IBJOpinion

MARCUS: Debt and taxes are not the devil's doing

Morton Marcus
February 26, 2011
Back to TopCommentsE-mailPrintBookmark and Share
Morton Marcus

This national debt business is being overplayed. Critics characterize the debt as a giant burden, our most important national issue. Borrowing for the future, however, makes good sense when the debt contributes to economic growth.

The hitch is understanding the role debt plays in making the economy grow. Debt permits families to invest in housing, businesses in machinery, and governments in education, the environment, transportation and communications. These functions enable economic development and growth. Contrast this with credit card debt. People buy today to enjoy today things and experiences, knowing they will consume somewhat less in the future as they pay back what they borrowed plus interest on that debt.  

As “economic moralists,” you and I condemn people for not saving before buying. We say many people go into debt spending too much on trivial and unnecessary things. Credit card users would say we seek to constrain their economic freedom. They would deny that their purchases are trivial or unnecessary.

Consumer and business debt is different from government debt. Legislators choose to borrow for today, believing their programs will benefit us and our children when, as citizens of the future, we will pay back the debt. However, the decision to borrow is often made to avoid raising taxes.

Americans believed, rightly or wrongly, that fighting in Iraq and Afghanistan without raising taxes benefited the future of our country. Americans believed helping those who lost their homes and jobs in the recent recession, without raising taxes on the wealthiest and most secure members of society, would help the future of the country.  

The big question that no one answers remains: “Will higher taxes lead to a stronger economy?” Most people are so brainwashed they cannot conceive of beneficial effects of higher taxes. When we borrow to spend on health care for children, the future benefits. Borrowing to spend on health care for the elderly generates few future benefits. This does not mean we ignore the elderly. That’s why Medicare, unemployment compensation and other compassionate programs must be placed in a trust fund. Otherwise, today’s practical imperatives might overwhelm our ongoing moral concerns.

Higher taxes today have the moral advantage of accepting responsibility for today’s decisions. We didn’t do that for our current Middle-Eastern wars. Higher taxes on the wealthy have the beneficial effect of redistributing income to those who are less productive because they are poor.

Some observers believe the wealthier members of our society are more creative, productive, innovative and, hence, more valuable than the less-productive poor. Many who are poor, however, are incapacitated by their poverty. Innovation, creativity, even productivity are attributes that co-exist with a reasonable measure of economic security. Hunger and desperation rarely contribute to achievement.

The significant issue persists: How do we help the economy grow? Debt becomes insignificant in a healthy, growing economy. Debt for the right purposes helps the economy grow. Higher taxes on everyone today are also fine if they result in economic growth. Income redistribution through higher taxes on the wealthy also can contribute to economic growth and certainly can be used for our compassionate social goals.

Part of the debt paranoia is that a minor portion of the federal debt is held by people or governments abroad. Nonetheless, nearly 70 percent of the federal debt is owned by U.S. agencies, mutual funds, financial institutions and ordinary citizens. When we repay the principal amount owed and the corresponding interest, we are paying ourselves. The money initially used for investment goes back into circulation. It is neither a loss to the nation nor dead weight on the economy.

It would help if the anti-debt and anti-tax folks had a better understanding of how the world works.•

__________

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.
 

ADVERTISEMENT

  • Economic Arrogance
    Mr. Marcus,

    The first and last sentence of your shallow missive summarize the height of arrogance and hubris that I have come to expect from the "economic experts" of our educational system. I'm sure you have considered the intellectual and economic acumen of those who read the IBJ. Are you teaching this drivel to students? Have you ever run a business? Do you really believe that tax payers should buy the Ã?¢ââ??¬Ã?â??moral responsibilityÃ?¢ââ??¬ï¿½ argument for taxation and the petty lessons of Ã?¢ââ??¬Ã?â??good debtÃ?¢ââ??¬ï¿½. Do you honestly believe your mundane economic lesson applies in todayÃ?¢ââ??‰â??¢s broken Keynesian model. Instead, demonstrate your knowledge of reality. Demonstrate why feeding a broken, corrupted social net will not create the benefits of your lessons. Demonstrate your understanding of the complete ineptitude of our elected representatives and why they donÃ?¢ââ??‰â??¢t understand how to use debt to produce anything but more debt. Demonstrate to your readers why they should feel compelled to pay higher taxes in the name of compassion when they know it will NEVER happen. Demonstrate to us why you cant pay debt with debt and achieve anything but bankruptcy. Perhaps it is you, Mr. Marcus, who needs a better understanding of how the world works.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I am not by any means judging whether this is a good or bad project. It's pretty simple, the developers are not showing a hardship or need for this economic incentive. It is a vacant field, the easiest for development, and the developer already has the money to invest $26 million for construction. If they can afford that, they can afford to pay property taxes just like the rest of the residents do. As well, an average of $15/hour is an absolute joke in terms of economic development. Get in high paying jobs and maybe there's a different story. But that's the problem with this ask, it is speculative and users are just not known.

  2. Shouldn't this be a museum

  3. I don't have a problem with higher taxes, since it is obvious that our city is not adequately funded. And Ballard doesn't want to admit it, but he has increased taxes indirectly by 1) selling assets and spending the money, 2) letting now private entities increase user fees which were previously capped, 3) by spending reserves, and 4) by heavy dependence on TIFs. At the end, these are all indirect tax increases since someone will eventually have to pay for them. It's mathematics. You put property tax caps ("tax cut"), but you don't cut expenditures (justifiably so), so you increase taxes indirectly.

  4. Marijuana is the safest natural drug grown. Addiction is never physical. Marijuana health benefits are far more reaching then synthesized drugs. Abbott, Lilly, and the thousands of others create poisons and label them as medication. There is no current manufactured drug on the market that does not pose immediate and long term threat to the human anatomy. Certainly the potency of marijuana has increased by hybrids and growing techniques. However, Alcohol has been proven to destroy more families, relationships, cause more deaths and injuries in addition to the damage done to the body. Many confrontations such as domestic violence and other crimes can be attributed to alcohol. The criminal activities and injustices that surround marijuana exists because it is illegal in much of the world. If legalized throughout the world you would see a dramatic decrease in such activities and a savings to many countries for legal prosecutions, incarceration etc in regards to marijuana. It indeed can create wealth for the government by collecting taxes, creating jobs, etc.... I personally do not partake. I do hope it is legalized throughout the world.

  5. Build the resevoir. If built this will provide jobs and a reason to visit Anderson. The city needs to do something to differentiate itself from other cities in the area. Kudos to people with vision that are backing this project.

ADVERTISEMENT