US deficit crisis: the clock ticks

[Danoff]

And I believe that the public should pay taxes for government services like the roads, emergency crews, weather service and so on. We all use that stuff in one way or another so I don't mind supporting it.

Most people don't pay for those things. The bottom 50% of earners pays no federal income tax - so they pay for none of that (as funded federally - depending on how your state gets revenue, they may contribute to some state projects). I suppose you'd be in favor of raising taxes on the poor to fix this?

 

[Famine]

You need to buy things on credit though, I could never afford a car let alone a house outright. Most people couldn't. I agree people, as well as the country itself, need to learn budgeting better.

I couldn't buy a new car outright. That's part of the reason why I have three used cars that I could buy outright (also, older cars are more interesting ). You don't have to buy a new one on credit and I've never understood the reasoning that compels people to do so.

Houses are different. Mortgage rates are much lower than normal credit agreements and housing represents investment. Car values almost always go down unless you're buying a six-figure car and even then it's no sure thing. House prices vary but ultimately you have a place you can live in until you can make a profit off it and, if properly insured and you keep up your payments, it'll be rebuilt for you if it gets wrecked.

 

[arora]

Most people don't pay for those things. The bottom 50% of earners pays no federal income tax - so they pay for none of that (as funded federally - depending on how your state gets revenue, they may contribute to some state projects). I suppose you'd be in favor of raising taxes on the poor to fix this?

Federal tax dollars used for road systems are collected through fuel tax not income tax. Emergency crews, I'm guessing local is implied, so probably funded from local property tax. Weather service as in The National Weather service is part of the government agency NOAA which operates on a 5 billion a year budget more or less, that must come from the 'general' fund?

 

[Joey D]

I couldn't buy a new car outright. That's part of the reason why I have three used cars that I could buy outright (also, older cars are more interesting ). You don't have to buy a new one on credit and I've never understood the reasoning that compels people to do so.

Houses are different. Mortgage rates are much lower than normal credit agreements and housing represents investment. Car values almost always go down unless you're buying a six-figure car and even then it's no sure thing. House prices vary but ultimately you have a place you can live in until you can make a profit off it and, if properly insured and you keep up your payments, it'll be rebuilt for you if it gets wrecked.

Some people like new cars? Some people don't want to deal with the headaches of used car ownership? Some people want a warranty? The list goes on and on. These are all the reasons I bought a new car. I also make my payments on time every month and budget my money accordingly.

Also you need people to buy new cars to have a supply of used ones.

 

[Prosthetic]

Most people don't pay for those things. The bottom 50% of earners pays no federal income tax -

A lot of the mega-rich don't pay taxes either.

 

[GTsail]

Most people don't pay for those things. The bottom 50% of earners pays no federal income tax - so they pay for none of that (as funded federally - depending on how your state gets revenue, they may contribute to some state projects). I suppose you'd be in favor of raising taxes on the poor to fix this?

Do you have a source for this 50% number?

The best that I've been able to find from IRS data is that the bottom 50% of households pay 2.7% of Federal Income Taxes (not zero).

Link: http://www.taxfoundation.org/research/show/250.html#table8

This same data (from the Tax Foundation web site) says that the top 50% of taxpayers pay 13.7% of their AGI in Federal Income taxes, and the bottom 50% of taxpayers pay 2.6% of their AGI in Federal Income taxes.

Respectfully,
GTsail

 

[arora]

http://www.taxpolicycenter.org/publications/url.cfm?ID=1001547

 

[FoolKiller]

I don't support job killing programs and I don't believe environmental regulations have to kill jobs. I believe that executives allow it to kill jobs because they'd rather focus on the bottom line number then anything else. They'd rather reduce the work force cost so their profits stay up rather than investing some of the profits into new, more eco-friendly, technology. I'm not saying they should go into the red, but energy companies make a hefty profit, I think they could use some of that.

And with the CFL thing, it's just the executives and investors (ie the wealthy) that want a better bottom line. So instead of having a less profitable year and investing in American jobs, they ship it overseas and continue to keep the wealthy happy with the worker is left on the side of road with no job because all he knows is making light bulbs.

You do realize that CFLs are more labor intensive to make, thus making them in the US would make them cost even more than they do right now. So there is your choice, overseas and the consumer doesn't feel an effect or made here, saving jobs, but all of the US feels a little more pinch on their wallets.

And if you want to discuss the profits of the companies involved here, companies like GE are turning profit only because of the incentives from these deals. That means that at their current lightbulb price the lightbulbs themselves are not making a profit. So they either take even more losses when they already have no organic growth or they move overseas. Sure, they could eat into their incentive profits now, but after those programs end and it is mandatory in 2014 they would have to eliminate those jobs in the US either to outsourcing or to exit the lighting business altogether.

You need to buy things on credit though, I could never afford a car let alone a house outright. Most people couldn't. I agree people, as well as the country itself, need to learn budgeting better.

If you can make a car payment on a new car over five years you can put 100% cash down for that same car in 3 years. The only large loans that are acceptable are for schooling and houses, because those have an investment value.

They rejection letters/e-mails/calls I get daily suggest to me that there is nothing out there. I agree it's a regional thing but without a job how can I move? That would just perpetuate the problem by me moving to a location and getting into debt do to relocation costs.

You also need experience to get jobs, so many people are out of work that companies would rather hire the person who has 10-15 year work experience over the kid who had 3 or 4 years. Granted I've worked since I've been 16, but I didn't get a "real" job till I was 20. That's 4 year of experience with only a year in the corporate setting.

I don't know what to tell you. My first job was doing data entry for an engineering and inspection firm at 16. I have a long and varied job history spanning 16 years.

My point was you've held a job, not been laid off or fired.

No, I have survived three rounds of layoffs and an outsourcing. But our COO and CEO also knows me on a first-name basis, and this CEO has been here less than a year. When executives come down I always make sure I am on the invite list for dinner and/or drinks after work. I get along with this CEO much better than our old one, but this one also doesn't choose to go to dinner at places that bring me tea in a bottle.

That's the DMC, and no one wants to live in Detroit because it's the murder capital of the US (or at least it was). Even our former mayor served time in a federal prison for a laundry list of things, and probably killed a stripper. It's promoting growth of the city, but it's not actually happening.

You wouldn't believe how much business we get from Detroit here. We actually closed our Chicago sales office and merged it with the Detroit office.

Isn't that government in a nutshell? They take money and spend it on things whether I want them to or not? Everyone complain about where and how their money is being spent by the government, it's a national pastime like baseball.

And I believe that the public should pay taxes for government services like the roads, emergency crews, weather service and so on. We all use that stuff in one way or another so I don't mind supporting it.

Then we should all pay for it equally.

 

[Danoff]

I couldn't buy a new car outright. That's part of the reason why I have three used cars that I could buy outright (also, older cars are more interesting ). You don't have to buy a new one on credit and I've never understood the reasoning that compels people to do so.

I've never had a car loan... and I never will. I can never forgive them... for the death of my boy... wait that's a movie.

Yea, I concur. I don't understand why people insist on new cars and take expensive loans to pay for them. If you got a 1% interest rate or something, ok then, but people pay ridiculous amounts to have the new shiny thing right now instead of saving up.

 

[Danoff]

Federal tax dollars used for road systems are collected through fuel tax not income tax. Emergency crews, I'm guessing local is implied, so probably funded from local property tax. Weather service as in The National Weather service is part of the government agency NOAA which operates on a 5 billion a year budget more or less, that must come from the 'general' fund?

as funded federally - depending on how your state gets revenue, they may contribute to some state projects

Many local crews still get federal funds. Regardless, I was not interpreting his original statement to be an exhaustive list - but rather indicative of a laundry list of federal services that the poor do not pay for. The department of education, for example, is not funded by the poor. Also the department of housing, the department of homeland security, the department of defense, the department of the treasury, the internal revenue service, the federal bureau of investigation, the food and drug administration, the environmental protection agency, the occupational health and safety administration, the national aeronautics and space administration, the department of agriculture, the african development foundation, the advisory council on historic preservation...

A lot of the mega-rich don't pay taxes either.

Myth. The mega-rich pay almost all of the income tax collected. I explained how this myth got traction in the America thread very recently.

Do you have a source for this 50% number?

The best that I've been able to find from IRS data is that the bottom 50% of households pay 2.7% of Federal Income Taxes (not zero).

Link: http://www.taxfoundation.org/research/show/250.html#table8

This same data (from the Tax Foundation web site) says that the top 50% of taxpayers pay 13.7% of their AGI in Federal Income taxes, and the bottom 50% of taxpayers pay 2.6% of their AGI in Federal Income taxes.

Respectfully,
GTsail

You're looking at old numbers. I believe they were projected to cross the line in 2010, but that may have been based on a budget that didn't pass. Regardless, are you really picking at me for rounding a few percent? If anyone in the bottom 50% is paying tax, the very top of that bracket. If I recall, the bottom 20% actually pay a negative rate. My understanding was that under the latest budget, the tax rate doesn't go positive until you get to the top half.

Edit:

Your source is ok (but old). But when searching for this, be very wary of people who cloud the picture by calculating the "total tax burden" rather than "federal income tax". Social security hits everyone, but I don't count it because it's supposed to be a zero-sum game, not a tax.

Edit #2:
http://money.cnn.com/2009/09/30/pf/taxes/who_pays_taxes/index.htm

^^ 47% pay no income tax. But check this out:

Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.

I happen to know a guy who makes ~$120,000 who has told me that he got his total federal tax liability below $2000 for the year. So someone making $120,000 can get away with paying only 1.5% in federal income taxes. Amazing isn't it?

 

[Joey D]

You do realize that CFLs are more labor intensive to make, thus making them in the US would make them cost even more than they do right now. So there is your choice, overseas and the consumer doesn't feel an effect or made here, saving jobs, but all of the US feels a little more pinch on their wallets.

The only reason consumers feel a pinch is because companies feel the need to make the same amount of money or more. As I've said, I'm not suggesting a companies goes into the red, but having reduced profits while keeping jobs in the US seems like it would be more beneficial, at least in my opinion.

If you can make a car payment on a new car over five years you can put 100% cash down for that same car in 3 years. The only large loans that are acceptable are for schooling and houses, because those have an investment value.

I can make $250 payments on my car now, however if I saved $250 per month for 36 months I'd only have $9,000. Put that with the $12,000 I put down on a new car and I still only have $21,000 for a car that cost me $26,000.

Buying on credit isn't a problem, it's only when you can't afford to make the payments or you spend beyond your mean it becomes a problem. I knew what I could afford per month and I made sure I got the best interest rate. Even only doing freelance work I still manage to make double payments on my car every month, plus the insurance.

And houses have investment values? My parents house is worth about half of what it was when it was first purchased. And they probably invested at least $75,000 into improvements, if not more. It all depends on the market.

I don't know what to tell you. My first job was doing data entry for an engineering and inspection firm at 16. I have a long and varied job history spanning 16 years.

You don't have to tell me anything, I'm not looking for advice. I'm just showing that it's not as easy as you seem to be saying. I could be misreading what you are saying though, if I am, I apologise.

No, I have survived three rounds of layoffs and an outsourcing. But our COO and CEO also knows me on a first-name basis, and this CEO has been here less than a year. When executives come down I always make sure I am on the invite list for dinner and/or drinks after work. I get along with this CEO much better than our old one, but this one also doesn't choose to go to dinner at places that bring me tea in a bottle.

I got along with our Senior Leadership quite well, in fact about half of them were genuinely sadden to see me go. Being a friendly employee to the top brass helps for sure, but it doesn't cement in your jobs during tough times.

You wouldn't believe how much business we get from Detroit here. We actually closed our Chicago sales office and merged it with the Detroit office.

I'm guessing no one actually lives in the city though, but rather the suburbs. The metro-Detroit area is huge, the city itself isn't.

Then we should all pay for it equally.

I've said before I'm in favour of a flat percentage for taxes that everyone pays. I pay 20% of my total income and so does Bill Gates and so does the guy at McDonald's bringing in $20,000 a year. To me that seems fair. Also do away with tax breaks, exemptions and tax brackets.

There would be a helluva lot more out cry if the government tried to raise the percentage because it would affect everyone the same way. There would also be less influence from one sector because we all pay the same rate.

 

[Danoff]

I've said before I'm in favour of a flat percentage for taxes that everyone pays. I pay 20% of my total income and so does Bill Gates and so does the guy at McDonald's bringing in $20,000 a year. To me that seems fair. Also do away with tax breaks, exemptions and tax brackets.

It would be so awesome... so awesome. I can't believe you and I disagree on so much of this conversation and yet we both want the same thing - a flat tax rate with no exemptions. I'm not sure how we arrived there, but I love it.

 

[arora]

I was not interpreting his original statement to be an exhaustive list..

Neither was I, it looked like a list of reasonable services he uses and does not mind paying for. My points are; We can have a good road system without federal income tax(because we do), we can have good operational local emergency response without federal income tax(because we do), we pay a pretty hefty price to warn the one dude on an island with only an a.m. radio of an incoming hurricane(exaggeration of course). The rest of your laundry list consists of crap agencies we could do without for the most part imo.

On the subject of taxes, your recent post and response in the 'America' thread made me think of 2 things; Grant moving the graduated income tax to a flat tax, and then reducing it to in essence, a consumer tax.(fuzzy recollection) That made me think of this....

It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, "in political arithmetic, two and two do not always make four." If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

Bringing it all full circle to the 'debt crises' I'm not sure how that would work with the intitlement system. Social security is insolvent and the healthcare is a mess, nothing we cannot find a solution for without going bankrupt as a country though.



I almost forgot ...

I think it is possible that the US will default on its debt, and our current trajectory makes that more likely.

If you care to wager(in good fun), I'll take any odds you choose it won't happen, as long as the time frame is reasonable. Say, before S&P restores the AAA rating?

 

[Danoff]

Neither was I, it looked like a list of reasonable services he uses and does not mind paying for. My points are; We can have a good road system without federal income tax(because we do), we can have good operational local emergency response without federal income tax(because we do), we pay a pretty hefty price to warn the one dude on an island with only an a.m. radio of an incoming hurricane(exaggeration of course). The rest of your laundry list consists of crap agencies we could do without for the most part imo.

I think we're in violent agreement.

If you care to wager(in good fun), I'll take any odds you choose it won't happen, as long as the time frame is reasonable. Say, before S&P restores the AAA rating?

I'll grant that it won't be soon. If we default, I don't see it in the next 10 years.

 

[Famine]

Some people like new cars?

I like new televisions. I can't afford to go buy one outright and I'm not about to saddle myself with a finance agreement to buy one on credit.

Some people don't want to deal with the headaches of used car ownership?

Which are?

Some people want a warranty?

Go to a used car dealer rather the buying privately. Most warranties that come with used cars over here are equal to new car warranties in terms of value (worthless - they don't cover consummables, damage or wear and tear parts; unless you buy a car which cacks its own gearbox at regular intervals you may as well not bother).

Besides, if it's used cars that are headaches, why do you need a warranty?

These are all the reasons I bought a new car.

But you didn't have to. You're claiming people have to buy things on credit because they can't afford them outright. If I can't afford something outright, I don't buy it.

Also you need people to buy new cars to have a supply of used ones.

We call these people "fleet managers" and that's why there's always a supply of 3 year old, diesel, poverty spec BMW 3-series.


I was brought up to understand that if I wanted something, I saved up for it. When I saved up for it, I could buy it. I've had eleven cars, not a one of them was I the first owner of and never paid a penny to car finance companies. My dad had thirty-seven cars and could say the same. My brother bought a (new) car on a credit card once so he could get Airmiles - he paid it off before the statement came through - but he's very well paid indeed.

Credit is just a way of getting people to buy shiny new things that they want but cannot afford to buy. It's not a necessity of life.

 

[Joey D]

Which are?

Whatever else the previous owner did to it. Some people see having a car they have to fix right after they purchase it by paying even more out of pocket as a headache. This is why I bought a new car, with a warranty. If something breaks, then it can be fixed by dropping it off at the dealership and collection it when it's done.

Whoever buys my MINI is in for a huge headache, I know I would be pissed if I bought a "new" used car only to find out the transmission exploded and cost a pretty penny to get it fixed...and I had to go to the dealership because no local shop would touch it.

I'm not saying used cars are inherently unreliable, I'm say that some people don't want to deal with the problems if they happen to be.

Go to a used car dealer rather the buying privately. Most warranties that come with used cars over here are equal to new car warranties in terms of value (worthless - they don't cover consummables, damage or wear and tear parts; unless you buy a car which cacks its own gearbox at regular intervals you may as well not bother).

Besides, if it's used cars that are headaches, why do you need a warranty?

Most warranties locally are 3 months/3,000 miles on used cars, I'm not sure about other regions. I drive 3,000 miles in two months or less. Some dealerships offer 3 year / 36,000 miles but you typically pay more for the vehicle, so they get you either way.

And headaches with new cars are solved by dropping it off at the dealer. Nothing comes out of your pocket.

But you didn't have to. You're claiming people have to buy things on credit because they can't afford them outright. If I can't afford something outright, I don't buy it.

So you bought your home outright then? I know how expensive housing is in the UK and I would have a very hard time believing that anyone would be able to purchase their home outright over there. If you want to live somewhere that doesn't involve throwing money away monthly (ie renting) you almost always have to purchase a home on credit.

The issue comes up when people want to finance more then they can afford and the bank lets them.

I had enough cash to have purchased my Focus outright, but that would have put a huge dent in my savings account which is for a down payment on a home of my own.

Also some people can't afford to buy a vehicle outright, but need one. My girlfriend's Jeep Cherokee died last year with no hope for repair. She needed a car to get to school and work but didn't have a bunch saved up at the time as she was currently paying her way through school. She was able to buy a reliable, low mileage, Focus on credit which allowed her to continue going to school and work, while bringing in money to pay for her education as well as the car. If she would spent her savings on a car she wouldn't have been able to continue with school or even have money for repairs that a car that cheap would have come with.

I was brought up to understand that if I wanted something, I saved up for it. When I saved up for it, I could buy it. I've had eleven cars, not a one of them was I the first owner of and never paid a penny to car finance companies. My dad had thirty-seven cars and could say the same. My brother bought a (new) car on a credit card once so he could get Airmiles - he paid it off before the statement came through - but he's very well paid indeed.

I was brought up to understand the value of saving money as well, what's your point?

 

[Dapper]

Myth. The mega-rich pay almost all of the income tax collected. I explained how this myth got traction in the America thread very recently.

They pay most of the income tax because they make most of the income. That only makes sense. Also, it is worth noting the top 1% has most of the income but a small percentage of debt. This trend has been going on for 30 years and it keeps getting more severe, meaning the top 1% are getting more percentage of income and the rest of the population keeps accumulating more debt.

And there is a large number of people who finance used cars. And without public transportation and several miles to civilization, a car is the only option.

 

[Keef]

Some people like new cars? Some people don't want to deal with the headaches of used car ownership? Some people want a warranty? The list goes on and on. These are all the reasons I bought a new car. I also make my payments on time every month and budget my money accordingly.

Also you need people to buy new cars to have a supply of used ones.

I was just curious why you didn't try to answer the question that Danoff asked you?

 

[Joey D]

They pay most of the income tax because they make most of the income. That only makes sense. Also, it is worth noting the top 1% has most of the income but a small percentage of debt.

I believe it's actually close to the top 10% own a majority of the wealth.

I was just curious why you didn't try to answer the question that Danoff asked you?

I can't see his posts.

 

[Dapper]

I believe it's actually close to the top 10% own a majority of the wealth.

Top 1% have 43% of financial wealth, the next 4% has 29% of financial wealth. That is 5% of the population with 72% of financial wealth.
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

As for income, the top 1%, which means one makes around $400,000+/yr, receives 25% of income.

 

[Joey D]

Top 1% have 43% of financial wealth.
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

As for income, the top 1%, which means one makes around $400,000/yr, receives 25% of income.

Hmm, that's interesting, but I see those are newer figures. It looks like the source I was using before was from 2004

 

[arora]

Whoever buys my MINI is in for a huge headache, I know I would be pissed if I bought a "new" used car only to find out the transmission exploded and cost a pretty penny to get it fixed...and I had to go to the dealership because no local shop would touch it.

You are selling a car with an inherent defect without disclosure? or you are assuming the dealership you traded it to will not fix the problem before resale?

Or, you blew up the trannie and payed to have it fixed? in which case it is a non issue.

I'm not seeing the point, sure used cars might have problems, that is a good reason to take it to a mechanic before you buy it, also noting some of the life expectancy and maintenance guidelines are a good start.

 

[Casio]

I had enough cash to have purchased my Focus outright, but that would have put a huge dent in my savings account which is for a down payment on a home of my own.

+1. You can smartly invest the saving in not paying the lump sum, to make up the difference the interest rate will cost you.

Even not so smartly, here you you can get third party car finance for around 9% (From the dealer generally even less than that, offering things like 2% for the first year). Put the rest of the lump sum in a term deposit for 6%, and you don't come off that badly.

 

[GTsail]

http://www.taxpolicycenter.org/publications/url.cfm?ID=1001547

Thanks arora!

This study by the Tax Policy Center is excellent! Its only an estimate, but they have come up with 46% as the number of taxpayers who pay no "net" taxes as specifically defined.

The article that Danoff found is an estimate for 2009 and has come up with 47%. So they have pretty similar estimates.

I would like to see 2009 IRS data (my earlier link was to 2008 data), but I haven't found it yet. I have an IRS agent for a friend, so if I dare, I will ask him!

My off-the-cuff estimate would be that actual number is around 40%. Both of the above studies have a number of assumptions that can distort the results a bit, but I'm not sure that it matters for sake of discussion. Even at 40%, there are an awful lot of US taxpayers who pay no "net" Federal Income taxes ("net" in the sense that they aren't also receiving some sort of tax credits/elderly benefits/child care payments/food stamps, etc that offset whatever small level of Federal Income taxes they might be paying).

I don't know what is the "right" percent, but I certainly feel that taxpayers earning less than the US Poverty Income Line shouldn't be paying any "net" tax. The US Poverty level for 2011 per the HHS website is $10,890 (for a single individual), so I guess I would draw my lower-line tax level at this income number. Looking at the Tay Policy Center data, I guess that this might mean that roughly 20% of US taxpayers shouldn't be paying any "net" Federal Income Taxes. After this I'm for progressive rates that top out at around 40% (the top rate is a very arbritary number, but I certainly feel that as it nears 50%, it tends to distort taxpayer behaviour in an un-wanted way, and therefore should be avoided if at all possible). A Flat Tax sounds very fair on paper, but in practice seems to un-fairly favor the wealthy and those with inherited wealth. The wealthy already receive many benefits from a prosperous and vibrant society that the less well-off do not, so some shift in income is warranted (IMO). Could I be wrong? Sure! This is just my impression of what helps make a society advance and have consideration for all its citizens (who have an enormous variety of skills and abilities, and not all of these skills advance one's earning potential).

Respectfully,
GTsail

 

[TT3AZ]

Banks: "loan more money, come on"
Reular folks: "oh yes, now we can buy a new car"

Aftermath: well......

My thoughts: Those that are rich and wealthy, they will allways make it, they will still partying and buying expensive stuff. Regular folks on the other hand will have alot harder time. There is a problem, who do you think should pay?

 

[Famine]

Whatever else the previous owner did to it. Some people see having a car they have to fix right after they purchase it by paying even more out of pocket as a headache. This is why I bought a new car, with a warranty. If something breaks, then it can be fixed by dropping it off at the dealership and collection it when it's done.

That's why you drive cars before you buy them. Even used ones.

Whoever buys my MINI is in for a huge headache, I know I would be pissed if I bought a "new" used car only to find out the transmission exploded and cost a pretty penny to get it fixed...and I had to go to the dealership because no local shop would touch it.

You'd imagine that whomever you palmed it off on knew about it and either repair it before sale (£750 for a gearbox, no labour cost because they're a dealership) to make more money and better customer relations than selling a broken car. You'd also imagine that if you knew about it through driving the car, anyone else who has an hour's test drive would too...

Most warranties locally are 3 months/3,000 miles on used cars, I'm not sure about other regions. I drive 3,000 miles in two months or less. Some dealerships offer 3 year / 36,000 miles but you typically pay more for the vehicle, so they get you either way.

And headaches with new cars are solved by dropping it off at the dealer. Nothing comes out of your pocket.

Sounds reasonable to me. The car's already done a significant portion of its predicted life mileage or lifespan (100k/10yr for new cars) and the new owner gets to do 2-3% more to detect any problems.

I'm not saying used cars are inherently unreliable, I'm say that some people don't want to deal with the problems if they happen to be.

Ah, now we're away from the car discussion and back to the financial one.

Again you're at "want" not "need". Your original point was that you have to have credit for things like cars because people can't afford them outright. You don't have to have credit - there are loads of cars out there that people can afford outright. Credit supplies them with what they want.

So you bought your home outright then?

Unlike Dan's, you can see my posts:

Houses are different. Mortgage rates are much lower than normal credit agreements and housing represents investment. Car values almost always go down unless you're buying a six-figure car and even then it's no sure thing. House prices vary but ultimately you have a place you can live in until you can make a profit off it and, if properly insured and you keep up your payments, it'll be rebuilt for you if it gets wrecked.

We're about four homes away from buying one outright. We own about 30% of this one after three years.

I had enough cash to have purchased my Focus outright

I could never afford a car let alone a house outright.

Which is it?

Also some people can't afford to buy a vehicle outright, but need one. My girlfriend's Jeep Cherokee died last year with no hope for repair. She needed a car to get to school and work but didn't have a bunch saved up at the time as she was currently paying her way through school. She was able to buy a reliable, low mileage, Focus on credit which allowed her to continue going to school and work, while bringing in money to pay for her education as well as the car. If she would spent her savings on a car she wouldn't have been able to continue with school or even have money for repairs that a car that cheap would have come with.

Why was she not able to buy a much older car and not tie herself to a credit agreement? We bought a very high mileage, reliable BMW for 6 months of your MINI payments and own it outright. We've had it for 14 months now and it's cost a grand total of 2 more MINI payments to replace wear and tear parts that your new car warranty doesn't cover...

If you waved a newer, lower-mileage equivalent BMW at me and asked if I'd like to do a straight swap I would, in all honesty, decline it. Considerable quicker if it were a newer, lower mileage Focus and you told me to pay $250 a month for it.

I was brought up to understand the value of saving money as well, what's your point?

That credit is not a necessity of life as you claim. Credit is there so that people can buy shiny new things that they want, to absolve them of any need to manage their aspirations, be it a car or the newest, shiniest mobile phone.

I want a nice, new 3D LED TV. I cannot buy one outright, so do I buy one on credit or do I make do with what I have? Do I need a nice, new 3D LED TV or is the one I have sufficient? Well, I don't need a TV at all and the one I have does all the jobs that I could currently ask it to do, so I make do with what I have.

One of the reasons so many people and so many economies are in trouble right now are that people don't think like that any more. They think that they need the newest, shiniest thing - they see other people who have the newest, shiniest thing and think that their lives won't be complete unless they have one too - so they get it on credit. Then they get the next thing on credit. Then the next thing. And the next thing. And so on. There is no management of aspirations, there's no examination of wants vs. needs, there's no concept of living within your means and buying only the things that you can afford to buy.


Incidentally, I have a credit card. They are a fabulous way of mobilising a large amount of money immediately, whereas savings can take anywhere from two to ten days to liquidate. Examine finances, decide thing can be afforded, pay on credit card, pay off balance when appropriate sum is available from savings.

 

[Joey D]

I will try to get away from the pros v. cons of used cars since it is horribly off topic.

We're about four homes away from buying one outright. We own about 30% of this one after three years.

But you said:

If I can't afford something outright, I don't buy it.

Housing credit is what contributed to the financial melt down, not cars. New car prices are still the same while used car prices have gone up, at least in the states. Houses are valued at 75% less then their value 10 years ago in some areas.

Which is it?

Having the money to cover it and being able to afford it are two different things. I could have spent all of my money to buy my car outright which would have left me with little to no savings. So if an emergency came up that required me to buy something I had to have, then I would have been screwed.

In my opinion, wiping out your savings isn't a good idea.

Why was she not able to buy a much older car and not tie herself to a credit agreement?

I explained this, she was using her savings to pay for school and her Jeep wasn't functioning. I believe she received $500 for her Jeep, which doesn't buy much of anything reliable or even functioning in the first place. I won't get into her finances any more, but there is no way she could have bought a used car that was sound enough to drive the distances she goes to work and school for the amount of money she had.

I want a nice, new 3D LED TV. I cannot buy one outright, so do I buy one on credit or do I make do with what I have? Do I need a nice, new 3D LED TV or is the one I have sufficient? Well, I don't need a TV at all and the one I have does all the jobs that I could currently ask it to do, so I make do with what I have.

You don't need a TV, you need a car though. We have extremely limited public transportation in the Detroit area so trying to make due without a car would mean you'd end up jobless.

===

And since I believed I answered all of your points, I will drop this discussion in favour of the US deficit discussion. We have already derailed this thread and it's probably time we jump back on track. I would participate in a used v. new car thread or even one on the pros v. cons of credit.

 

[Famine]

I will try to get away from the pros v. cons of used cars since it is horribly off topic.

It is.

But you said:

Yes, I said that first.

Mortgages are a different type of finance to credit agreements. Rates are lower - much lower - you can take payment holidays, the item is insured by the mortgage provider, you can release the capital difference between the amount the item is worth and the amount you owe and there is no appreciable difference between buying an older one and a newer one - you can't save money by buying a house from 1964 instead of a house from 1995, or from 2010... Houses are investments, rather than items - just as you demarcate between savings and disposable cash so you should demarcate between mortgages and credit agreements.

Housing credit is what contributed to the financial melt down, not cars.

Horseapples. Bad credit is what caused to the financial melt down. All bad credit, including houses, cars, credit cards, televisions, payday loans and anything else you care to imagine.

New car prices are still the same while used car prices have gone up, at least in the states. Houses are valued at 75% less then their value 10 years ago in some areas.

Unless you're talking about BMW Z8s or rare 1960s Ferraris, cars available ten years ago are not worth more now than they were 10 years ago - whereas many houses available ten years ago are worth as much or more than they were 10 years ago. Compare apples with apples.

I also struggle to believe a house worth $100k in 2001 is worth $25k now anywhere except New Orleans, though I'm sure you have data to quote. This house was valued at £65k in 2001, we bought it for £130k in 2007 and it's worth £150k now (valued in June) in an area of low employment rates - recently losing 2,000 jobs as a large employer withdrew from the area. That said, even if it were worth £1.50 right now it wouldn't affect us because we're not actually looking to sell the house and move - negative equity doesn't affect homeowners, only sellers.

This is why homes are investments, not consummables.

Having the money to cover it and being able to afford it are two different things. I could have spent all of my money to buy my car outright which would have left me with little to no savings. So if an emergency came up that required me to buy something I had to have, then I would have been screwed.

Like a low mileage Focus for your girlfriend?

You don't see the disconnect between saving up money and spending $250 a month for a nice, shiny new car when you could buy an equally useful older car outright?

Imagine the year starts - we have equal savings and both buy a car. You have a brand new one that costs you $250 a month (no money down, one assumes, or initial large payment) and I dip into my savings and buy a $1,600 one. When the year ends, you have a car that you use and I have a car that I own and $1,400 more in my savings than you do, because I was able to put away the $250 a month that you're spending on someone else's car. At the end of the next year, I have $4,400 more in my savings than you do. At the end of the next year it's $7,400 more. You swap your car for a newer new one and next year I have $10,400 more...

Now, let's be fair, we're both paying for our own tyres, brakes, gas and oil, but I've bought an older car which might lunch its transmission at some point because the guys who owned it before I did didn't look after it. Then again, you've bought a newer car which might lunch its transmission at some point due to a factory/batch defect requiring a safety recall. Or just because it lunches it. Let's just put out there that the worst thing I've had to deal with which would be covered by a new car warranty in the last eight years is the sump pan gasket on the Accord Type-R, which cost £150 ($220 or so)...

In my opinion, wiping out your savings isn't a good idea.

Tying yourself to a credit agreement in an unstable work market isn't a good idea. Identifying what you need rather than what you want and taking money out of your savings to buy the things you need rather than taking money out of your disposable when you have no guaranteed income to buy things you want is a far better idea.

Saving money you don't need to spend is, after all, how you get savings, right?

I explained this, she was using her savings to pay for school and her Jeep wasn't functioning. I believe she received $500 for her Jeep, which doesn't buy much of anything reliable or even functioning in the first place. I won't get into her finances any more, but there is no way she could have bought a used car that was sound enough to drive the distances she goes to work and school for the amount of money she had.

If she can afford the finance payments now she could have afforded to save the money then. Our car cost $1,600 (at June 2010 exchange rates), which is five-and-a-bit months of saving your MINI payments.

You don't need a TV, you need a car though.

And you don't need new ones of either. Buying new is a want, not a need. That is the point.

And since I believed I answered all of your points, I will drop this discussion in favour of the US deficit discussion. We have already derailed this thread and it's probably time we jump back on track. I would participate in a used v. new car thread or even one on the pros v. cons of credit.

I'd opine that the pros and cons of credit are directly linked to the US deficit crisis, given that bad credit is what caused the problem in the first place - bad credit caused by an over-willingness to lend it on the one hand and an over-willingness to use it through a lack of individual management of aspirations and a desire to always buy new on the other.

 

[homeforsummer]

You need to buy things on credit though, I could never afford a car let alone a house outright. Most people couldn't. I agree people, as well as the country itself, need to learn budgeting better.

It isn't the buying on credit that's necessarily the problem. It's the buying on credit but not being able to afford the repayments that's the problem.

I took out a loan for my car, but I didn't buy a car so expensive that I knew I'd struggle with repayments. I couldn't have afforded the car cash but I knew I was making enough money that I could afford repayments.

 

[Keef]

I believe it's actually close to the top 10% own a majority of the wealth.



I can't see his posts.

He asked that, because the lowest half of income earners in the country pay no federal tax after everything is said and done, would you be in favor of raising taxes on them to fix this? It seems they're not paying their fair share.