“Space is big. You just won’t believe how vastly, hugely, mind-bogglingly big it is. I mean, you may think it’s a long way down the road to the drug store, but that’s just peanuts to space.” — Douglas Adams
Like Douglas Adams’ description of space, the economic issues in this country have become quite big. In fact, most people are, in a very real way, unable to comprehend how “vastly, hugely, mind-bogglingly big” our problems have become. It’s all “trillions” this, default that, Apoco-bankruptcy-Armagedde-debt-alipse. That’s why so many people look at you like a cat peering at a calculus book when you try to explain the scope of issues we’re facing.
Unfortunately, once people get to that point, their brains usually turn off and they tend to conclude things aren’t really so bad because they don’t see members of Congress running around in circles, wetting themselves in terror on television. This is a mistake because most members of Congress are wealthy, influential, and assume that even if the rest of us are sleeping in cardboard boxes and eating cat food, they’ll be dining on steak in some plush, gated villa. Sadly, they’re probably right about that.
With all that in mind, since there’s unlikely to be a “Members Of Congress And The President Have To Live Like The Rest Of Us If We Go Bankrupt” bill that’s passed in the near future, it seems prudent to offer up some statistics that may, if you’re open to it, cause you to look at America’s economic situation in a new way — sort of like a goose that realizes it’s about to be chopped open by a greedy farmer for its golden egg and flies off to find a nice swallow in Capistrano instead.
1) “How do you ‘invest in the future’? By borrowing $188 million every hour. That’s what the government of the United States is doing. It’s spending one-fifth of a billion dollars it doesn’t have every hour of every day of every week — all for your future!” – Mark Steyn
One hesitates to start off with a statistic that hints at the almost infinite amount of money we’re spending right now because it’s nearly too big to comprehend. That being said, we do need to give people a sense of how far beyond our means we’re living right now.
Remember the Judgment Day style theatrics that surrounded the threat of a government shutdown back in April? That sliced $350 million from this year’s budget. That’s about as much as we borrow in two hours. Now, they’re at it again in Congress, but this time they’re talking about cutting $2 billion from this year’s budget. We’ll cover that in 11 hours time. Not that the “future budget cuts” aren’t appreciated, if they ever come, but the extraordinary amounts we’re borrowing and the miniscule amounts we’re able to cut in the here and now don’t suggest we’re even remotely serious about dealing with this issue yet.
2) “The typical husband and wife who reach age 66 and qualify for Social Security — Starting next year, this typical couple, receiving the average benefit, will begin collecting a combination of cash and health-care entitlement benefits that will total $1 million over their remaining expected lifetime
According to my calculations based on government data, such married couples will begin receiving monthly Social Security checks that will, on average, total about $550,000 after inflation. They will receive health-care services paid for by Medicare that, on average, will total another $450,000 after inflation. The benefactors will be a generation of younger workers who are trying to support themselves and their families while paying taxes to finance the rest of government spending.
…Medicare premiums paid by senior citizens once covered half of the cost of physician and related services. They now cover one-fourth. Copayments once covered nearly 40% of these services’ costs. They now cover only 20%.” — Joe Cogan
The reason we have such out-of-control spending and such difficulty dealing with it is because of what Al Gore would probably call an “Inconvenient Truth,” one that may very well upset many of the people reading this article. The biggest reason we have such a huge deficit is because so many middle-class Americans are, or are about to, receive Social Security/Medicare benefits that cost much more than they’ve paid into the programs in taxes.
The fix for that problem, which would be about as popular as hiring Casey Anthony as a nanny, is to find a way to dramatically reduce how much we’re paying out in Social Security/Medicare benefits or to dramatically increase the amount people are paying for those benefits. Neither option would be popular, but we can be sure that one, the other, or both will eventually happen because that’s what’s going to have to happen if we’d like to stave off bankruptcy as a nation.
Since that’s such an unpleasant idea, many people prefer to offer up a pleasing fantasy instead. “Tax the rich” and all will be well! You are about to see why that is not going to be the hair of the dog that bit America after a long, drunken spending bender.
3) “In fact, in 2006, the Census Bureau found only 2.2 million households earning more than $250,000. And most of those are closer to the Lubbock city manager than to Carlos Slim, income-wise. To jump from the 50th to the 51st percentile isn’t that tough; jumping from the 96th to the 97th takes a lot of schmundo. It’s lonely at the top.
But say we wanted to balance the budget by jacking up taxes on Club 250K. That’s a problem: The 2012 deficit is forecast to hit $1.1 trillion under Obama’s budget. (Thanks, Mr. President!) Spread that deficit over all the households in Club 250K and you have to jack up their taxes by an average of $500,000 — which you simply can’t do, since a lot of them don’t have $500,000 in income to seize. Most of them are making $250,000 to $450,000 and paying about half in taxes already. You can squeeze that goose all day, but that’s not going to make it push out a golden egg.
….Every time you raise the threshold for eating the rich, you get a much, much smaller serving of meat on the plate — but the deficit stays the same. The long division gets pretty ugly. You end up chasing a revenue will-o’-the-wisp.” — Kevin Williamson
Can we get more revenue out of the rich? It seems likely that we can, but that’s not to say it would be easy. Rich people have lots of options. They can put their money in tax shelters, they can move overseas, they can pay lobbyists to get loopholes, they can decide they have enough money and stop working, etc., etc. Still, even if those existing options magically disappeared somehow, we still couldn’t fix our spending problems by taxing the rich because they simply don’t have enough money. Even if we were the old Soviet Union and Vladimir Lenin were our President, we couldn’t fix our problems by confiscating everything the rich own.
This is one of the reasons why the American people are always being warned that “taxing the rich” isn’t the solution to our problems because the biggest revenue source is the middle class, not the rich. Once the Left has finished picking the bones of the rich, it will move on from the appetizer to the main course, which is the middle class. That being said, even if the Republicans were to join the Democrats in their lust for higher taxes, as you’re about to see, it probably wouldn’t fix our problem.
4) “Over the decades, tax rates have varied quite a bit. They’ve even gone up as high as 90% in some brackets. Yet, the actual amount of revenue coming in doesn’t change very much in relation to GDP.
…The key thing to take away from this is that the amount of revenue the government can bring in via the income tax is, for whatever reason, more inelastic than most people think. That’s yet another reason to put more emphasis on balancing the budget via spending cuts as opposed to trying to fix the problem with tax increases.
Now, if Hauser’s law is as spot-on as it has been in the past and it’s going to be difficult to raise the government’s revenue level much beyond the 20% of GDP mark…” — John Hawkins
Welcome to Hauser’s Law, a piece of economic theory that could turn out to be quite relevant in the next few decades. Long story short, tax rates go up and down, but the amount of revenue the government brings in has turned out to be fairly static.
The reason this is so relevant is that the Democrats, although they loathe to publicly admit it, want America to look much more like Western Europe: They want much bigger government and they want the populace paying a significantly higher tax rate to pay for it. They’ve been quite successful at getting the bigger government part implemented, but Republicans have managed to block the higher taxes. Hauser’s Law suggests that even if Democrats got their hearts’ desire and dramatically raised taxes, it wouldn’t generate the revenues liberals expect. In other words, big government may be even more financially unfeasible in this country over the long term than it is in places like Greece or Spain — which would hardly be a shocker given that our Founding Fathers were highly individualistic, tax-hating, small government fanatics who clung to their guns and religion.
5) “In FY2010, we spent $164 billion just on interest payments on the debt — up 18 percent from the year before. And that’s at historically low interest rates. If rates should go back up to their 1970s or 1980s levels, we could easily end up spending more on debt service than we spend today on big-ticket items like Medicare or national defense.” — Kevin Williamson
All too often when we’re discussing this dilemma, there’s a sense that we have all the time in the world to work it out.
Unless we make some astonishing changes in the way our government works, or rather doesn’t, one of two things is going to happen — and probably within a decade or two.
We may continue to go further down the current path the Fed is on, by printing truly humongous amounts of our currency, and it’s going to cause rampant inflation that will eviscerate the value of the dollar. In other words, prices for everything would skyrocket and you’d wonder why you’d feel so poor, despite making the same amount of money. We’re actually already starting to see this effect with food and gas, although it’s fairly insignificant compared to what will likely happen in the next few years.
The other possibility is that we’ll lose our AAA credit rating, which realistically could happen in the next two years even if we get a debt ceiling deal. If that were to happen, then it would cost much more for us to borrow the colossal sums the government uses to pay its bills. What happens when the government can’t afford to send out Social Security checks and pay the interest on our debt? Well, if you’ve ever seen Mad Max Beyond Thunderdome and thought, “Wow, I’d love to live in that world,” you’ll have some good news when that day comes.