On The Eve Of (Financial) Destruction - Part 2

Today let's clean up a few loose details that we left out of yesterday's post, continuing the theme that the political class is bringing the country to the brink of financial destruction. One taxpayer benefit of the proposed budget we omitted yesterday, that is included in the Obama administration's outrageous $3.8 TRILLION budget proposal, is that single taxpayers would receive a $400 tax break and married couples would receive an $800 tax break when filing their taxes.

However, yesterday we calculated that an average U.S. household will end up paying an additional $44,000 in the four year period, starting with 2009, in order to cover the deficit spending that the Obama administration is proposing. Thus, a married couple will receive $3,200 over the same year four year period to offset the incremental tax liability and deficit liability of $44,000. Thus, each household will only to pay an additional $40,800 to cover the deficit spending, such a deal. I give you, the government $44,000, and you give me, the American taxpayer, $3,200.

If you are a Social Security recipient, the deal is even better. Each person on Social Security will receive $250 from the government in lieu of a cost of living increase this year. This benefit comes out to less than $.70 a day. Compare this $.70 a day to the increased taxes that everyone will have to pay to cover Obama's deficit spending and the high rates of inflation that are likely to occur when the deficit debt comes due, further eroding the value of that precious $.70.

More bad math from the Obama administration. The proposed budget calls for spending another $100 billion to create jobs. According to an AP article from January 31, 2010, "Formula Shows Why Its So Hard To Cut Jobless Rate," a well known economic theory, Okun's law, states that the economy needs to grow 5% in order to reduce the unemployment rate by one percentage point. According to the article, this law has held up pretty well on a historical basis when it comes to correlating economic growth to drops in unemployment. Let's do some math:

• According to a January, 2010 Bureau Of Labor Statistics report, the unemployment rate at the end of December was 10.0% which represented 15.3 million Americans.
• In order to get that unemployment number down to 9%, a simple ratio analysis tells us that about 1.53 million jobs would have to be created.
• If we divide the $100 billion by 1.53 million jobs, we find that each created job would cost about $65,000 to create.
• However, according to the article, in order to get that one percentage point drop, the economy would have to grow about 5%. Since the consensus view of most economists is that the economy will grow at about half that rate this year, the growth in jobs is about half of the 1.53 million or 765,000. This would than drive the cost of each job created to about $130,000 per job. Conclusion: you cannot expect to solve the unemployment problem with government spending when the cost of creating one job is $130,000 each.

This leads us tothe continued political class fallacy that government creates jobs. Many of these jobs will disappear once the $100 billion is spent. All the government did was take money from current and future taxpayers and spent it to create temporary jobs such as building infrastructure. They redistributed wealth, they did not create it. The economy creates jobs, not the government. The best thing the government could due is stop wasting money through earmarks, excessive defense spending, redundant and useless government operations, fraud as perpetrated through Social Security, Medicare, and other programs and siphoning off credit and capital to feed its spending frenzy, freezing out worthwhile business expansion projects in the private sector where real jobs are created. This severe reduction in government spending would permanently increase households' disposable income that individual Americans could then spend as they see fit. It's called freedom and freedom cannot exist when the government controls so much of what you earn and then wastes it like it does every day.

Let me leave you with one more depressing thought as it pertains to the deficit spending. According to the article we discussed yesterday, the one year proposed Obama budget would leave us with an new deficit of about $1.56 TRILLION. Now, if you look at the March, 2009 issue of Forbes magazine, which listed the assets of the richest people in the world, you will find that the net worth, not the net income, of the twenty richest Americans is about $340 billion. Thus, if the government confiscated the total worth of these twenty Americans, it would only pay for about 22% of ONE YEAR'S DEFICIT spending. The rest would have to be paid for by the rest of America.

Over the next ten years, according to the proposed Obama budget, the incremental deficit would be about $8.5 TRILLION. Thus, confiscating the wealth of the twenty richest Americans would only cover 4% of the incremental deficit. Of course, you can only confiscate the wealth once, one it is gone it is gone. The remaining 96%, $7.68 TRILLION would have to be covered by the rest of us. This does not include paying off the existing debt and the regular taxes. Bottom line: you cannot tax the rich, even if you take their entire fortunes, to cover this wreckless spending as some in the political class would like you to believe.

The Eve of Financial Destruction is near and with that goes the political and daily freedom and liberty we should be enjoying as Americans. Only the steps that we outlined yesterday from "Love My Country, Loathe My Government" have any chance of bringing us back from the brink along with some political fortitude and honesty from our current politicians. The steps will work, but will the politicians step up to the task? Doubtful, very doubtful.

Visit our website at www.loathemygovernment.com to order an autographed copy of the book, "Love My Country, Loathe My Government -Fifty First Steps To Restoring Our Freedom and Destroying The American Political Class" and to sign up for the cause. The book is also available online at Amazon and Barnes And Noble.