Tim Eriksen

It is not that I am against a tax on the rich. I just know it won't solve the problem and thus shouldn't be the primary focus. Let's use actual 2009 IRS numbers. Those making over $200,000 had total taxable income of 1.62 trillion and paid 433 billion in taxes. If we raise taxes to 100% we could get the remaining $1.2 trillion and we still would not balance the budget. I'm no economist but I am pretty darn sure people won't work as hard at a 100% tax rate. For kicks let's assume we double taxes to a 50% effective rate and get 433 billion more. We still have a hole of one trillion dollars. We have to focus on the spending side!

I'll readily admit I am a conservative. I don't inherently hate higher taxes, but I do hate wasteful spending and the knee jerk reaction by many to call for higher taxes whenever there is a deficit, when what we need first is a thorough review of current spending to see if it is effective. Only then should higher taxes be proposed. Dionne says in his article: "He has forced a national conversation on (1) the bias of the tax system against labor; (2) the fact that, in comparison with middle- or upper-middle-class people, the really wealthy pay a remarkably low percentage of their income in taxes; and (3) the deeply regressive nature of the payroll tax." I would argue that these three points are not so obvious. (1) I think their is a stronger case that the tax system is more biased against capital (through a corporate tax and then dividend tax) than it is against labor. (2) The IRS statistics show that the wealthy pay a higher effective income tax rate than the middle or upper middle class. (3) What really annoys me is seeing the regressive nature of the payroll tax as a negative. Of course it is. It was designed that way and should be if it is going to be viewed as a "retirement plan." The Social Security system has actually been slowly tweeked to be progressive in recent years (meaning that it is designed for the poor make out the best in the system, although what actually happens is different due to life expectancy). Via the Earned Income Tax Credit the poor actually receive their Social Security contributions back. How is that fair? Does the poor have a right to get something for nothing? It is not an inherent right, or a matter of fairness. It is the generosity of the wealthy. To see a right in what is really a gift is sad. To argue that the middle class is getting shortchanged is ridiculous as well. The middle class (and I am one) are still net beneficiaries in our society. Instead of hating the rich, the poor and middle class should be thankful for them. Tim ",instead of hating the rich , the poor and middle class should be thankful for them" First of all Tim this statement and atitude is at the core of what irks me about the so called conservatives position. First of all the poor and middle class do not hate the rich and second in an ideal capitalist system where there is a fair exchange why should labor be thankfull to capital? Should not both sides of the capital labor divide be equally thank full. Enlightened capitalists understand that it is THEY who should be thankfull not their hardworking employees. The other thing that gets to me is this constant harping about waste in govt. Tim the private sector especialy big widely held corporations piss away so much of the shareholders money that it makes one want to cry. Most career civil servants understand that the best way to end your career is to be accused of profligacy.Plus we have a huge problem with govt accounting every one on both sides of the debate are freaking out about the size of the debt and deficit. If the government spends a billion dollars building a dike to prevent or control flooding the govt accounts do not even recognize this as an asset. Thousands in fact millions of individuals may benefit from this govt expenditure and there is no present method for the private sector to provide this good or service. Tim it was big govt action in Sept. of 2008 and the months that followed that saved our asses. They bailed out the banks forced the Merill merger. Without that action you would have gone to your ATM and the money would have been gone. Everyone benefited now everyone has to pay the poor and the middle class can not pay any more and should not have to their slice of the pie has been getting steadily smaller for 30 years and right now the pie aint getting any bigger. So lets focus are collective efforts on how to make the pie bigger instead of arguing how we should distribute the pie. Capital does not need more incentives. Warren has found lots of ways to deploy capital under the present incentive scheme.The poor and the middle class are about to receive an awfull screwing over. Do you think most employees of defined benefit plans are aware of how under funded their pension plans are do you think the avg. baby boomer is even aware that Rick Perry is right the social security system has been run like a ponzi scheme. They thought the money would be there the rich were smart enough to figure out that it would not be or indifferent because it just did not matter to them they were just too busy getting richer. Christie in New Jersey has been doing a pretty good job of delivering the news to the voters and govt employess of the bad news some one has to now deliver the news to the moneyed class . Sadly we are not discussing the three points that Dionne thought were obvious that in reality are not. Anyways, I must have failed in clearly stating what I meant. Regarding my point about the poor and middle class hating the rich I was not discussing the division of the economic pie which is usually a fair exchange. I was only referring to the taxation afterwards. Also while you dismiss that there is hatred toward the rich I would say that one party is stoking the fire all the time. At minimum there is jealousy. For many on the left there is a belief that the riches of the wealthy are gained off the backs of labor and are therefore ill-gotten. Your second paragraph is really a rambling of way too many things to address, some of which are not germane. You successfully bash conservatives and then praise Perry and Christie. Regarding government accounting I assume you also realize the other side - that they are not accruing liabilities for the change in present value of future medicare or social security obligations, nor depreciating assets. It is not like most of the federal governments expenditures are capital expenses. Secondly to say that everyone has to pay for the 2008 bailout is ridiculous. It paid for itself. The government was quite generous in some terms and still did well. That is not the cause of the fiscal problem we face.

I'll readily admit I am a conservative. I don't inherently hate higher taxes, but I do hate wasteful spending and the knee jerk reaction by many to call for higher taxes whenever there is a deficit, when what we need first is a thorough review of current spending to see if it is effective. Only then should higher taxes be proposed. Dionne says in his article: "He has forced a national conversation on (1) the bias of the tax system against labor; (2) the fact that, in comparison with middle- or upper-middle-class people, the really wealthy pay a remarkably low percentage of their income in taxes; and (3) the deeply regressive nature of the payroll tax." I would argue that these three points are not so obvious. (1) I think their is a stronger case that the tax system is more biased against capital (through a corporate tax and then dividend tax) than it is against labor. (2) The IRS statistics show that the wealthy pay a higher effective income tax rate than the middle or upper middle class. (3) What really annoys me is seeing the regressive nature of the payroll tax as a negative. Of course it is. It was designed that way and should be if it is going to be viewed as a "retirement plan." The Social Security system has actually been slowly tweeked to be progressive in recent years (meaning that it is designed for the poor make out the best in the system, although what actually happens is different due to life expectancy). Via the Earned Income Tax Credit the poor actually receive their Social Security contributions back. How is that fair? Does the poor have a right to get something for nothing? It is not an inherent right, or a matter of fairness. It is the generosity of the wealthy. To see a right in what is really a gift is sad. To argue that the middle class is getting shortchanged is ridiculous as well. The middle class (and I am one) are still net beneficiaries in our society. Instead of hating the rich, the poor and middle class should be thankful for them.

We sold out in early September and this is what we told our investors: "The biggest percentage decliner in the month (August) was Hewlett Packard (HPQ), which fell 26%. Thankfully it wasn’t a large position, but it was and is a painful reminder of what Warren Buffett once said, “I try to buy stock in businesses that are so wonderful that an idiot can run them, because sooner or later one will.” Well, apparently at HP one is, and unfortunately we didn’t recognize that before we purchased. The company’s decisions in the last month were “less than wise,” to phrase it in a manner my mother would approve of. We generally do not want to own investments that are cheap yet being managed by people of questionable ability. Worrying about whether the strength of the business, or the weaknesses of management, will win out is unnecessarily stressful. We prefer investments where the central question is, “The stock is cheap and management is solid, how long until the market recognizes this?” It is much easier to sleep at night with those kinds of businesses in the portfolio." Obviously the problems at HPQ involve the Board as well, so replacing Apotheker doesn't immediately solve their problems, but dang it is cheap based on earnings. Good things happen when you pay under 5 times earnings for a business that can continue to be profitable. I am tempted to get back in.

Obviously your are exaggerating in order to make your point. I don't think your assessments are fair. His timing with NFLX was clearly off. He was short (at least) as early as 2009 when NFLX was in the 40's from what I can tell. But that is the danger in shorting high growth, high PE names. They can run on you. Usually soon after you throw in the towel they seem to tank. His timing on his shorts during the meltdown were right on. He performed better than the market but not as good as he would have like due to how he constructed his portfolio. I believe he was using call options on some of his longs and wasn't viewing them on a "look-through" basis (assuming exercise) thus his long exposure was higher than he realized. Saying he lacks conviction would imply someone who does not make decent sized bets on securities he likes. While he is not as concentrated as some value investors, he is willing to make a position 5 to 10% from what I have heard him say. In fact, his recent under-performance is due to him essentially making a macro call and reducing their overall net exposure. Thus he did not participate in the markets rally in the last half of last year. Obviously he was wrong in the short run, but it was not due to lack of conviction or courage. His overall performance numbers based on having only a 60% net long position is very good. If after fees he can outperform the market with just 60% net exposure that is nothing to be ashamed of.

It would be strange for WFC to offer to refinance if they held the loan in their own portfolio. Why would WFC lower its interest income? Now if WFC had sold off the loan and currently just serviced it, then it would be very wise for them to offer the refi since they can resell the new loan for a profit.

a) Maybe Parsad and I focusing on different things, but YES assuming you die during the policy coverage, not just contract some terminal illness. I am also assuming it is not a pre-existing condition. b) YES. Although if it is caused by one of the items you said you don't do (skydiving, scuba diving, personal pilot, etc. ) or suicide soon after getting the policy it may get challenged. Most reputable term policies cover death from both illness (natural) and accident.

The reason the premium will stay the same is because they have essentially averaged out the rate for each year. So you are paying more in the beginning, and less in the later years, than the actual cost of the insurance. That's fine as long as you know that. For some people an annual renewable term is significantly cheaper and the way to go (especially if they are unlikely to want to carry the policy long term). Obviously to buy a level premium 30 year policy will cost you a lot more than a 15 year. Probably more than twice as much per year because of the high cost to insure those later years. You need to figure out what best fits your situation.

Harry: You have a serious problem with your first point. The index has NOT outperformed the S&P500. From Jan 1987 through the end of 2010 the S&P500 is slightly better. Yes, I looked at the page 2 numbers of the Acorn paper which look good; however, I also put the annual returns of both into a spreadsheet and the S&P500 did better. There is a substantial error in the chart by Acorn. Check and see. Secondly the quant index is significantly helped by the 63% return in 1987, so it is benefiting from a good starting point, yet still falls slightly short of the S&P500. Is there some value in the strategy? It certainly looks like the quant approach does better than the S&P500 in down years. It would probably complement an indexed portfolio nicely. All that said, we as value investors believe we can outperform the S&P500 - either by matching the returns with less risk or surpassing the returns with commensurate risk. I know I certainly have. Tim

It reminds me more of the preferred stock deals he did in the late 1980's (Salomon in '87, Champion, Gillette and USAir in '89, and GE and Goldman in '09). Even those had a higher rate than the BAC deal, the BAC deal has a higher premium in relation to the 10 yr Treasury. My opinion would change if he were to begin buying BAC common, but right now the BAC deal is not on par with GEICO or American Express. This is a more conservative move than either GEICO or Amex were. Low risk with a good kicker.

It is important to read what method Buffett chose to use to calculate tax levels - income (including capital gains) plus payroll taxes paid by the employee and employer. Many people in the middle class will show a high rate under this method due to low capital gains and the payroll tax inclusion. If Buffett is going to treat payroll taxes as a tax then he needs to treat social security income as a government handout. That is the only logical conclusion. So Buffett is only giving part of the story. Those paying 36% versus his 17% will be at significant negative rate after the age of 65 when they get $20,000 to $30,000 annually as a handout from Social Security plus subsidized health care as well. He needs to look at their whole life not just the working years if payroll tax is included. Second using the employer paid half is questionable. You could certainly argue Berkshire paid it not the employee. Thus the employees rate would drop by 7.65%. I would also argue that Buffett pays billions in taxes on the whole. As the primary of owner of BRK he should view things on a look through basis (like he used to treat earnings on investment holdings). He could also include the portion of payroll taxes paid for all employees as well. Even his capital gains as owner of stock is after that corporation has been taxed at 36%. I have no real problem with the super rich paying a slightly higher rate, but IMO Buffett should look at the issue more objectively. Second it really isn't a big budget difference. If the Bush tax cuts for those making over $250,000 costs $800 billion over ten years, then shrinking it to the super rich has to be even smaller than that. While meaningful it is not going to materially change our current fiscal situation. By extending the payroll tax reduction he probably completely offsets the additional revenue. Like it or not taxes either have to go up on the middle class or spedning needs to be reduced. Lastly, he does mention that cuts need to be made in excess of $1.5 trillion over ten years but he wimps out and doesn't sugest anything specific. His article is more like what a candidate who is pandering for popularity would write than an honest assessment of the situation. It is disappointing.

Their auditor is Ernst & Young. I am not currently a shareholder but do have the 2009 report on pdf. A few years ago I bought one share and then sent them proof in order to get annual reports. Worst case is pay the $50 to get a certificate issued.

I don't want to create a big argument here, but I am confused about what you said. You mentioned 2008/2009. Bush was president in 2008 and signed TARP. Obama took office in January 2009 and passed the Stimulus package. He did oversee some TARP implementation too. Both bills are controverisal, but it is my understanding that TARP was what saved the world economy not the stimulus package. The stimulus package has been seen as less effective. Progressives complain it was too small. Conservatives complain that it was inefficent and wasteful. Obama is considered a spender due to the stimulus package and the fact that spending went up the year after the stimulus package. In addition you have the medical care plan that hasn't kicked in yet. It is pretty hard to argue Obama is not a spender. Bush was a spender too, that is why conservatives are reluctant to compromise.

Parsad, I in turn must politely disagree. To complain about the cruddy hand Obama has been dealt is to fail to realize that the cruddy hand is a big part of why he was elected. America took a chance on someone who promised change. Turns out they didn't like the change he implemented, so they reacted in 2010. Is he in a no-win situation? No, but that is not to say it is easy for him. It isn't. President's get too much blame and too much credit for the economy. The problem is that most Americans don't want to hear that it will take time to work through the mess. Politicians, like bad investors, cannot fight the urge to do something. And that something means programs to achieve a noble goal. Obama is taking it from both sides, which many consider a sign of compromise and therefore success. Progressives are ticked off that the growth in spending is being reduced. Tea Partiers, while pleased that the "beast" is not being fed further, are hardly jubilant since they know that we are still on an unsustainable path, (planning on adding 7 to 8 trillion to the national debt over the next decade instead of 10 billion), only about $10 billion in cuts occur in the next two years, and spending is considerably higher as a % of GDP than it has been historically. Regarding "equalizing the disparity between income and wealth," which sounds a lot like equality of outcome. It is not a goal that most Americans subscribe to. The left does. If you meant reduce, rather than equalize, that would gain more support, but is still not part of most Americans DNA. It is about a land of opportunity, not result. Bill Gates is not thought of as evil for become wealthy. (Yes CEOs are overpaid, but that is an issue about shareholder rights and how board members are proposed and elected. The fox is guarding the hen house.) Lastly, the quote "The truth is that even Ronald Regan (sic) would not have been elected by the present day Republican Party...he would be considered more moderate than Boehner!" is beomcing a favorite liberal accusation but not accurate. Reagan ran on reducing the size of government. He wanted to kill off whole departments. He compromised on that in order to win his tax cuts. He was the most conservative Republican nominee since Goldwater in '64. McCain, both Bushes, and Dole were to the left of Reagan. I doubt many political analysts would see Reagan as more moderate than Boehner.

Boehner's plan as scored by CBO comes out to only $1 billion in cuts for 2012, and $851 billion overall. And some continue to say the problem in Washington is those intransigent new Republicans. Huh. Looks to me like it is the leadership and those who have been in Washington for a while. Reid's proposal while larger includes artificial savings from ending operations in Iraq and Afghanistan that is already planned. I don't know if they came to Washington like that or if the culture just does it to them, but it is near impossible to name a real statesman that puts principle over party and has not been corrupted by the system. I fear we're screwed.

Ahh. So sorry it wasn't Fox News. I know that would have allowed you to immediately dismiss it as false. I have read numerous articles from multiple papers that state it. To be clear, I was only talking about 2012 cuts not overall. Over ten years there will be a larger amount, but in typical Washington fashion the pain will be later, but the credit will be taken today. I will agree with you that the House will not pass anything with tax increases; however, I think your political instincts are wrong on what the Whitehouse will accept. I'll gladly wager that what is passed and accepted by the Whitehouse will not have "revenue enhancements." I'm sure the Whitehouse won't like it, but that is what they are going to have to accept.

You are confusing tax rate with effective tax rates. Tax rates are much lower today but there are a lot less ways around it too. If you think the deficit can be eliminated by taxing the highest two percent you are not informed of the details. The extension of the tax cut for the top 2% was estimated to hurt projected revenue by around 800 billion over ten years. The extension of middle class tax cuts was three or four times larger. $800 billion out of a projected ten year deficit of 9 trillion is not going to do it.

Tim if you repeat a falsehood a thousand times it does not make it any closer to being the truth. The tea partiers are focussed on one issue only NO TAXES lets kill the beast kill the beast is their chant the rest of the adults including the much maligned MR Obama are suggesting a combination of expenditure cuts and "revenue enhancements" are required. The economy can not tell the difference between a expenditure cut and a tax increase on the margin but voters can and this farce is all about votes and nothing about the economy. The Tea Party absolutely does not want additional taxes. In that you are correct. Do they see the federal government as a beast that is growing in size? YES. Do they want to reverse that trend? YES Do they want no federal government? NO. But if you don't think they are serious about balancing the budget then I would say you are wrong. Most have no problem with reducing the size of government back to 19 to 20%. Many would go even lower. Try talking to them. How much of the problem is due to tax rates being to low? Not much if at all. If you disagree please tell me which ones (corporate, payroll, or income) and how much you would raise them and how much of the deficit it would solve. So if it is not a revenue shortfall problem, why should they support "revenue enhancements." The reality is that significant cuts in spending are needed or else we are just kicking the can down the road. This is where I disagree with Howard Marks. He thinks compromise is part of the solution. I see past compromise as part of the problem, and compromise as refusing to seriously deal with the issue. Why is refusing to raise taxes a sign of intransigence when demanding that taxes be raised is not? Tim um lets me see Obama and the adults on both sides are open to dramatic cuts in all budgets on the expenditures side but no house Republican will approve any proposal that includes ANY tax increases... you can not be serious. If you think Obama and the adults on both sides are open to dramatic cuts then you are drinking the kool-aid. If they were open to dramatic cuts they would have welcomed the Ryan and Coburn plans and said they just need to be tweeked to have some additional taxes. That is not true at all. Obama will not publicly specify cuts. Reid is floating paper cuts. When anyone you think of as an adult does talk cuts, they are in the future, and they sure as hell are not dramatic. Obama is reported to have proposed less than $2 billion in cuts for 2012. Yes a measly $2 billion out of a $1.4 trillion deficit. That is not an adult that is someone living in a false reality.

Tim if you repeat a falsehood a thousand times it does not make it any closer to being the truth. The tea partiers are focussed on one issue only NO TAXES lets kill the beast kill the beast is their chant the rest of the adults including the much maligned MR Obama are suggesting a combination of expenditure cuts and "revenue enhancements" are required. The economy can not tell the difference between a expenditure cut and a tax increase on the margin but voters can and this farce is all about votes and nothing about the economy. The Tea Party absolutely does not want additional taxes. In that you are correct. Do they see the federal government as a beast that is growing in size? YES. Do they want to reverse that trend? YES Do they want no federal government? NO. But if you don't think they are serious about balancing the budget then I would say you are wrong. Most have no problem with reducing the size of government back to 19 to 20%. Many would go even lower. Try talking to them. How much of the problem is due to tax rates being to low? Not much if at all. If you disagree please tell me which ones (corporate, payroll, or income) and how much you would raise them and how much of the deficit it would solve. So if it is not a revenue shortfall problem, why should they support "revenue enhancements." The reality is that significant cuts in spending are needed or else we are just kicking the can down the road. This is where I disagree with Howard Marks. He thinks compromise is part of the solution. I see past compromise as part of the problem, and compromise as refusing to seriously deal with the issue. Why is refusing to raise taxes a sign of intransigence when demanding that taxes be raised is not?

There will be a resolution. On the surface it will sound acceptable but the details will reveal it actually did little other than extend the debt ceiling. I think you have it backwards if you are wanting the tea partiers to get worried about the debt. They are the ones who already are. Obama isn't. He is yet to publicly name anything that will get cut. He is more interested in raising taxes. Reid is floating a plan that counts savings from ending wars that we already know will occur. I am not sure anyone can figure out what Senator McConnell is doing. Any serious plan that actually puts us on a responsible path is shot down as unacceptable (Ryan and Coburn). Do you realize that all the cuts they talk about are years down the road and are just reductions in increase not actual cuts. That all of the "acceptable" plans are projected to add $5 trillion to the national debt in ten years? Insanity. Many Americans have been through this in terms of their own budgets. They see the double talk and ignoring of reality. The US needs to get its fiscal house in order sooner rather than later. That would make the market go higher as business would no longer be as fearful. The bottom line is if the House wasn't willing to play a bit of a game of chicken, no one would be addressing the horrible fiscal position of the US government. And it must be addressed. The fear of a downgrade will still be there if all they do is increase the debt limit. Read Howard Marks' latest. If you cannot pay off your debt then you are not really AAA. All the US can do is roll it over. We all saw how that worked out for a few Wall Street firms.

I completely agree that whatever the level of spending in relation to GDP it must be paid for. That has been my point. Where we disagree is that I see rationality at the extremes (spending commensurate with taxes whether high or low). You implied the House was a problem where I think they are the more rational of the extremes (the level of taxes that fits their model is doable and should result in a strong economy, whereas a model with revenues at 25% of GDP is extremely difficult, which is why they have yet to present a plan showing how to achieve it). The problem is the compromisers. The compromisers are trying to keep both high spending and low taxes and trying to deceive the public in order to do so. They present themselves as fair and wise when they are not. Any plan that basically follows the same path of the last thirty years and hopes for a different result is foolish (if not insane). How in the world can anyone think that the best plan is one that increases the national debt by 5 trillion over ten years. You are definiely right that the public likes their entitlements. They also like others to pay for them. Isn't that the whole problem? Washington is following what the voters tell them. Sadly the voters are grossly ignorant. Way too many think foreign aid is a large part of the budget and that trimming it would make a meaningful difference.

A couple of things appear problematic to me. That plan is to balance the budget except for interest costs. So it is acting like 200 to 300 billion of yearly deficits is acceptable. If interest rates were to return to more historical levels it would add an additional 200 to 300 billion. If I recall correctly Kyle Bass stated that for every 1% change in interest rates results in $70 billion of addional interest costs. I, personally, do not think that any plan that wil likely run half a trillion dollar deficts and increases the national debt is responsible. Second, it is fairly lopsided in favor of the Democratic Party. For one many Democrats want Republicans to break their no tax pledge for political reasons as much as fiscal reasons. Second it results in a federal govenment at 22 to 23% of GDP versus a historical 20%. In other words, the smaller government crowd loses. A large part of cuts are in defense, which is also more strongly supported by Republicans. So what is presented as a fair and a "balanced approach" is really not. I for one want to see a specific plan to bring the budget into balance within six years (none of the ten year crap). I am tired of frameworks with no specifics (Gang of Six plan). That is kicking the can down the road. And I don't want a plan with rosy 5% GDP growth scenarios (Pawlenty and most Republican plans). Nor do I want a plan where increased taxes kick in before unspecified spending reductions (most Demoractic "plans"). Washington is talking like they are serious but very few actually are. It is disgusting. We all know the end result is going to be plan that is presented as a great solution when it really is not.

I think you are being too kind to Obama. Many would say Obama's quote in 2006 was purely politics. Who can tell? Shouldn't we judge based on actions and not words. He didn't show any concern about a debt problem as President until the last few months. His original budget plan surely didn't address the issue. I guess what person sees as being an Executive another person sees as thumb sucking. I also think we are too quick to label the House as unflexible, and the problem. There is a reason beyond politics. For example, the new Republicans do not want government spending to be 25% of GDP. They think it should be under 20%, therefore tax increases are off the table. It in their minds should be all about spending cuts and policies that will help economic growth. Many Democrats appear to be inflexible as well in that they refuse to support a plan that does not increase taxes. At least that fits with their political philosophy. http://www.bloomberg.com/news/2011-07-21/grand-bargain-returns-to-u-s-debt-talks-as-negotiators-open-paths-to-deal.html The problem is those who cannot match the revenue and the expenditure. Those who want increased spending and lower taxes. This sad tragedy started under Reagan when the Democratic Congress accepted the tax cuts but largely rejected the spending cuts he proposed, and Reagan accepted it. Since then we have had nearly thirty years of stupidity. One could make a case that what many call the irrational extremes (the House) are actually rational, in that their view of the size of government matches their view on the appropriate level of taxation, whereas some in the middle are wanting spending without paying for it (i.e, both parties in the Senate). It is case where we would be better off with one side or the other winning, but compromise is not working. Sadly, most Americans do not understand the issue, or cannot decide which course of action is best.

I agree that we are actually starting to grapple with this issue because the Democrats lost control of Congress. I actually think it was a good thing that the Dems lost control. But I wasn't literally saying that everyone in the government agrees that we must spend less. What I was implying was that both the Republicans and Democrats have put long-term spending reduction plans on the table. The Obama plan was put out in April. The Republicans didn't like it because it didn't go far enough on entitlement cuts (particularly, health care cuts) and because of the tax increases on high income Americans. Obviously, Obama's intention was to come to a compromise where both sides would give concessions. Up until now, though, the House Republicans have refused to make concessions on revenue (tax) increases, and they are being recalcitrant about this to the point where they're willing to put a gun to the head of the nation's economy. Now that Obama has backed the Gang of Six plan, can the GOP legitimately say that this is about saving the country from our debt versus scoring political points? I would argue that the GOP can totally argue it is about saving the country from our debt. The Gang of Six plan (or framework) sounds good on the surface, but they are only cutting projected growth in spending. Please correct me if I am wrong, but their plan is expected to increase the overall debt by $5 trillion in ten years. What Washington thinks is great is still stupid. Our debt to GDP ratios will likely be worse than they are now. Ten years plans that still don't result in a balanced budget should not be considered rational. There is a big difference in the spending reduction plans each party has put forward. The conservative GOP plans (Ryan and Coburn) actually put some specifics, while Obama talks numbers but won't identify any specific cut/reduction.

VAL9000 You are using the word deficit when you should be using debt. The deficit relates to each year. The debt is the total over time. You are correct about how much the national debt rose during Bush's time in office. You do miss one important point. The Republicans in office during Bush's time starting spending too much which is why they loss support among their base. The new class of Republicans (i.e. recently elected), which is a large number, is unlikely to do that. They were elected on the basis that they would not support additional spending or taxes. So it is not the same people who made the decisions for eight straight years. Same party yes, same people in office, not really. While some Republicans in Washington are certainly acting out of opportunism, typically those who have been there for a long time, you would be wrong to not see that a large group is acting out of political ideology. The comments about whether spending should be 25% or 20% are exactly on target. That is the real debate. Under Bush it was at 19 to 20% until 2009 (which is only partially his) where it jumped to 25%. Do we as a country want it to stay at that level of revert to 20%? The sad part is that both parties are still short of where they need to be. They need to realize that recessions cause reduced receipts and increased expenditures, thus big deficits. When they have surpluses, and they need to have them to offset the fiscal impact of deficit years, they need to pay down debt (not cut taxes (Republican) or increase spending (Democrats)) so they can better manage their long term finances. Just like us, the government needs to save in the fat years to better survive in the lean years. Should the debt limit be the vehicle to have this debate? Probably not. However, if the Republicans weren't using the debt limit to have the debate I doubt we would be having the same level of debate (and clarifying the differences between the two parties). We cannot run trillion dollar deficits very long without severe consequences.