Saturday, July 30, 2011

OK, I Get It. But What About The Math?

For the handful of you who have been reading my blog have come to realize, I am very wary of the size of government. The essence of the American government was for it to be small with enumerated powers in order to keep the maximum number of freedoms with the individual. There were those that didn't have freedoms, but history tells us our very brightest of our Founding Fathers struggled with this and did there best to put us on a path of increased freedom. We also cannot ignore human nature, and that an overly socialistic government cannot be sustained simply because people will not work harder for something which they can get for free. There are moral implications, including the idea that giving government more will allow government to spend money on things you may morally object to. I will continue to be cautious whenever it comes to government and its programs.

I also want people to understand that I get it. We have a different society than we had in 1776 and 1787. We have a different set of expectations with a different standard of living. We have an aging population. Our tax burden is lower than it has been in the last many decades. We have military in Iraq, Afghanistan, Libya, Kosovo, Japan, Korea, Germany and other places along with all of the troops we need to care for at home. The point is we have national expenses we are incurring and we haven't really asked the nation to pay for them.

First a Word On The Debt Ceiling

If you think your party has the right stance on this issue, than you are already wrong. I'm sorry, but that's just a fact. We are going to have to get a budget plan that puts us on a path that gets us back to a balanced budget. The President simply wants to raise taxes and raise the ceiling while raising spending even faster (thus adding to the debt instead of reducing it over the next 10 years). The Tea Party faction of the GOP seems to think they can put a stop to spending right here and immediately balance the budget right now without any increase in taxes which is also unreasonable. Neither is sustainable. Both plans are a disaster. Don't BS yourself into thinking otherwise. Not raising the debt ceiling becomes a problem very soon. Raising the debt ceiling under the President's plan is a problem just a little while later.

In fact, I am going to call out one liberal website specifically. The Daily Kos. While there is truth that you could put a majority of the debt blame on the Republicans who spent against their conservative nature from 2001 on, the truth is the democrats controlled both houses in 2006. In 2008, The democrats took a firmer control of the Senate and also gained the White House. Now granted, it wasn't filibuster proof, but it was a powerful majority. Not only did they not do anything about tax policy or the tax rates, but the house didn't even finish a budget for 2011 before the GOP took over control of the house (which should have been done in 2010). For the Daily Kos to pin it all on the GOP is a total joke and does nothing to make real progress on the issue. The democrats had a pretty good opportunity to make some changes, and the only changes they made were to spend more without figuring out how to pay for it.

Some Math On Taxing the Rich

I took a look at the Forbes billionaire list to get an idea of how much money the richest people in the United States really have. In order to take care of just the deficit...just this year... we would have to take every dollar and asset of the richest 400 people in the United States. I am not saying their income. I am saying taking everything they own, leaving them with nothing would only run 1/3 of just the federal government. We would have to take roughly the next 3,000-4,000 richest people's entire net worth in order to run the rest of the government for just one year. It wouldn't take too many years to run out of rich people. I sure hope we aren't going to resort to taking stuff people have already earned. We already do that at death through the estate tax.

As far as taxing the rich, it simply won't fill the gap for several reasons. First, those that are already rich receive large amounts of income from capital gains. The top rate there is 20%. Now you could make a case to reverse the Clinton tax cut and go back to 28 % and see a decent bump in revenue. But let's assume all of the AGI reported on the latest numbers available is regular income. If we taxed the top 5% of incomes (meaning the top 5% by number of returns filed with positive AGI or about 7 million returns) at a 3% higher rate, the federal government would take in an extra $87 billion. Keep in mind this calculation is based on raising their effective tax rate 3%, meaning the true top rate would have to go up much higher, and the top rate tier would have to have to begin lower than the $159,000 mark. Now you are hitting the small business sector. Also keep in mind, this top 5% already pays over 58% of all income taxes.

Let's say we really want to generate income. Let's hit the top 10% with a 10% effective tax increase, making their average effective rate over 28%. Now you are talking some real money. This would raise over $385 billion in revenue for the government. Keep in mind this tier starts at $113,799 and already pays nearly 70% of all income taxes. That $385 billion would only take care of about 20-25% of the deficit. To cover the entire federal budget, you would have to take every dollar that everyone making over $110,000 earns. Not the money over $110,000. All of their money (after their personal exemption). Hey, then the rest of us wouldn't have to pay taxes.

Looking at Table 1 in this article, you will see that about half the people in the US pay little to no taxes. If we look at the top half, we see an effective rate on average of 13.65%. In order to fill the budget deficit this year, we would have to increase the effective rate on the top half by over 20%, nearly tripling our tax burden. I hope I've proved my point...taxes alone won't solve the deficit problem. History has also shown that tax increases can only do so much.

Anything You Can Do I Can Do Better

One of my favorite things to hear is someone defend Obama's change of heart on the debt ceiling because Bush was a big spending president. It is now quite well know that then Senator Obama made a speech in the senate in 2006 calling the raising of the debt ceiling distasteful and a sign of a failure of leadership. Now not raising the debt ceiling is the same according to the same man. His supporters will say that the GOP did the same with President Bush, and it is true, many did. But putting the long-term future of our country in jeopardy because we made mistakes in the past is not a reason to keep making those mistakes. In most cases, this out of control debt has been a bi-partisan effort.

I was never a supporter of President Bush, and I never voted for him. I voted for President Obama based on my social values, his overall record in the senate, and his word given in the debate that his spending programs would be matched by cuts elsewhere. Instead, spending has increased over 30% since he has taken office. The debt has grown by $4 trillion. Unemployment and housing are stagnant. This from the same candidiate who told us that, "...But there is no doubt that we've been living beyond our means and we're going to have to make some adjustments."

Other countries have higher tax rates than us, and some have lower. Some have larger income and asset gaps, and some have smaller. That doesn't always make it the right policy for our country. Sure, we should look at those countries and their policies and look at the successes and failures of those types of policies, but we do need to also realize some of the variables are different and know that it might not work here in our country.

What Does All This Spending Look Like?

Yes, I know. The Heritage Foundation has a conservative bias. But these are charts generated from government data, so I am presenting just the graphics so you can hopefully draw some of your own conclusions before you look at the source article. The first is a table showing spending in decending order of 2010 dollars. It is a good way to view how the government spends and also shows how it might not be so easy to decide where to start trimming.

Federal Spending Table

Also interesting is the chart showing the growth of the new major components of spending.

Spending being crowded

It's alot of money.

So What Conservative Crap Are You Pushing Today?

My point all along in my blog is to be skeptical of the status quo. The government is such a massive entity and is not well equipped to act quickly and adjust to changes in society, the economy, or to act on the will of the people. Often it doesn't want to for the fear of change and the lack of leadership. Both parties and both sides need to realize the paths they want to take are not going to bring us prosperity. They are only paths to short-term votes, and some of us, like me, are seeing right through it.

Let's look at a few major components of spending. The military needs to come home. We can't force people to be like us. Yes, a national security threat or a mass genocide we should act on, but we can't be occupiers and supervisors of the world. Time to bring the troops home. We also need to be prepared for the costs of taking care of those who served, and give them the benefits we promised them. We are going to have to look at trimming benefits for future military service members. It is a voluntary military, and if we are not having to send them into as many dangerous situations it is one area we can consider. As long as everyone knows what to expect, there is nothing wrong with looking at those benefits.

People of my generation are going to have to shore up social security for our parents and grandparents by taking less and working longer. There is no way around it. Yup, we might be the first generation in quite awhile not as well off as the previous one. I am willing to do that for my parents...and for my kids. Sacrifice is part of the American spirit. I will never have to go to war and see the things those people had to see, so instead I am going to have to work a little harder and a little longer. We all have to make sacrifices at times in our lives. Get used to it.

We are going to have to find more reasonable ways to control medical costs and find reasonable ways to provide medical coverage. The outline of Obamacare is a mess and will spiral costs completely out of control. It was bad before, and this new system did nothing to really fix it. There are smart people out there with ideas, and we have to be willing to listen. Again, it isn't going to be perfect. We won't all get our hangnails removed for free by a plastic surgeon. But we can find a reasonable approach to make it work that won't spend us into oblivion.

We do need to discuss what we mean by poor. What is poverty? Many of my liberal friends were appalled at this article would dare say anything about air conditioning or televisions as a luxury item. That wasn't really the point of the article at all. The point is if a person has all of these things, shelter, food, etc., and yet because we base poverty simply on income and provide them with some sort of income transfer payment, are we really helping them? Does that payment really move them out of poverty? If they are safe, fed, etc., is that really poverty? Even Gene Simmons on his twitter stepped in a little when he quoted Winston Churchill, "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."

I am not saying there are not people that don't need help and that there won't always be people that need help. Transferring income or basing help just on income alone isn't going to solve the problem with finite resources. For example, the article shows 32.2% of poor households have more than 2 TVs, 17.9% have a big screen TV, 29.3% have a game system, yet only 29.3% have internet service. Somehow I would think more opportunity would be available if we could get more internet to those people instead of having resources going to big screen TVs and game systems.

Please my liberal friends, I understand the system can't be and never will be perfect. Just try to understand my point of this section. We have a limited set of resources. We need to spend them wisely. I think we could do better. Often the solution given is spend more and tax more. Even if we tax more, we are still in the hole. To my conservative friends, we are going to have to tax more. We cannot cut that much money all at once. We cannot continue to fight the wars President Bush started and President Obama has continued while spending on both of their social agendas and not have a tax increase. Even if we cut all of those programs, we've spent the money for 10 years and we need to pay for that.

Yes, Raise The Debt Ceiling and Tax the Rich - Just Remember the Math

So, Congress better get on it and raise the debt ceiling at least a little bit to get us by until they can get us a plan that hurts everyone. That's what good leadership will do. This fiscal policy of the last 10 1/2 years is a total nightmare, and getting out of it is going to take guts and some pain. It is going to take some taxes. A judicious increase with long-term stability. In fact, it could be accomplished best with a massive simplification of the tax code so that the effective rates come much closer to the real rates without raising the real rates at all. It would also make things much more fair. There are going to be cuts to programs to the poor.

There are going to have to be sacrifices from us all, because as the math shows, even the rich can't do it all. Yes, the rich are going to have to be a part of the solution. Let's not call it their "fair share" since the richest do pay most of the taxes anyway. Let's just be honest and say we want to increase the progression of the taxes. At least that is intellectually honest. Then, I can be OK with it.

The math should show that trying to balance this all on the rich is just as foolish as the GOP trying to force the President's hand by not raising the debt ceiling. If we try to solve this through taxes only, the math shows we will fail. If we try to plunder existing wealth, we will have lost our freedom. We can't do it without some shared sacrifice. Everything needs to be on the table. We need new thinking. We need to rethink our priorities. Let's get it done.

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