Obama Spending + Reduced Tax Receipts = A Massive National Debt For Our Children
The Obama 10 year budget includes trillions in new spending programs at a time when tax revenues are declining at a precipitous rate.
The projected deficit in the Obama Budget is $7.0 trillion for the decade 2010 to 2019. That’s the good news! The Congressional Budget Office (CBO) has concluded that, if the Obama budget were approved, the federal government would actually run even larger deficits averaging nearly $1 trillion a year over the next decade. The cumulative deficit from 2010-19 would be $9.3 trillion, according to the report - $2.3 trillion more than the Obama administration’s forecast. The main reason for the difference in budget estimates is a difference in economic growth, with congressional views of long-term growth less optimistic than those of the White House.
Obama Administration Budget (In billions of dollars)
|
|
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
|
GDP |
$14,240 |
$14,729 |
$15,500 |
$16,470 |
$17,498 |
$18,836 |
$19,205 |
$20,952 |
$20,952 |
$21,884 |
$22,858 |
|
Outlays |
$3,938 |
$3,552 |
$3,625 |
$3,662 |
$3,856 |
$4,069 |
$4,258 |
$4,493 |
$4,678 |
$4,868 |
$5,158 |
|
$1,752 |
$1,171 |
$912 |
$581 |
$533 |
$570 |
$583 |
$637 |
$636 |
$634 |
$712 |
The bad news! Even the CBO has underestimated the size of the deficit. Tax revenues are falling short of their expectations. In April, the month when the IRS traditionally collects a significant portion of its annual revenues, tax receipts fell by 34.1% from the previous year. Individual tax receipts were down 44% and corporate tax revenues were down 65%. At a minimum, it will take at least three years before tax receipts return to the 2007 levels.
When estimating future tax revenues in is essential to keep in mind several factors:
1. The large corporate Net Operating Losses (NOL), particularly those that the major financial institutions will deduct before they pay a single penny in future taxes will be a drag. This could last for several years and will not only cause a major shortfall at the Federal level but will devastate states and cities, most notably, California and New York, New York.
2. The massive individual stock market losses of 2008 become a loss carry-forward that may not be fully utilized for 2 to 3 years. There are those in the Obama administration who recommend that we raise capital gains taxes to the Clinton administration level of 20% to increase tax revenues. That is probably the silliest idea of all. Instead of not paying 15% on capital gains individuals will not pay 20% on their capital gains until the loss carry-forward is exhausted.
3. Raising the top rate to 39.6% from 35% will not generate anywhere near the revenues projected by the Obama administration or the CBO. The theory is that we can substantially increase our tax receipts from the top 5% of earners who already pay over 60% of all federal income taxes. The problem with the theory is that this is the group that has the sophistication and resources to take advantage of our overly complex tax code and avoid paying taxes, if they feel they are being overtaxed. As an English friend of mine once explained - Tax evasion is a crime but tax avoidance is a God-given right.
Summary of Federal Individual Income Tax Data, 2006 (Updated July 2008)
4. Another myth being disseminated is that as unemployment decreases tax revenues will increase dramatically. Since the group that is hardest hit by the current downturn in employment is the bottom 50% of earners, it is mathematically impossible for this group that only pays 3% of all income taxes in the best of times, to substantially increase tax revenues.
The numbers don’t lie. We have a very progressive Federal Income Tax system where the top 5% of earners pay over 60% of the taxes. The conundrum for the economists in the Obama administration is that unless they find a way to ensure that the “wealthiest Americans” continue to earn substantial money they will not have the tax revenue they need to pay for their social programs.
This Robin Hood approach of having the “wealthy” pay their fair share never works and worse it makes government budgets and deficits more vulnerable to greater undulations in economic cycles. The increased receipts and spending results in higher highs in good times and the loss of revenues results in a cut back in services and bigger deficits in recessions - the lows are lower. This problem arises at all levels of government - Ask the Governors of New York and California about this inherent problem of the current tax system?
My criticism of the Obama administration is essentially the same as my prior criticism of the Bush administration - I believe that you have an obligation to be fiscally responsible whatever your political persuasion.
Wish I had a site like this one, I will link back I think my readers would enjoy your site.
June 8th, 2009 at 4:35 pm
We once were a producer nation that measured our financial strength on our industrial output. The GNP was the measure of our Nations’ financial strength and “health”. When we were a producer nation, taxes could be collected from the profits of the corporations, the workers, as well as the service industry businesses that grew to support those workers. With these taxes, America built a great nation, with an infrastructure second to none. We always maintained a positive cash flow, which any businessman will tell you, is essential to maintaining a viable (Nation) business.
Today, America measures her financial “health” on consumer spending, an ever increasing amount of which is done with credit. In other words, deficit spending. All money that must be paid back to creditors (many of them foreign), with interest. Over time, we have given up our producer status, to third world countries, in order for Americans to buy cheap, foreign made, goods. Our Government not only allows this, but encourages it, through tax incentives to the entrepreneurs who manufacture their goods off-shore. But as a result, there are now fewer businesses, and workers, and supporting service industry businesses, left to pay the taxes to support America’s infrastructure. Tinkering with the various percentages of existing taxes and tax payers is basically just political grandstanding and basic nonsense. You cannot “fix” the tax deficit, until you address the shrinking size of the tax base, and fix it. Or, stop spending money we don’t have.
A logical solution would be to levy taxes on imported goods, to make up the difference in lost revenues, from the businesses, workers, and supporting service businesses, taken to foreign manufactures. Also levy higher taxes on the importers, who have up-till-now, been enjoying tax breaks, unfair to their domestic competitors. As a result, some businesses would find it was more profitable to return to America, some would remain off-shore. A balance of trade would result that benefits importers and exporters as well as consumers. In time, the needs for spending and the capabilities of taxes to support that spending would be back in balance. Also, American consumers will have learned that there is a “hidden” price for cheap goods, which may be higher than anticipated, when their children can’t find work.
Continuing on the path of unbridled deficit spending, like we are currently engaged in, is fiscal irresponsibility. It doesn’t matter who is to “blame” or what political party is currently in power. To me, America’s future has never been any clearer. Stay on the track we are currently on, and we (our children) are doomed for failure.
This could be easily fixed however, if simple common sense were to prevail.
June 11th, 2009 at 8:33 pm
funny
obama would have to run 1 trillion dollar deficits for the next 11 years to run up the kind of debt that the guys you all voted for did
oh.. that’s right.. it’s a democratic president.. so debt is bad..
oh.. it’s bush still? oh, never mind, keep spending and cutting taxes
HAHAHA
June 12th, 2009 at 8:33 pm
Here’s my take on the issue:
http://comityofarrears.blogspot.com/2009/06/american-dream-deferred.html
June 29th, 2009 at 7:43 pm
The national debt is testimony to our ignorance and confused thinking. Lost in a fog of intellectual noise and deliberate obfuscation is the real reason behind the debt.
If you have ever asked yourself, “Why do we have a national debt?”, then you probably came up with the stock answers about excessive government spending, pork barrel projects, etc. So allow me to rephrase the question.
Why do we have a national debt when the government has the power and authority to issue all the money it needs or wants? The government does not need to issue interest-bearing bonds; it can choose to issue its own debt free money.
Two major monetary systems have been used at various times in the US: the British Banking System and the American Banking System. The problem of the national debt stems from our use of a privately owned banking system that is a copy of the British Banking system issuing. A system that creates its own brand of currency using a procedure termed ‘fractional lending’ to create money out of nothing, issuing it into the economy as loans that must be repaid with interest. The debt problem arises from the fact that banks do not issue money to pay the required interest.
Since its adoption in 1914, the U.S. has employed the British Banking System with its privately owned central bank, the Federal Reserve and private banks that make up the system. With the exception of coins, the entire US money supply is created as fiat money by this system, the money created out of nothing and delivered into the economy as bonds and loans that must be repaid with interest. Shortly after the adoption of the British system, the U.S. government amended the Constitution allowing the enactment of income tax legislation, needed to guarantee sufficient money to pay the interest on government bonds. The national debt is a direct consequence of using money created by this private central bank. The interest on the debt is the third largest expenditure in the federal budget, amounting to nearly $500 billion this year; it is only slightly less than the budget for the nation’s military.
According to the US Treasury Dept., in 1988 the debt was $2,602,337,712,041.16 and in 2007 it was $9,007,653,372,262.48. So we added $6,405,315,660,221.32 to the debt in those 20 years.
In the same period, we paid $6,518,480,984,764.11 in interest on our debt. We paid $113 billion ($113,165,324,542.79) more interest than we borrowed in that period.
Most important, The British Banking is fatally flawed: it only creates money as debt. Because it creates only the principal of the debt but does not create additional money needed to pay interest, the system creates contracts that are impossible to fulfill, when they are considered as a collective whole. Two actions can be used to cover this deficiency: paying the interest with existing money and originating new loans to service old debt. Both fail.
Paying interest with money taken from the existing money supply, leaves insufficient cash in the economy to repay that debt. If the money supply is $50 trillion and the interest is 6%, the interest payment will be $3.0 trillion. Paying the $3.0 trillion with money taken from the $50 trillion existing money supply, leaves just $47 Trillion to pay a $50 trillion debt. So that action cannot work. If new loans are originated to pay the interest on old loans, the debt is expanded into a growing pyramid and functioning like a Ponzi Scheme. In either case, the British Banking system is doomed to fail.
Although not original to the US, the American Banking system was developed by Benjamin Franklin and used in the Mid-Atlantic colonies in the early 1720s. Short of hard currency and precious metals need for trading, the colonies issued their own script for domestic commerce. They established a system of government owned ‘Land Banks’ to lend money to businesses and farmers, and collected interest on the debt that went to run the government. In addition, the government issued and spent money directly into the economy for goods and services, building infrastructure, and providing for the welfare of the people. The colonies prospered without the need for taxes.
The American Banking system, modified by Henry Cary and resurrected by Abraham Lincoln, was used to help finance the government during the Civil War. The legality of the currency was challenged in several law suits, known as the “Legal Tender Cases.” The US Supreme Court determined that the power and authority to issue the nation’s money, in all its forms, were inherent in the sovereignty of the United states and need not be enumerated in the Constitution. Although government issued currency is still legal, it is no longer issued and the last US notes, known as ‘greenbacks’, were retired in 1971, according to the US Treasury Dept. web site.
Comparing the two systems, the British Banking system is costly to use, requiring interest payments on every dollar it creates, while the America Banking system creates money debt and interest free. The British Banking system it is very limited in its ability to deal with economic challenges, its only option is adjusting the interest rate. On the other hand, the America Banking system is very flexible when dealing with the economy, lending money into the economy just as the British system does, issuing and spend money direct into the economy without taxation, and fine tuning the economy using the government’s power to enacted tax legislation.
Having power unavailable to a private central bank, the US Treasury can issue new money, without taxes, that the government can spend directly into the economy for desirable programs and infrastructure, replenishing the money paid as interest and adjusting the money supply to meet the needs resulting from population and economic growth. This new money would be a significant increase in government resources, without the need for any new taxes.
Using the previous example, the 6% interest payment on the money supply is $3.0 trillion and the population and economic growth add another 3%, or $1.5 trillion, the total new money required to maintain a stable money supply is $4.5 trillion. The 2008 federal budget was $3.1 trillion, $1.4 trillion less than needed spending just to stabilize the monetary system. All federal taxes could be eliminated, and we could still increase spending by $1,4 trillion without creating national debt.
In fact the government can simply elimination of the national debt. Although it may sound too good to be true, the national debt can be liquidated by simply substituting American currency for outstanding US bonds. This can be done without creating inflation because bonds are a form of money, and substituting debt free currency for interest-bearing bonds do not significantly alter the equation. For example, if someone has a portfolio with $10,000 in stocks and$10,000 in bonds, the total value is $20,000. If the government substitutes $10,000 in cash for the $10,000 in bonds, the value of the portfolio is unchanged: it remains $20,000. People with money invested in US government bonds could have it reinvested it in stocks, or perhaps deposited
in commercial banks to maintain their 100% reserves lending requirements. Furthermore, paying the national debt would reduce annual government expenses by the $500 billion interest payment, freeing even more money for improving our nation.
It is time to clear our thinking about our economy and our government.
July 9th, 2009 at 7:01 pm
Those of us who know Thucydides understand the evolution of the democratic state. The people (demos) will one day realize as the Athenians did, that your military can plunder the wealth of the world to pay for the luxuries bequeathed through the ballot box. It didn’t work for Athens because they didn’t have nuclear capability but what nation could withstand an assault from just our conventional forces today? When we progress to that point we will also be able to get rid of anybody annoying, say Rush Limbaugh in the same way Meletus prosecuted Socrates, effectively resulting inthe philosopher’s public death sentence.
The founders of the United States knew about ancient Greece and provided many checks against such a barbaric state.
I believe the key to checking the democratic threat to the American Experiment is to change the hearts of men most importantly beginning with black ministers of the Gospel. The truth is that our modern government is in flagrant violation of the First Amendment’s prohibition of religious establishment. The government has purchased the hearts of the people that otherwise should be turned toward God. The treasure that is taken from us and redistributed competes directly with the work of the Church and has made provider government resoundingly successful after years of influence. During that same time the influence of religion on society has waned proportionally. Liberals understand that politic power is most effectively attained through an appeal to the covetous nature of man. Our American idealism makes us the most generous people of all time in spite of that nature and the cumulative effect of oppressive taxation.
Redistribution of wealth is therefore fundamentally unconstitutional and in violation of the commands of God in a pluralist society. The only way that socialism could legally exist in light of the First Amendment is in a Christian theocracy where religion and government function as one entity. It is the goal of modern liberals to have that situation reversed with a society purged of religion.
July 25th, 2009 at 9:28 am
Great idea, but will this work over the long run?
July 28th, 2009 at 12:56 pm