Thread: Five Unthinkable Options: Maintain 2008 rev. cut spend 75%

Maintain 2008 revenues and cut spending 75%

Five Unthinkable Options (Part 4 of 5)

By J.J. Jackson
Sunday, March 7, 2010

Boy, unthinkable option number three where we appease the dependent class and cut spending everywhere but their precious welfare programs sure was depressing wasn’t it? How did you like those numbers I gave you to mull over last week where even if we cut everything else from the budget except for the so-called “Mandatory Spendingâ€

Smaller government

Five Unthinkable Options (Part 3 of 5)

By J.J. Jackson
Sunday, February 28, 2010

This week it is time to consider unthinkable option number three with regards to the federal budget. Previously we have discussed unthinkable option number one, do nothing and keep spending more than we bring in, and unthinkable option number two, raise taxes to make up the differences between revenues and expenditures.

Unthinkable option number three is based on something that a lot of people claim they want but to this point no one has been able to get accomplished. In poll after poll majorities of Americans claim that they want a smaller federal government that both taxes and spends less. But unfortunately what people do not want to “spend lessâ€

Part 2 of 5 Raising Taxes

Five Unthinkable Options

By J.J. Jackson
Saturday, February 20, 2010

The first unthinkable option, as I mentioned at the end of last week’s article, is to sit back, do nothing different, keep on letting the federal government spend more than it brings in, enjoy the ride and hope like hell that you are one of the lucky ones to die the day before everything goes kablooie leaving a huge mess for our posterity.

While I think that there are certainly some people that would accept this option in order to maintain their current status within the convoluted system of federal benefits and kickbacks to buy their votes, I think that most Americans find it wholly untenable. But hey, I do not want it to be said that I did not put that option out there for your consideration. So there it is. But each of the remaining four of the five unthinkable options requires us to actually do something other than stay the course. I am not saying each are good options however, just that they are options.

In order to move on to the other options however we have to put forth some numbers and look at federal expenditures and revenues. Before I started writing this series I struggled with exactly which numbers to use. Not because I wanted to make the numbers fall in my favor because, quite frankly, I need no trickery to do that. No, I struggled with this because I wanted to eliminate as many complaints as I could from people looking for any excuse at all to find fault with the five unthinkable options because of the numbers and use those excuses as their cornerstone of support for acceptance of what has already been laid out as option number one.

President Obama’s recently proposed 2010 budget
I could, of course, base the expenditure numbers on President Obama’s recently proposed 2010 budget, which once again spends astronomically more than will be brought in, and use the recent history of revenues collected to present these scenarios. But since we really do not know what the final budget will be once Congress gets through with it as well as what else Congress will add throughout the year, the expenditure projections could be wildly off. And I don’t want to be accused of putting forth a worst case scenario just to gin up as much fear as I can. Again, however it is not that I need to cook the books to do this.

I could also use the 2009 budget as a basis and include all the extra expenditures the President and Congress have tacked on. But I am worried that all the revenues are not being shown in the data I have from the federal government. I do not think that these numbers are good to use because with April 15th still looming there will be refunds and payments galore pending and I am not certain that these numbers are final by any stretch of the imagination.

So I have decided to use numbers from 2008. We are nearly two years removed from 2008 and that means that the expenditures and revenues are pretty well recorded. There is no reason to go further back because I believe that we have to go with the most recent set of good data available that reflects what our current government is doing and spending money on.

So what are the numbers? Well, let’s take a look. In 2008 the federal government in total collected total receipts of $2.569 trillion. Total expenditures for that year were $3.094 trillion[1]. For those of you keeping score at home that is a deficit of $525 billion. Again, these are the government’s numbers, not mine. Just to show that this level of receipts is normal and not an aberration either high or low, in 2007 total federal revenue was $2.568 trillion and in 2006 it was $2.407 trillion[2].

So, let us assume for a second that government will not spend more than this in 2010. We already know that President Obama’s proposed budget is much greater, but let’s just go with a budget just over three trillion to avoid any sort of speculation about what the final, and obscene numbers, will be.

Unthinkable option number two is to raise taxes
Unthinkable option number two is often one that we hear from people that think money just grows on trees. That option is to raise taxes. So, in order to close this budget gap and raise the $525 billion needed what would we have to do to tax rates? Well, obviously if you believe that raising taxes will close this gap by raising revenues you have to raise tax rates. Personally I don’t buy into this strategy because taxing people more and more strips them of incentive to create and succeed and only when people create and succeed do they produce more wealth and hence more taxes in the process. But I know that there are a lot of people out there that think the opposite. So let’s explore.

In 2005 the median income for workers aged 15 and older was $28,567[3]. There were 155 million people in this category and that gives us total income earned in the United States as $4.428 trillion dollars. Let’s make a reasonable assumption that this increased through the years to 2008. I’ll be generous and say there was a 3% standard wage increase per year in 2006, 2007 and 2008. That gives us a total estimated income of $4.838 trillion in 2008. This is based on 155 million income earners still remain in the labor force.

If we target income taxes, which were $1.124 trillion in 2008 (23% of our extrapolated 2008 total income), we need to get to about $1.649 trillion in personal taxes. That is a 46.7% across the board increase in your taxes and a requirement for the government to take 34% of all wages earned. Are you willing to pay 47% more in income/personal taxes and have over a third of your income taken just to break even?

And this is just based on 2008 expenditure numbers and what is needed to not increase the deficit by a single penny. What if we have a really bad year while government expenditures remain the same? What if total revenues drop from $2.569 trillion to around $2.1 trillion? I think it would be reasonable to suggest that as responsible people we plan for the worst don’t you? That means an even higher tax rate on personal taxes. Again, just to break even and we have not even broached the topic of actually paying down the debt. If revenues decline during a recession to $2.1 trillion that would mean a short fall of another $469 billion to make up in the lean years. That also means higher rates of taxation than already discussed.

Ok, so a nearly 50% tax increase being unpalatable without even considering what it would have to be in a bad year where revenues dropped, the often heard refrain will no doubt once again echo from sea to shining sea. “Tax the rich!â€

The more I talk to people the more I know that most people are so wrong about this and have too many misconceptions about the federal budget

Five Unthinkable Options (Part 1 of 5)

By J.J. Jackson
Saturday, February 13, 2010

The scene is from The Simpsons Movie. Russ Cargill, the movie’s villain, stands before President Schwarzenegger with five plain brown file folders each containing government solutions to the pollution in Springfield. Cargill proclaims, “Well, I’ve narrowed your choices down to five unthinkable options.

Each will cause untold misery ...â€