies to debt reduction, but the same people who
decry a tax cut seem to be (grudgingly) in favor of debt reduction... Go
figure.
Bruce
----- Original Message -----
From: Richard C. Fredette <sail4@xxxxxxxx>
To: <Realtraders@xxxxxxxxxxxx>
Sent: Monday, July 26, 1999 12:23 AM
Subject: Re: GEN: Y2K EXTREMISM?
> Bruce, Good analysis. Shows an understanding of economics. However,
> your 3rd reason is not quite correct. Rich people may have more debt
> than the less well off, but proportionally have much less debt. When a
> middle income family carries a mortgage, that is often a large and
> burdensome amount relative to income. The rich seldom feel the same
> pinch with their mortagages, unless, of course, they got themselves into
> a "house poor" situation, which is much more under their control. Now if
> that means the less well off benefit more from cutting the deficit than
> the rich--well, why not?
>
> Dick
>
> On Fri, 23 Jul 1999 11:03:27 -0400 "BruceB" <bruceb@xxxxxxxxxxxxx>
> writes:
> >Howard, the biggest issue here is what is the best thing to do with
> >the
> >surplus, and when you look at all the options, I think paying off the
> >national debt wins hands down for three reasons.
> >
> >First, the goal of any tax cut is to increase the disposable income of
> >the
> >tax payers. When you pay off debt, you lower interest rates. Lower
> >interest rates in turn result in lower auto and housing payments for
> >tax
> >payers, which increases their disposable income. I know this sounds
> >simple,
> >but even the WSJ (whose been ranting against paying down the debt)
> >doesn't
> >seem to understand.
> >
> >Second, although Japan has clearly proved a country can save too much
> >money,
> >it's safe to say that the US is nowhere near the danger point. The
> >best
> >thing that could happen with any money returned to tax payers would be
> >for
> >them to save it, because the economy is clearly not lacking in demand
> >right
> >now. Paying off the debt actually has a better chance of
> >accomplishing
> >this. Why? Because the debt is in the form of long term bonds. How
> >many
> >bondholders do you know take the proceeds from a called-in bond and go
> >out
> >and spend the money? Not too many, I bet. Rather, they take the
> >proceeds
> >and turn right around and put it into other investments (usually other
> >bonds). On the other hand, there are plenty of people who take
> >additional
> >tax refunds and immediately increase their levels of spending. This
> >is not
> >a perfect science, but the historical evidence does show that money
> >put back
> >into the economy through debt retirement, as opposed to tax
> >reductions, has
> >a greater likelihood of being saved.
> >
> >The third reason is the all important political factor. Every time
> >Republicans try to reduce tax rates they get beaten up for favoring
> >the
> >rich. The funny thing is, debt retirement will disproportionally help
> >the
> >rich just as much as a tax reduction would (richer people have bigger
> >auto
> >loans and mortgages, obviously). Despite this, liberals seem to be
> >very
> >supportive of the idea of paying off the debt, so why pick a fight
> >when you
> >don't have to?
> >
> >Bruce
> >
> >
> >----- Original Message -----
> >From: Howard Hopkins <hehohop@xxxxxxxxxxx>
> >To: <andrew@xxxxxxxxxxxxx>; <dickwebb711@xxxxxxxxx>;
> ><realtraders@xxxxxxxxxxxx>
> >Sent: Friday, July 23, 1999 9:26 AM
> >Subject: Re: GEN: Y2K EXTREMISM?
> >
> >
> >> Didn't we hear this same debt arguement in the 92 elections??
> >>
> >> The absolute $ amount of national debt is irrelevant. The % debt
> >relative
> >> to GDP is what you need to control. Should you refinance your home
> >mortgage
> >> when interest rates are @ 30 year lows?? How about a second
> >mortgage?
> >>
> >> Supply side economics kicked off this whole boom in the Reagan era
> >and
> >> expanded the revenue side of the equation. Why won't that work now?
> >>
> >> And by the way... aren't stock prices near all time highs, bond
> >prices
> >near
> >> multi-decade lows, and the dollar the strongest currency in the
> >world?
> >This
> >> economic theory to pay down debt to improve the US economy has been
> >> invalidated in the real world... don't you agree?
> >>
> >
> >
>
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