Friday, August 10, 2012

Reader "Paul" a high school teacher, wonders whether we have a spending problem or a tax collection problem.

"Paul" (name changed by Mish) writes ...
Hello Mish

I subscribe to your blog and refer to it a lot.

I'm having an argument with a friend who says the problem with the deficit is that many people do not pay their fair share in taxes. For example, my friend notes that Mitt Romney pays taxes at a 13% rate despite his huge riches.

My friend believes that if tax rates were adjusted higher for the rich and super rich we'd be out of debt. He is even a business owner who is part of the 1%!

Can you challenge what my friend says?

I have another question: You did a post that listed all the government funded programs you thought should be eliminated. Do you have a link to that article?

Paul
Hello Paul ...

There is a big information gap at play, actually several of them.

First, let me ask a question: Can you conceptualize $1 trillion? Other than "it's an enormous number", what does $1 trillion mean to you?

Bear in mind the US National Debt Clock shows public debt, not counting unfunded liabilities of Medicare and Social Security $16 trillion.

Forget about that $16 trillion for a bit and simply focus on the current budget deficit.



Notice that the US has had four consecutive budget deficits over $1 trillion. I expect 2013 will be the fifth.

Conceptualizing $1 Trillion


An excellent way to conceptualize a million, vs. a billion, vs. a trillion is in terms of time. Without doing any calculations, how long is a million seconds, a billion seconds, and a trillion seconds?

Here are the answers.

  • 1 Million seconds is 12 days.
  • 1 Billion seconds is nearly 32 years.
  • 1 Trillion seconds 31,688 years.

Think about that while noting the deficit increased from $161 billion to well over $1 trillion for four years running.

Fair Share Tax Hikes

I have a set of questions for the "fair share" tax proponents.

  1. Would fair share tax hikes be enough to fund US government spending?
  2. What if we took 100% of the profits of Walmart and Exxon Mobile?
  3. What if the corporate tax rate was 100% for every corporation?
  4. What if we confiscated 100% of the wealth of the super-wealthy including Warren Buffet and Bill Gates?
  5. What if we did ALL of the above? Would that balance the budget?

A recent Tony Robbins video making the rounds answers all of those questions. It is about 19 minutes long and well worth a play in entirety.



To meet total spending requirements of $3.2 trillion, but not counting $117 trillion in unfunded liabilities, not only would we have to do everything in the five point list above, but we would have to take the combined salaries of all players in the NFL, Major League Baseball, the NBA, and the NHL, cut military spending by $254 billion, and tax everything people make above $250,000 at a 100% tax rate.

That's what it would take to meet the 2012 budget of $3.8 trillion. It would do nothing to pay down the existing national debt of close to $16 trillion. It would not come remotely close to meeting $117 trillion in unfunded liabilities.

Robbins gives credit in his video to the post Feed Your Family on $10 Billion a Day by IowaHawk.

In turn, I give credit to Michael Snyder for his writeup Anyone With Half A Brain Should See That A Gigantic Economic Collapse Is Coming

Snyder, referencing Ron Paul and Tony Robbins, writes ...
For the past four decades, the United States has been enjoying a 15 trillion dollar party. All of this borrowed money has enabled us to live far, far beyond our means.

If our politicians voted to severely cut spending or to raise taxes dramatically at this point, our economy would suddenly readjust to a more realistic standard of living. But that would be extremely painful and most Americans voters would be absolutely furious. They would demand that someone “fix” the economy immediately. But the truth is that what we have been enjoying all these years has not been real. It has been bought with trillions of dollars stolen from future generations. But most of our politicians just want to keep the party rolling as long as humanly possible so that they can keep getting voted back into office.

Some hard choices will have to be made, and there will be a lot of pain. The false prosperity that we are enjoying now is going to disappear.

Now is the time to prepare for the massive economic shift that is coming. In the coming economic environment, those that are currently living month to month and those that are 100% dependent on the system are going to be in a huge amount of trouble.

Instead of wildly spending money as if the good times will never end like most Americans are, now is the time to get out of debt, to become more self-sufficient and to set aside the money, resources and supplies you will need to weather the storm that is rapidly approaching.
Hard Choices

I certainly agree with Snyder regarding hard choices. And over the course of the next decade, the projected budgets show the choices are going to get much harder.

2012 Budget vs. 2022 Budget

Please consider projected budgets for the next decade, straight from the White House Office of Management and Budget.

In particular, note Table S-5 on page 210.

The projected cumulative budget for the next 10 years is an unbelievable $46.956 trillion dollars. Government spending is projected to escalate to a whopping $5.8 trillion a year in 10 years.

Noting the difficulty Robbins had in coming up with $3.8 trillion, pray tell what kind of "fair tax" hikes would it take to meet expenses of $5.8 trillion?

So, do we have a spending problem, or a problem of not taxing enough?

The answer is pretty clear.

Cutting Waste

To answer the second question by "Paul", I have written a number of articles about waste in the state of California (easily applicable to all other states), and waste in the US government budget as well.

  1. Interactive Map: Paul Ryan vs. Obama Budget Details; Path of Destruction
  2. Radical Plan to Cut Military Spending and Help Balance the Budget
  3. California Budget Balancer Interactive Map from LA Times Misses the Mark
  4. Mish's California Budget Proposal

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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