As I contemplated my first topic to blog about, I couldn't think of one more important than the national debt. President Obama is set to meet with Congressional leaders from both sides of the aisle tomorrow to try to hammer out a deal concerning the debt ceiling. If a deal is not reached by the August 2nd deadline, the U.S. Government will default on its loans. If this were to occur, the results could be disastrous. You might ask what the consequences of inaction could be? Failing to reach a deal could lead to higher interest rates, and an even worse economic situation than we are currently facing. It is clearly evident that both Democrats and Republicans will have to give up some of what they're wanting to make this thing happen. Entitlement programs like Medicare and Medicaid that are key elements of the Democratic platform are facing serious cuts. The President has shown a willingness to work with the other side by agreeing to these cuts as a way to help get the national debt under control. Republicans have said that they would like to see even more spending cuts on top of the trillions that the President has vowed to make. In addition to spending cuts, the Government is going to have to find a way to raise revenues as well. This is where the situation becomes extremely difficult. The President would like to see revenues raised in part by increasing taxes on those who make over $250,000 a year. Republican leaders have stated that tax increases will not be a part of any deal with the President. So how do we raise the necessary revenue that we so desperately need if we don't raise taxes? Don't get me wrong, if I made more than $250,000 a year, I wouldn't want to have to pay more taxes either. Most people would argue that raising taxes in a tough economy is the last thing that the Government should do, and I understand that. However, if I had to pay more in taxes knowing it would help to reduce the deficit and make our country stronger in the long run, as painful as it might be, I would be willing. I don't envy President Obama one bit. All Presidents are faced with difficult situations, and this has to be one of the most difficult. I am hopeful that our elected officials in Washington, D.C. will be able to put their differences aside, and in doing so, will put the interests of all Americans at the forefront of their ongoing discussions over this extremely important issue.
The problem falls on how you raise taxes on people earning more than $250,000 a year. You can't simply kick up the rate for that tax bracket without serious consequences and you wouldn't really be taxing the most wealthy Americans any way.
ReplyDeleteThe Bill Gates and Warren Buffetts already pay nearly massive taxes (Gates reportedly pays about $5 million each year). Trouble is, there just aren't very many of these guys. The top 10% of wage earners (all earning well over $250,000/year) pay about 68% of all income taxes.
Raising taxes on people earning over $250,000/year would not generate the revenue needed to avoid these deep, deep cuts because there aren't enough of them. Also, keep in mind that the number chosen is for couples filing jointly. Singles earning about $140,000/year would also fall into the wealthy and in need of a tax increase zone. You could make more money with a 1% tax increase on everyone in the country earning less than $250,000/year than you could with a 3% increase on everyone above that line.
And how would this be a bad thing? Well, people with larger incomes buy more expensive things that are often manufactured in or by American companies. Poor people buy stuff from China. Cutting into the incomes of the slightly better off would also cut into the incomes of those earning under $250,000/year. And it still wouldn't matter. Balancing the budget from the general fund would still only be accomplished by borrowing from Social Security and Medicare would still fall short (because it's funded separately from then general budget).
Entitlement spending is the budget buster here and Entitlement thinking by voters is tying the hands of everyone in Washington on both sides of the isle. Everyone is fighting to save the entitlements that will insure their own re-election while the voter sits at home and cries for the government to continue funding that on which they are now dependent but should have been planning to provide for themselves.
There is question to the authorship of the following (generally attributed to Alexander Tytler, Lord Woodhouselee) but I fear not as much question about its accuracy:
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years."