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Monday, April 19, 2010

Do The Math: We Can But Congress Can't

Politics is about ideology, horse trading, vote buying, and majorities. The only math a member of Congress needs to know is either 218 for the House of Representatives or 60 for the Senate, these are the number of votes needed to move legislation through their bodies.

As the 111th Congress controlled by Democrats and the White House under President Obama push through yet another massive bill, 1440 pages and counting, that will not be read but will be deemed "necessary" and "urgent" to solve a crisis that is not, it is prudent to understand how little those in control of our government understand about economics and especially basic math.

For the past sixteen months Washington has looked no further than the next days headlines and the elections of 2012. Ask the numerous Congressional and Senate Democrats up for re-election in 2010 how much the White House and Democratic leadership cared about their re-election campaigns in 2010 when they passed Obamacare.

A recent change in events however has shown that perhaps some of the messages have gotten through to the Obama Administration regarding the 2010 elections with his Security and Exchange Commission, the SEC, filing charges against Goldman Sachs the same week the Senate takes up in earnest the massive, 1440 page, financial services reform bill. Very authoritarianesque to use the power of the Executive right at the time the Legislative Branch is taking up major reforms for an industry that has pretty much righted its ship, is shedding weaklings and financing a slowly recovering economy. But if using the SEC can push through financial reforms that concentrate even more power inside Obama's White House then use the SEC they must.

But back to math.

Our Gross Domestic Product is $14.343 Trillion

Currently Federal income ($924 billion) and payroll tax (887 billion) revenue total $1.81 Trillion, total Federal revenue is $2.12 Trillion. Income and payroll taxes are about 12.6% of GDP.

Our current government spending is $3.55 Trillion. $3.55 less $2.13 leaves a deficit for the Federal Government of $1.42 Trillion for the current fiscal year---current fiscal year.

To close the current deficit total Federal Revenue must increase 33%, of Congress plans to close the deficit on tax payers alone Federal income tax revenues must increase 54% from current levels. Again that is just to pay for the current year's deficit.

Outstanding Federal debt is $12.85 Trillion and climbing. At 89.6% of GDP the Federal debt is quickly heading to 90% of GDP with a current deficit of almost 10% of GDP and future projected deficits at 30%.

Currently each worker in America is the equivalent of $103,000 of the GDP, this is because of the economic principle of the velocity of the dollar. The U.S. workforce is at 139 million workers with over 15 million workers not working. To reach zero growth in unemployment the economy needs to add approximately 125,000 jobs to absorb new workers entering the marketplace due to population growth and immigration. To cut the number of unemployed by 10% in one year the economy needs to add 3 million jobs, or about 250,000 jobs per month. This level of job growth has never occurred over a sustained period with the exception of the period during World War II.

Under the current sliding income tax levels approximately 1% of Americans pay between 35-40% of total Federal income taxes, the top 10% pay 70% of income tax and the top 50% pay 97% of the federal income taxes. There are currently 100 million taxpayers.

Of the taxes that are paid $193 billion goes to paying interest on the Federal debt (about 7% of which goes to China who holds almost $900 billion in U.S. Treasuries). That means that 21% of Federal income tax revenue goes to paying the interest on the debt.

The stated objective of the Obama Administration is to "tax the rich" to pay for his policy agendas including Obamacare. Obama defines "rich" on income earnings not on wealth--the "Henry's" (High Earner Not Rich Yet) bear the brunt of his tax policies.

If we consider the top 10% of tax payers the "rich" they are paying 70% of the current income tax revenue, or $647 billion. Currently we need to add an additional $1.42 Trillion to these income earners, meaning their tax liability must double just to pay for this year's spending deficit. Add in spending deficit proposals in the Administration budget of another $3 Trillion and the Administration will call upon the top 10% of income earners to quadruple their income tax burden to reach zero deficit spending. Why work?

The budget proposed by the Obama Administration adds another $3+ Trillion to the current deficit. Because of the sentiment across the country that is against the massive amounts of spending in Washington, extremely high unemployment, added government bureaucracy and control of individual liberty and freedoms through Obamacare, House Speaker Nancy Pelosi knows that any debate on the Administration's budget proposal will only help the Republicans and further hurt Democrats at the polls in November.

Her solution? The House will not take up and pass a budget. Meaning there will be no guidelines for spending and appropriations. Each bill will be passed not within the frame work of what American can afford, but rather what the majority desires. Not having a budget will not reduce the Federal deficit but will allow it to rise uncontrollably.

Government math: we need to add 125,000 jobs per month just to keep unemployment at current levels. The current debt stands at $128,000 per tax payer, however the balance is skewed heavily to the top 10% of income earners. Fifteen million Americans are out of work today, another five to ten million are working part time or are considerably underemployed.

With these figures in the equation Congress and President Obama feel we need to further increase not only the tax burden on current American workers but also future American workers to pay a debt that they continue to grow.

Does this seem anything like the creation of the housing bubble to anyone else? Cheap money, free spending, no limits?

Here are some links:

U.S. National Debt Clock

National Taxpayers Union

U.S. Treasury Major Foreign Debt Holders (you will see that seeing where we are going China has been selling U.S. Treasuries at about $10 billion per month)

DCS 04192010






1 comment:

Charles S said...

Dennis,
Thanks for the math lesson. Now, what and how do we change it? Are we following the path of other industrialized nations, i.e., Great Britain? What do their numbers look like? i worry more about Germany and France than I do Iran and N. Korea. Those two countries combined could wreck more havoc on the global economy than either of the aforementioned parties.

I think we all know what the sickness looks like. What we need are some cures for the disease, not bandaids for the booboos. Ninety nine months of unemployment insurance is like a bandaid over an infected sore, we won't see the problem until we have to amputate the limb. How do we stop this insanity?