Thursday, April 21, 2011

Straight Talk On The Budget

Yes, we do have a serious federal budget deficit problem. The deficit this year alone is $1.5 trillion. The entire federal debt is close to $14 trillion, and it has tripled since Obama took office.

That level of debt is unsustainable.

Let’s get back to basics for a minute. A “deficit” occurs when you spend more than you have.

Consider credit cards. A person can go on a shopping spree and run up a big credit card bill without actually having the money in hand. Afterwards, they will have a bunch of goodies, but they also have a big bill to pay. Maybe next month, they do the same thing. Now they have even more goodies, but an even bigger credit card bill. At some point, the whole operation collapses. They hit the limit of their credit card, they can’t pay the monthly payments, collection agencies are calling, and it’s a huge mess.

That’s what’s happening in Washington, except that when the government hits it’s credit limit, they just raise the limit.

President Obama gave a speech recently outlining his proposal to significantly reduce the federal budget deficit. In that speech, he made a point of saying that politicians are prone to talking about reducing waste as a way of cutting spending, but that, realistically, the budget deficit now is so large that just cutting waste will not solve the problem. He then went on to say that a key component of his deficit reduction plan is to reduce the cost of Medicare, Medicaid, and the military by finding ways for them to operate more efficiently. Reducing waste, in other words. So in the first part of his speech, he said that focusing on waste won’t do it, and then he outlined a plan that is primarily based upon reducing waste.

The President’s plan also calls for raising taxes on those despised “rich”. Obama talks about the “rich” as though they hit the jackpot in Las Vegas or something. He says things like “those who are most fortunate in our society”, and other such polemics. He seems to feel that the “rich” are somehow bad people, that they got where they are by nefarious means, that their money is tainted. He apparently has no concept of that great American phenomenon of upward mobility. He seemingly cannot relate to people who start with little, work hard their whole life, manage to get a little bit ahead, and then enjoying the fruits of their labor. Obama regards them as fair game.

But as you see Obama up there demonizing the “rich”, and saying they can easily afford to pay “a little more”, just remember that it only a matter of time until whatever he does to the rich will also apply to you. The “rich” in his world are anyone who actually has a job and pays taxes, rather than being on the government dole. Today, Obama says the “rich” is anyone making more than $250,000; before long it’ll be anyone making over $$200,000, or $150,00, or $100,000. The cut-off point is completely arbitrary.

The cold hard facts are that the rich already pay the bulk of federal income taxes, which Obama doesn’t want you to know, because then he couldn’t demonize them as a diversionary tactic.

IRS data from 2008 (the last year data is available) show that the top 1% of income earners paid 38% of all federal income taxes. Yes, 1% of the people are paying 38% of the total federal income tax. In that same year, the top 10% of income earners paid 69%, and the top 50% paid 97% of the total federal income tax burden. The bottom 50% of earners paid only 3%.
The reality is that the “rich” can’t be taxed enough to solve the federal budget deficit problem. If the government took all of the taxable income of the top 1% of earners, it would generate $938 billion, which wouldn’t pay the current year’s $1.65 trillion deficit out of a $4 trillion budget, much less the total $14 trillion federal debt.

For Obama to stand there and say we can solve this problem if only the “rich” would pay “a little” more is completely dishonest, as the facts show. It tells you that he really has something else in mind.

And what might that something else be? The only way to solve the federal government debt and deficit problem via taxes is by drastically raising taxes on the middle class. This talk about soaking the rich is to make the middle class think they won’t be paying higher taxes, while Obama is covertly scheming to do just that via a European-style value added tax (VAT) which would hit everyone, or cap and tax which would hit everyone, or something else.

The real problem with the federal budget deficit, though, is not that taxes are too low on some people, it’s that the government spends too much. How long would any off us as individuals or companies last financially if we consistently, month in - month out, year in - year out, spent more than we had? A very basic principle of sound financial management is to stay within your means spend only as much as you have. But the federal government seems totally incapable of doing this, or even understanding the concept.

The U.S. Treasury Secretary recently said that we can’t solve the government debt problem by cutting spending. Oh, so I guess we solve the debt problem by continuing to spend money like a drunken sailor, in his mind.

Another dose of reality is that the federal budget deficit and debt problem can be addresses only by restructuring Medicare, Medicaid, and Social Security, because that’s where the bulk of the money goes.

It would be immensely helpful if the President of the United States would have an honest, frank, adult discussion with the American people on all of this rather than the demagoguery, deception, double-talk, and posturing that we have gotten from him so far.

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