As an active blogger I enjoy reading the political banter among liberals and conservatives, Democrats and Republicans, extremists on both sides, and the daily commentary from both MSNBC and Fox. Seemingly every discussion contains someone saying we have a spending problem or another saying we have a revenue problem.
Clearly two positions have been articulated, the battle lines drawn, troops entrenched and the bullets poised to fly. They are:
- Obama and the Democrats want more spending. They want to offset their spending appetite with more taxes. (We have a revenue problem.)
- Republicans want less spending and no tax increases. Some Republicans want to cut taxes from today’ level even further. (We have a spending problem.)
Let’s examine the facts:
- The IRS took in $822 Billion in income tax revenue in 2010 fiscal year.
- The Federal government ran a budget shortfall of $1.3 Trillion at the end of the 2010 fiscal year.
If we doubled, yes DOUBLED, the taxes on all Americans who paid federal income taxes in fiscal year 2010 we would still have a budget short fall of nearly half a trillion dollars a year. This clearly shows we have a spending problem that dwarfs our revenue generation.
Next for the United States Government is Obamacare which is expected to grow our spending even more for 2013, something like a few hundred billion a year or more depending on who has scored it. So does this mean we should triple our tax revenue in 2013 and beyond just to balance our budget? A 90th percentile tax payer (married filing joint with a mortgage deduction) would be faced with a marginal tax rate of 54-60% (3 times the current average marginal tax rate of 18-20%).
In a static world this math works out perfectly. Unfortunately this is a dynamic economy and nothing will sit still while such draconian measures are implemented. So what are the implications to our economy if we were to raise our income taxes 100 or 200 percent for all current tax payers? The government would remove $1.3 trillion from the economy (about 8% of the GDP) in order to not borrow the money from China. What happens when $1,300,000,000,000.00 goes missing from the economy? Let me put it another way, on average every American would have $4333 less to spend. In a household of 5, that means $21,667 would be taken out of their spending each year.
So do we have a revenue problem? If you see it as how do we collect enough tax revenue to feed the beast, then clearly the answer is YES! The beast is too large and needs to go on a diet. Now how about we get serious about cutting spending.