01 May 2008

Does the U.S. Government Need More Taxes?

To hear Hillary Clinton and Barrack Obama speak, you would think that the Federal Government is in Dire Straights. “The Rich need to pay their fair share” and “we need to invest Oil Profits”. Last year the federal government spent almost 2.8 Trillion Dollars. That figure is a just over a 13 fold increase since 1970. What you don’t hear, is that the government has also had an almost 13 fold increase in recipients as well. Think about this for a moment, in that same time span, the median household income in the U.S. has grown at only half that rate, and while the deficit has definitely gone up, to the tune over 300 Billion a year, it’s still relatively small compared to total inflows.

The reason the Government has been able to get away with this is simple, they utilize politics of class warfare and envy. While the bottom 50% of income earners share of taxes has gone down to a historic low of less than 4% of all personal taxes collected, the wealthy in this country, or at least those in the top 50% of income earners are paying over 96% of all personal income taxes collected, with the top 1% of income earners paying almost 40% of all personal income taxes collected. To top it off, Corporate taxes in the U.S. are at an all time high of 35 to 39%, the 3rd highest in the industrialized world. Only Japan and Germany are higher, and both of those companies have record numbers of factories moving overseas, so the next time people talk about NAFTA and China taking away jobs, we here in the U.S. make it very difficult for companies to make money, and then once they do make money, they have to hand over a third of it to the government. They then wonder why the companies want to move offshore? Most other countries throughout the world tax their corporations at anywhere from 12 to 25%! Ever since Ireland had adopted a low corporate tax of just 12.5%, it has seen an economic boom that has powered it's economy twice as fast as other European nations. Obviously, going the route that Clinton and Obama are espousing would cause more companies to take Intel and Dell's lead and move more operations to Ireland and other low corporate tax nations.

The chart below shows the overall budget between 1970 to 2007, 75&76 are a bit skewed because of accounting changes, but has you can clearly see the amount of cash being collected by the government is at an all time high. According to Pig Book, 17.2 Billion of the deficit spending, was attributed to Pork Barrel spending alone, both the Senate and theHouse are guilty of indulging their constituents.

On Nov. 7th, 2006 voters across the country signaled their disgust for the system and the status quo with a mandate for the Democrats to clean house. Unfortunately, it doesn’t seem that they’re listening. Spending between 2006 and 2007 is up by a 4%, adjusted to inflation a 1% increase, but no cuts. Considering the fact that the deficit is only 13% of the budget, a simply slowing spending to say, half of inflation coupled with eliminating Pork Barrel spending would have brought the deficit down by 8%, a few years like that and the entire deficit could be wiped out, without too much pain. The worst part is that we blew a golden opportunity between 2004 and 2007, while the economy was booming, receipts increased by an average of 11% a year, this would have been a perfect opportunity to balance the budget, but instead, spending each year, exceeded receipts. Bush, once again offered more of the same, instead of leadership on this issue, when he issues his proposed budget of 3.1 Trillion Dollars, that had 2.9 Trillion in spending.

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