So, What Kind Of (Tax) Money Are We Talking About?

As we discussed yesterday, the negotiations to raise the debt ceiling are basically bogged down because the Democrats and Obama want to raise taxes and reduce government spending while the Republicans only want to reduce government spending. This difference could cause the United States government to default on its debt obligations, triggering a default and who knows what kind of economic chaos and destruction since we have never gone down this road before.


President Obama has been preaching, empty posturing, and politicking around three main tax raising issues:

• He wants to close some tax loopholes that oil companies currently enjoy.
• He wants to close a tax loophole for corporate jet owners.
• He wants to raise taxes on the wealthy.

Yesterday we laid out some of Obama's bigger hypocrisies he has incurred while in office. The above list of tax issues also speaks to some further hypocrisies:

• Let us not forget that BP's biggest campaign contribution in the 2008 elections went to the Obama campaign. His outrage against BP and other oil companies would be a little more genuine if he had not taken large sums of money from them for his election.
• The corporate jet owner loophole he wants to close is actually one he supported and was included in his economic stimulus program. If it was a good idea to give this loophole in 2009 to stimulate a down industry in a down economy, why is it a bad idea now when we are still the same down economic condition?
• If he thinks it is such a good idea for the wealthy to pay more in taxes, why didn't he take the lead and do that when he filed his personal Federal income taxes in April? He has recently admitted that he is doing well financially. Would have been a nice gesture of leadership if he had walked the talk and paid extra in taxes. By not doing so, I believe he is being hypocritical in insisting that others pay more.

Okay, these are just opinions, let's look at  the numbers to see what we are arguing about and what we are about to default the country over. Let's start with the oil company loop tax loopholes. There are varying forecasts, all from reputable sources on the web, that say this loophole is worth anywhere from $20 billion to $40 billion over a ten year period. Let's split the difference and say that if Obama and the Democrats actually got the Republicans to agree to closing these loopholes, it would return $3 billion a year to the Treasury on average.

How much of a difference will $3 billion make against the towering national debt numbers we know about:

• The 2011 Federal government expenditures are expected to be about $3.9 TRILLION - The annual $3 billion oil company loophole closure of $3 billion is .08% of the total 2011 expenditures.
• The 2011 Federal government deficit is expected to be about $1.65 TRILLION - The $3 billion oil company loop hole closure of $3 billion is .2% of the 2011 deficit.
• Obama's original Federal budget plan from back in the spring would have added another $9 TRILLION to the current debt levels of over $14 TRILLION - the ten year, $30 billion savings of closing the oil company tax loophole is .1% of the long term national debt.

The closing of the corporate jet tax loophole, the one he helped open up two years ago, would come out to about $3 billion over ten years or $300 million per year:

• $300 million is about .008% of the Federal government's 2011 expenditures.
• $300 million is about .02% of the Federal government's 2011 deficit.
• $3 billion over ten years is about .01% of the Federal government's long term national debt.

Between the two tax loopholes we are talking almost infinitesimally small impacts on our Federal government debt crisis. Should these loopholes be closed? Absolutely, we need to start the larger, overall process of weening every business off of corporate welfare from the Federal government.

This process should have been in place prior to the hundreds of billions of dollars that the political class showered and wasted on the reckless bailouts of Wall Street and auto industry businesses. Those taxpayer benefits would have added up to some real taxpayer savings rather than some relatively small corporate jet and oil company loopholes.

But when Medicare and Medicaid are sucking up about 13% of your budget and the Pentagon is sucking up about 16% of your budget, worrying about nits like corporate jets and small oil company tax loopholes is a rearranging deck chairs on the Titanic charade. There are so many ways to effectively cut government spending and waste in a big way that to nitpick these trivial ones is insane. And to have the fiscal integrity of the United States fall and live on these trivial issues is even more insane.

Let's move on to the infamous Bush tax cuts. Although Obama did not lead on this issue when he filed his taxes back in April and pay extra in his own tax bill, let's explore what impact would have happened if the "rich" in this country, those earning over $250,000 a year had their upper tax bracket raised from 35% to 39%. I have done the estimates and they are in line with other sources, the general consensus is that this action would increase taxes paid to the government by about $70 billion a year:

• $70 billion a year is about 1.8% of the Federal government's 2011 expenditures.
• $70 billion a year is about 4.2% of the Federal government's 2011 deficit.
• $700 billion over ten years is about 3% of the long term national debt.

Bigger numbers but still pathetically small when compared to the out-of-control political class spending. Thus, even if Obama got his way on these three tax issues, he would reduce spending and the debt by less than a measly 5% no matter how you cut the data.

Let's go even further. Last year we did a post on how wealthy the richest 400 Americans are from a total wealth perspective. The most comprehensive source of those estimates comes from Forbes magazine's  annual wealth survey. Last year the magazine estimated that the richest 400 Americans had a total wealth of about $2.5 TRILLION. Even if we confiscated the total wealth of these Americans, seized their homes, their cars, their boats, their financial assets, $2.5 TRILLION is less than 11% of the long term national debt.

The remaining 89% would have to be paid by the rest of the 112 million U.S. households, or about $180,000 per household. This does not include the annual tax increases each household would have to pay since once you wipe out the top 400 Americans, they would no longer be paying any taxes to the Federal government which is a very hefty sum.

Thus, even if you get crazy and start talking about government confiscation of private property, you cannot close the spending gap without involving the entire country. Corporate jets and oil company loophole closings are a travesty and only a distraction in this debt ceiling discussion and crisis. A long term, integrated, effective, coherent plan is needed to dig us out of this giant deficit spending hole the political class has gotten us into. It cannot be done in a matter of weeks like the political class is trying to do, it should have been started at least a year ago, using the President's own deficit reduction commission as a serious starting point.

But what am I thinking? Long term? Coherent? Integrated? Effective? When would we ever use these adjectives to describe the political class? Long term to them is next election or campaign fundraiser. Coherent to them is what ever they want their voters to believe. Integrated to them is how does any piece of legislation integrate into their re-election fund raising. Effective to them is any action that gets them through the next election.

Both parties are playing childish and selfish politics over trivial, unimportant financial travesties. And somehow we are going to pay big time when they finally decide that short term political survival trumps long term national financial survival.

Tomorrow we will look at some other tax scenarios of rich vs. poor to further confirm that Washington either does not understand simple math concepts or purposefully clouds simple math concepts to get votes.





Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://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.


Please visit the following sites for freedom:


http://www.loathemygovernment.com/
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com/