More Proof That The Natonal Debt And Government Spending Are Out Of Control

In many past posts we have harped on the fact that the national debt is reaching incredibly scaring heights, heights that will result in a bankrupting of the country, from both a financial and freedom perspective, if something is not done drastically and quickly. We previously explained how the current debt level of $13 TRILLION will require that each American household pay tens of thousands of dollars just to keep the country financially solvent. We previously explained that this $13 TRILLION level is rapidly approaching 100% of our annual GDP, an alarm bell that will warn foreign and domestic investors that imminent financial danger and risk is likely. We previously explained that even if you confiscated the entire wealth of the richest four hundred Americans, you would not come close to eliminating the national debt.

Today we will look at two other ways to see how bad off we are as a country are financially. The first example is courtesy of the The Tax Foundation. Experts in tax analysis, they looked at what the Federal IRS tax rates would have to be to balance the Federal budget in 2010 when the Obama administration is expected to run a budget deficit of $1.5 TRILLION. Their analysis yielded the following findings:

• Those households making less than $16,750 would see their tax rate go from 10% to 27.2%.
• Those making between $16,751 and $68,000 would see their tax rate go from 15% to 40.8%.
• Those making between $68,001 and $137,300 would see their tax rate go from 25% to 68%.
• Those making between $137,301 and $209,200 would see their tax rate go from 28% to 76.2%.
• Those making between $209,201 and $373,600 would see their tax rate go from 33% to 89.8%.
• Those making over $373,601 would see their tax rate go from 35% to 95.2%, i.e. for every dollar earned over $373,601, the taxpayer would pay a whopping $.95 in Federal income taxes! You can bet that people would stop earning so much money, given how little they could keep, resulting in an increasing tax burden for the less wealthy and lower earners.

Horrifying numbers. Remember, these are just your Federal income tax rates. They do not include other taxes such as state and local income tax, local property tax, Social Security tax, Medicare tax, sales tax, gasoline tax, etc. Quick estimates of these new Federal tax rates and all of the other government taxes show that most American would be paying well over 50% of their household income in taxes in order to balance the Federal government's spending spree. Money paid to the government is money that private citizens cannot spend on products and services they desire, reducing their freedom and stifling economic growth for the country since it has never been proven that government spending of our tax dollars creates permanent jobs or grows the economy.

So what do Obama and the Democrats want to d? They want to undo the "Bush tax cuts" and raise the top income tax rate to 39%. If the Tax Foundation's analysis is to be believed, this will have virtually no impact on reducing Obama's outlandish spending since they estimate that the top tax rate would have to be raised to 95.2% and everyone else's tax rate would almost have to be tripled. However, by repealing the Bush tax cuts, they look like they know what they are doing while appealing to their so-called base. In reality, they have done virtually nothing to fix the country's financial mess.

Consider some elementary math to prove this point. The numbers below are from the best available sources, mostly U.S. Census reports, but some assumptions had to be made for the analysis. However, those assumptions can vary widely without materially changing the conclusion:

• According to the Census reports, there are about 117 million households in the country today.
• About 2% of those households make over $250,000 a year, the threshold where Obama would raise the marginal tax rate by 4% and undo the "Bush tax cuts."
• 2% equates to 2,343620 households with over $250,000 in income.
• If we assume that each of those households averages $1,000,000 in income each year, then they would pay an additional $30,000 a year in income taxes.
• An additional $30,000 a year from about 2.3 million households would generate an additional $70.3 billion a year for the U.S. Treasury.
• This $70.3 billion on Obama's $1.5 TRILLION deficit comes out to only 4.7%. Thus, despite the hoopla, eliminating the Bush tax cuts reduces the national debt in 2010 by less than 5%.
• If we assume that the average household making over $250,000 a year has an average income of $2,000,000, the budget deficit in 2010 alone is reduced by less than 11%.

[Note: I could not find a credible estimate of what these households make so I assumed two scenarios of $1 million and $2 million. Given that there are only about seven million households in the country worth over a million dollars, you cannot assume that the average annual income of these people is much more than a few million, otherwise, many, many new millionaires would occur each year, something that has not happened.]

Thus, this push to eliminate the Bush tax cuts is nothing but air cover, a public relations publicity stunt, and a distraction, it does nothing to eliminate the absolute primary cause of the deficit, the political class spends too much money. Until we face that reality, the need to cut government spending, the budget will continue to be out of control as will the consequences (see Greek for a sneak preview).

One hidden cost that the political class tends to ignore, cover up, or not understand is what happens to the local, personal economy if millions of households no longer have that $30,000 in their pocket. How many charities see a reduction in the donations they gather? How many home cleaning people are let go because their salary is now viewed as expendable by a household that has $30,000 less to spend? How many restaurant employees lose their jobs because people stop eating out because they have fewer money in their pocket?

I bring up these last two examples because of personal knowledge of a hard working friend who made exactly those two decisions. Expecting Obama to raise taxes, they have started to curtail their spending for non-essential products and services, beginning with their cleaning lady and their habit of eating out once a week. Could it be that micro-economic thinking like this is a primary reason for the stubbornly high unemployment rate? I believe that is the case but a trained economist would have to quantify the impact. The point I am trying to make is that raising taxes has repercussions that politicians seldom take into effect. these include a dampening of initiative and growth and a dampening effect on employment and macro economic growth.

Nobody wins with runaway government spending. Less wealthy lose jobs, more wealthy have less disposable income, income that was taken by the politicians and wasted on a whole myriad of waste. Income wasted on the fraud permeating all government programs, income wasted on government programs and regulators that do not work, income wasted on wasteful political earmarks and pork, the list goes on and on. Step 1 in "Love My Country, Loathe My Government", reduce the size of government by 10% a year for five years is the type of program that needs to be undertaken. Given that virtually no one in the political class has the courage to undertake such an endeavor, despite the fact that not undertaking it will bankrupt the country, is all the more reason to dump all incumbents in November and start over. We can control the election results, the sitting politicians cannot control the debt. The answer of what to do is obvious.



Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Also visit the following sites for freedom:

http://www.cato.org/
http://www.reason.com/
http://www.robertringer.com/
http://www.realpolichick.blogspot.com/