[D]issing America: The Looming [R]esurgence

D is for Dissing America

The Case for Further Tax Cuts

Ranted By: Larry Walker, Jr.

Obama’s progressive form of economic change is destroying America. Not only does he threaten to hoard the keys, but to thrust the car over a cliff. Specifically, the effect of his policies on productivity, government subsidies, tax credits, class warfare, income taxes, and government spending is doing more harm to America than the Great Recession ever could.

Taking Away the Incentive

In the private sector, when you want to motivate a workforce you offer them things like more time off, bonuses, or stock ownership. In other words you offer them something in exchange for something. The Obama administration offers nothing for those who work hard. With Obama, if you work hard, you receive the reward of paying higher taxes, fees and fines to support those who don’t work as hard, or at all. If I told my employees that next year, the lowest paid would be getting a 50% decrease in pay, and the more highly paid would receive a 10% pay cut, would they work harder? No. In the real world they would quit immediately, hang around while looking for another job, or simply decrease their performance in line with the coming downgrade. Isn’t this what Obama is doing by proffering a tax hike for those who are working hard, paying their bills on time, and in essence supporting everyone else?

The Failure Subsidy

Now let’s take a person who has been unemployed for a year and is about to lose their home. They haven’t really looked for work because they’re on 99 weeks of unemployment, courtesy of Obama, and they expect the government to step in and make up the back payments on their home. Why should this person work when they can live off of less and still get by? Their plan is to start looking for work again when all the free government benefits run out. This person has in effect been given a government subsidy not to work, at the expense of those who are working. When my teenagers can go out and find jobs in this economy, I find it hard to believe that there are no jobs. One of them gets up at 5:00 AM and goes off to bake bread, while moochers stay home to collect free checks. Why do my kids work? Because their mother told them they must either work, or get out of the house. That’s the kind of incentive that will either make you or break you. Implying that we somehow need illegal immigrants to perform undesirable work, because Americans won’t is a sad, sad excuse.

Breaking the Free-Market

At a time when home prices had fallen between 30 to 50% in some Georgia communities, in stepped the federal government with an $8,000 refundable tax credit for first time homebuyers. Initially the credit was only $7,500 and had to be repaid over a 15 year period. People were already buying houses at the time, and were turning down the initial credit because it had to be repaid, so the government, in its wisdom, made it a giveaway. Did potential buyers really need an additional incentive beyond the existing 30-50% discount? What about the hardworking folks down the street who were left paying for their largest, and now most devalued, asset? Prices may have eventually recovered on their own had fewer houses been sold in the trough, but through government intervention, now all of our houses have been hopelessly devalued. Those who received the tax credit also received the bonus of equity in their homes, while those who hung on through tough times got screwed.

The Victims

The Obama administration talks a lot about the “haves” and “have-nots”. It seems there are a lot more have-nots today, than there were in January of 2009 (roughly 6.4 million more). Those who still have a job, a business, or some savings (things that they worked hard to achieve) are the new haves. The have-nots are those who are victims of an economy, hindered by the federal government. In many cases, the have-nots are the direct victims of the federal government. Instead of motivating people to get off of unemployment, welfare, subsidized housing and food stamps, the government is increasing these programs and fostering the entitlement mentality. What incentive is there for one of these, government-made, have-nots to ever claw their way out? If working means giving half of ones labor to the government, then why even try?

Legalized Robbery

I was looking over a client’s job situation recently. The conclusion was that if she accepts the proposed contract, she and her husband will be in a position where every additional dollar she earns, for the rest of the year, will be subject to 50% in federal, self-employment, and State taxes. Is it even worth the effort? If you were offered a contract that would pay you $68,000 in five months, but you had to pay $20,000 in travel expenses to earn it, and then another $24,000 in taxes, leaving you with just $24,000 would you do it? It might be better to just stick closer to home and find a W-2 job paying $30,000. Where is the incentive when the government stands to gain 50% of ones labor? Yet the Obama administration wants to raise taxes. Hell, taxes are already too high. We need additional tax cuts, not an increase. Top tax rates should be cut back down to 28% like they were under Reagan (and even that’s too high). No one in their right mind is going to put forth maximum effort for half. It’s just not going to happen. Many have-nots ponder this same dilemma everyday.

The Spending Bonanza

If the Bush tax cuts caused such huge deficits, then how did Obama’s July 2010 budget deficit end up exceeding Bush’s 2007 annual budget deficit, by $5.0 Billion?

Per the website, Liberty Works, “the one-month deficit for July was $165,043,000,000 or $5 Billion more than the “irresponsible Bush deficit” for the entire year of 2007.”

Graph via: http://blog.heritage.org/2010/02/05/past-deficits-vs-obamas-deficits-in-pictures/

Will the government ever be able to raise enough tax revenue to cover Obama’s massive spending gap? Let me answer that for you. No. Never in a 1,000 years. The only thing certain about our exploding national debt is that more revenue will eventually be required to cover it. The question is how to increase revenue without further damaging the economy.

A Conservative [R]esurgence

What’s the solution? We need a conservative resurgence in America. Give us the incentive to produce, take away the subsidy for failure, stop tampering with the free market, and free us that we may lift the have-nots. Reduce income tax rates, and stop spending more than we have. Our present course is destined for failure.

The bottom line: Drastically cut the size of government, and don’t just freeze tax rates, cut them. You can’t just cut taxes without a corresponding reduction in spending. It doesn’t work like that. Yet, until taxes are cut, the government will be trapped in providing greater failure subsidies (bailouts), and further destructive interference with the free market. That’s how it works.

If you’re not part of the solution, you’re part of the problem.

National Debt Crisis – 2010

Obama’s Debt Crisis

How much is the National Debt costing America?

It’s interesting to note that the total interest paid on the National Debt since 1988 has been $7,393 billion (that’s $7.4 trillion). That’s a lot of money being wasted by politicians in Washington, D.C. and there are not enough people talking about it. There is an even more deafening silence regarding what the cost will be over the next 10 years. The United States will pay almost as much interest as it did over the last 20 years in just the next 10. And no one in Washington is addressing the Debt Crisis. I would to God that somebody would wake them up before it’s too late.

click to enlarge

Source: Treasury Direct

Plan A – Pay the Debt Now

The National Debt is currently $12,087 billion (that’s $12 trillion). If principal and interest payments were made over the next 30 years at 4.0% interest, the total remaining interest cost would be $8,883 billion (that’s $8.9 trillion). The total annual P&I payment would be $699 billion or roughly 31% of current government revenues (click on the chart below). But since it’s not likely that this plan will ever see the light of day, what is Plan B?

PLAN A - click to enlarge

Plan B – Ignore the Debt until 2019

The National Debt is projected to grow to $19,224 billion (that’s $19 trillion) by the year 2019. This is calculated by adding the CBO’s projected budget deficit of $7,137 billion to our current debt. If the debt is not addressed until 2019, the cost of interest over the next 10 years would be $6,271 billion, since no principal payments will have been made (see chart below). Then, assuming that a plan is put in place to pay the debt off over the ensuing 30 year period, ending in fiscal year 2050, the total cost of interest over the next 40 years will be $20,397 billion (that’s $20.4 trillion). If the government starts making payments after 2019, the annual P&I payment would be around $1.1 trillion or 49% of current government revenues.

PLAN B - click to enlarge

Obama’s Debt Crisis

If we address the National Debt now it will cost roughly $8.9 trillion in interest. If we wait until 2019 it will cost closer to $20.4 trillion in interest. If we never address our debt and continue to treat it as an interest only loan, then this number will “skyrocket”. In fact we may already be at the point of no return.

This is Barack Obama’s failure. Obama talks the talk but he doesn’t walk the walk. Obama will cost America $6.3 trillion in interest over the next 10 years by his failure to address the national debt. Add that to his $7.1 trillion (and rising) budget deficit and Obama will have cost America at least $13.4 trillion. So any success that Obama touts short of $13.4 trillion in savings, revenue or benefits is a joke.

The Consequences

What consequences could American’s face if the debt is not dealt with? Well, for one interest rates are currently at an all time low, and there is only one direction they can go, up. When interest rates begin to rise, so will the cost of the debt. As shown here, if interest rates rise to 5.0% and the debt is not brought down by fiscal year 2050, then the total interest cost jumps from $20.4 trillion to $36.8 trillion. That’s about the equivalent of three times annual GDP wasted on interest payments.

Also, the United States could lose its AAA-credit rating. Once AAA status is gone it will be tougher for the nation to borrow money and lenders will charge higher interest rates. Lenders may also begin to impose stringent standards on our nation’s fiscal policies. Don’t forget that a lot of this borrowed money comes from foreign countries. In other words, if we don’t deal with the debt now it will only cost more in the future and we could potentially lose some of our freedom in the process.

Is Congress Brain Dead?

When Congress talks about saving the country a couple of hundred billion over 30 years, by passing a health care entitlement bill, I can’t help but wonder if anyone is awake at the helm. Congress is on the path of costing the country roughly $6.3 trillion in interest over the next 10 years, plus another $14.1 trillion over following 30 years, and these are probably low-ball figures, and what are they up to? Telling us how they will save a few pennies by adding a few trillion more to the National Debt. Yet, if Congress fails to address the Debt by 2019, the interest costs will soar well beyond the $20 trillion mark.

Those who truly love this country could care less about the Congress saving $200 billion on a new entitlement program. I could especially care less since I know that it will cost 5 times as much to implement and more down the road. Don’t talk to me about Health Care reform while your back is turned on the more pressing $20 trillion problem. Will somebody please wake up the Congress, the Media, and the Borrower in Chief? Wake them up before it’s too late.

Note: This posting is based on the following assumptions: (1) that interest rates are fixed at 4.0%, and (2) that the debt is repaid over a 30 year term.

References/Related:

GAO Financial Audit of Public Debt 2007-2008

CBO Budget Projections through 2019

U.S. Treasury Direct