The Debt, The Deficit, and You

The White House recently projected a $1.6 trillion deficit for 2010.  The deficit is the amount of money the Congress borrows each year, whenever it spends more than it collects in taxes.  This $1.6 trillion is new debt, on top of “the federal debt” that you’ve been hearing about for years, and it’s money that you and I will have to pay back in the future.  If we don’t pay it back we’ll have to pay interest on it for the rest of our lives.  All the government’s money is our money, and all the government’s debts are our debts.

So how much will YOU have to pay?  $1.6 trillion works out to $13,675 per household, or $11,428 per taxpayer (because some households have more than one taxpayer). Of course, wealthy people will have to pay more, but don’t fool yourself into thinking that they’ll pay for all of it or even most of it. Forbes Magazine says that the richest 400 Americans—Bill Gates, Warren Buffett, Larry Ellison, the Wal-Mart Waltons, Michael Bloomberg, Michael Dell, the guys from Google, and 389 of their peers—are only worth  $1.27 trillion.  If you took everything they own they wouldn’t even be able to cover the deficit for this year.

In fact, today’s tax brackets suggest that you, yourself, will owe the full $11,428 if your future income is $85,000 per year.  If you and your spouse together earn $100,000 you will owe more than $11,428;  and let’s not forget that this is the NEW debt that the Congress is borrowing in your name THIS YEAR. They’re planning to borrow another $9,286 in your name next year.

It’s Congress that controls the budget. The President proposes, and the Congress disposes. The purpose of this web site is to develop a plan, with your help, for getting the Congress to live within its means. Our means. Our children will be burdened by this debt for the rest of their lives.

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4 Comments
  1. Tim says:

    Hey John – With our new federal budget out this week, Obama’s increasing the taxes on the wealthy. I’m for it for two reasons:

    1 – Clinton used this tax model and both personally and nationally, we did very good by it. Yes there were other contributing factors such the dotcom boom, housing, etc but getting the deficit under control I believe was a big part of the 90’s boom and without taxing the rich more, it wouldn’t have happened. It’s not like the wealthy didn’t get their share during the 90’s either.

    2 – If I look at what’s happened in the last several years, the wealthy have gotten much richer while the middle class has seen their incomes barely increase if at all. I can’t point to many other factors here beyond the wealthy taking care of themselves. This I’ve felt personally and national numbers would point this out as well.

    Am I missing something with this “don’t raise the taxes, it hurts small businesses”. I honestly don’t buy that as I believe human greed trumps all. If people have more money in their pockets, they take of themselves(typically) first and foremost and others as an afterthought. As proof of this I’d offer the fact the pensions are a thing of the past, medical insurance coverage is a joke(I know the costs have gone up), employer benefits as a whole have tanked in the last decade.

    I’d like to hear a financial expert’s take on this.
    Thanks!
    Tim

    Reply
  2. admin says:

    I agree that taxes on the wealthy can rise. The question is how much, and how much revenue we’ll raise.
    Any time you raise taxes, you cause people to work less, form fewer businesses, and create fewer jobs. The effect isn’t very noticeable if you raise taxes a little, but at high levels you do significant damage. Entrepreneurs start businesses knowing that they’re going to blow away their savings and suffer for a number of years; but they believe that there’s a pot of gold at the end of the rainbow. Most never reach that pot of gold, but it’s essential that they believe in it. Take away that belief that there’s a pot of gold awaiting those who work hard (and those who save their money) and our economy will be in much—much—worse trouble than it’s in right now.

    It’s reasonable to say that the total tax burden—federal, state, local, sales taxes, and everything else—on very wealthy people should be at 50% or even a bit more. But at 60% those wealthy taxpayers will stop putting their energy into making money (and creating jobs) and turn instead to avoiding or evading taxes. Many of them would retire—they already have enough to live on—and/or move to a country with lower taxes.

    Let’s not forget that a very small percentage of the people create a very large percentage of the jobs. We’re competing with other nations to have them live here, and similarly we compete with other nations to have corporations pay taxes here. Ireland has boosted its tax revenues enormously by lowering its corporate tax rate to 12.5%, because corporations moved there from around the world.

    So yes, we can raise taxes, but not enough to cover the deficit. Right now we’re collecting 15% of GDP in taxes, and spending 25% of GDP on stimulus packages, Medicare, and Social Security. We’re going to have to cut spending as well, or the debt will just keep growing.
    Best, John

    Reply
  3. Mass: Cradle of Revolution says:

    Why not take the five ideas from your first post and bundle them together as a political platform? Then ask candidates to pledge to fight for those proposals if they get into office.

    Reply
  4. 17Kayak says:

    John –
    Thanks for hosting this site. Here are my comments.

    Government needs to recognize that its primary responsibilities are to defend its borders, maintain law and order, and provide a stable currency (list courtesy of The Economist), and to take care of those things first.

    There are a lot of other things that government does that are secondary or tertiary to those, some important (the CDC), some well-intended, and some not a good use of taxpayer’s money (Steamtown USA, $237 MM). All of these need to be weighed against their true cost, including damage to the economy and to the nation’s security that are caused by government living beyond its means.

    There are only three places government can get money. It can tax it, borrow it, or print it.

    All three have enormous consequences on society. Printing money debauchs the currency. Borrowing it leaves a huge debt burden for future taxpayers to pay back as both principal and interest. Taxing it takes money from those who earned it as income, or created the wealth in a business (and who also have a vested interest in seeing it spent wisely), and gives it to those who don’t.

    I would like to respond, politely, to Tim’s comments above.

    Per the book, The Millionaire Next Door, the vast majority of America’s millionaires are small business owners and first-generation wealthy. They did not inherit their wealth, but earned it as income, or they created it by adding value to a small business. They do not drive matching his-and-hers European sports sedans, but have used, American-made cars. They do not live in “starter castles”, but own modest homes in middle-class neighborhoods. And many of them are middle-income people who simply saved diligently. For business owners, a great deal of their “wealth” is on paper – it resides in their businesses. These are the people “earning over $250,000 per year”, who put it back into their businesses, and who will see their taxes go up. Yes, there are very notable and public exceptions of wealthy people, and they make the headlines, but a huge portion of America’s wealthy got it honestly, through very hard work.

    With regards to greed, here is an analogy: laziness can be a sin, but, if properly directed, laziness is a great motivator for innovation (look at farm equipment or power tools, as examples). Greed can also be a sin, but, if responsibly managed, greed is a far better motivator than having an entire country with an attitude of, “It doesn’t make any difference how hard I work or not, government will take care of me” (a term used a few years back was “Eurosclerosis”).

    The driver of America’s success has been its work ethic, and its innovation, and its freedom to succeed and fail – these are intangible, they don’t show up on a balance sheet, but they are very real parts of successful economies, and successful businesses. When government takes away (or taxes away) the ability to innovate, it also takes away the desire and motivation to succeed, and ultimately, it takes away that emotional driver that helped make this country great.

    Short message to government: be careful what behavior you reward.

    A personal vignette from earlier in my life, regarding the impact of taxes on a family-owned business:
    In the 1990s, the California wine industry was hit with combined federal and state excise tax increases, totaling $1.07 per proof gallon. It hit my employer, a major producer of “fighting varietal” wines, with an un-budgeted $2.4 MM expense inside one fiscal year (1991-1992), and that tax expense continued year after year thereafter. Gone immediately were pay raises, promotions, bonuses, new hires, plant expansion, and marketing programs, as the owners scrambled to find a way to recover the hit. They found – to their chagrin – that they could not pass this new expense on to consumers as a price increase, because there simply was no brand loyalty at the “two for $7″ price point. They ultimately sold the winery to get out from under the debt burden (in a perverted way, I suppose you could call that a business success – start a company and sell it). The impact of that tax increase most directly affected – not the consumers, and not the owners – the floor employees and line managers making $10 to $20 per hour.

    Taxes need to go down, and government spending needs to come down to match revenue. The rest is details.
    There is a lot of great input – thanks for hosting the site.
    Respectfully submitted,
    17Kayak

    Reply
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