What Was the Rush?

Remember when the Democrats and the Obama administration told us it was urgent that we pass the $787 billion stimulus bill? Remember the “emergency” that resulted in Congress voted on it after only 12 hours for Congressmen to read the 1,100 page bill? Remember when it was such a crisis, that President Obama felt he had to break his promise to the American people that he would not sign any legislation for 5 days to allow time for public comment? Those who urged caution or suggested hearings be held to determine the likelihood of the stimulus strategy succeeding were shouted down – there wasn’t time for that we were told.

Why then has this government only managed to spend 6% of that money in the 3 months since the bill’s passage? A mere $46 billion of the $787 billion stimulus package has gone into circulation. Proponents of the stimulus will say the money is coming, it just takes time to get in motion. Fine, point conceeded. But, that does not begin to speak to the point. If it was always the plan for it to take months for the stimulus money to enter circulation, what possible reason was there for rushing the 1100 page legislation with 9000 earmarks through Congres and across the President’s desk? Why couldn’t our leaders show a modicum of responsibility and honor? Yes, that was a rhetorical question.

Medicare and Social Security Running Out of Money

2017. That is when the Medicare system will run out of money at the current pace. Eight short years from now the federal government will have to begin borrowing money (on top of all the money it is already borrowing) to pay for its obligations under Medicare. The Social Security picture seems practically rosey by comparison with 30 years of solvency remaining. But, don’t be lulled into a false sense of security on that front. Social Security is the single largest government expenditure next to Defense costing roughly $650 billion annually. When it goes insolvent, and it will, the magnitude of that problem will be staggering.

So then, it makes perfect sense that while the government can’t fund the obligations it has, we should add more un-fundable obligations to the books in the form of national health care, right? ‘Cause if any one of us had a mortgage we couldn’t afford to pay what we’d do is run right out and buy a second home with a price tag 10 times the size, right? Let’s have a little common sense people. Anyone with even the slightest ability to reason, should be able to take one look at the chart below and understand that the jig is up, the game’s over, or whatever other cliche’ you prefer.

Note that Medicare, Medicaid and Social Security spending alone will exceed TOTAL FEDERAL TAX RECEIPTS in roughly 40 years. Now imagine that we tack on a new program larger than all of those combined (yes I said larger than all of those combined!); where will that put us? It is time for this government, this administration, to put the brakes on its giddy spending spree and first see if they can even figure out how to fund their exisiting obligations before they go saddling the American people with more.

Eight Quarters, a Dime and Four Pennies

With much fanfare today, President Obama asked his Cabinet to dig deep into their individual budgets and come up with savings of $100,000,000 from the federal budget. Finally, Washington is going to stop the madness; finally there is some fiscal discipline coming from our leadership. Or is there?

You see, 100 Million Dollars, while a big number to almost any American, is just .00286% of the President’s budget for the coming year. Since a percentage that small is almost incomprehensible, let’s try to put it in perspective. For someone earning $75,000 a year, this is the equivalent of saving $2.14. No, you don’t need to check my math, it’s correct. This much hyped effort is roughly the same thing as you or I skipping tomorrow morning’s coffee. Now don’t misunderstand, restraint in Washington is always a positive and to be encouraged. But, it is wholly disingenuous to hold a press conference and announce your “ambitious plans” to save a cup of coffee.

This is so obvious that even Obama’s fan club (oops, that should read – the White House press corps) caught on as you can see in the first two minutes of this hilarious video. As these reporters correctly point out, the White House scoffed at Republicans just a few weeks ago when they suggested that billions in earmarks were frivolous in light of the country’s financial situation.  In Obamaland billions are small meaningless numbers we shouldn’t worry about, and millions are huge savings to call a press conference and pat yourself on the back about – NO WONDER WE’RE IN THIS MESS!!!!!!

Shouldn’t We Have Seen This Coming?

The new tax policies haven’t even taken effect yet and already the tax avoidance maneuvering has begun. In a Reuters article this week it was reported that, “A wave of energy companies has in the last few months announced plans to move to Switzerland — mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama’s tax-seeking administration.” Gee, I never would have expected that.

Common Sense tells you that when you raise taxes the incentive to avoid taxation goes up.  The greater the incentive (higher taxes) the greater the lengths companies and individuals will go to avoid them.  Let me emphasize my point through some good old fashioned exaggeration…

Most of us pay 10-20% of our wages in income tax (I’m referring to the net number after deductions – more on taxation another time), and the vast majority of us don’t go to any exceptional lengths (certainly not any illegal lengths) to avoid paying those taxes.  Now imagine that beginning in 2010 your tax rate was 80% or 90% or even 99% (of course I’m exaggerating, but do you see where this is going), what would you do?  Call me crazy but it seems quite obvious; a person would either get very creative in avoiding taxation or simply throw their hands up and stop earning all together cause what’s the point, right?

So, in the end the argument isn’t about whether to tax the rich or tax the poor or tax corporations.  Those are the proverbial weeds the politicians try to mire you down in to obscure the real story.  And what’s that story?

THEY’RE SPENDING MORE THAN THEY’RE TAKING IN!

And they’re doing it EVERY YEAR!

The real discussion that needs to take place is how to raise the necessary revenue (and we better start reducing that “necessary” number) yes fairly, but more importantly, effectively.  If you raise taxes and taxpayers change their behaviors to avoid the tax, a government can actually end up generating less revenue rather than more.  If the government raises taxes on corporations such as the energy companies mentioned in the Reuters article and those companies move overseas the tax increase that was sold to the American people as a solution actually makes things worse.  The Treasury loses the tax revenue they were collecting.  Americans working for the companies are likely to lose their jobs and the Treasury loses the resulting income tax.  The real estate these companies were renting in the U.S. is now vacant leading to lost income for the landlord, or lost property tax revenue for the local community or both.  And the list goes on and on and on and on with a trickle down effect of lost jobs and lost tax revenue on all the supporting services that surround a major employer – gas stations, restaurants, coffee shops, etc. etc.

So, the next time you hear a politician tell you that they’re going to fix everything by raising taxes on somebody else, stop and think for a minute about what the consequences of that tax increase might actually be.  Because, I’m telling you, people with Common Sense should see this stuff coming!