Debt Reduction – Politics Aside, You do the Math

Every election cycle, we’re told by our politicians, candidates, commentators, economists, and those in-the-know, that “this is the most important election in our lifetime.”  We’re at the cusp of the 2012 cycle, and what is happening/not happening with the debt ceiling/debt reduction talks in Washington, does indeed make this one of the most important elections.  Important, because we’re approaching a crossroads, economically and philosophically.  Our President believes in wealth re-distribution, and that philosophy was already evident 10 years ago during a 2001 WBEZ radio interview in Chicago.  That philosophy is driving the debt talks from the Obama’s perspective, especially regarding revenue increases.  And for the rest of us non-Obama philosophical followers, why the course of the talks and their resolution is a crucial part for America’s future.  Are we a free-market economy, an entrepreneurial society, where the individual benefits from his/her hard work and decides how to spend his/her wealth.  Or, will we instead become a society of “fairness”, and the benefits, of the work of the few, are distributed by government to be enjoyed by all, deserved or not.  What I call “equality in poverty”.

Many American voters, and I’m one of them, do not believe in taking a position and never budging.  There’s give and take in all forms of our life and business.  However, raising taxes without cutting entitlements adds trillions to our deficit and will continue to hamper job creation, as businesses large and small struggle under the burdens of higher taxes and regulations.  Nancy Pelosi recently, stated, “we will not support benefit cuts for social security or medicare. There is plenty we can do to reduce the deficit before we balance on the backs of American seniors.”   But it’s okay to put an unsustainable burden on our children and grandchildren.  Do the math yourself.

  • Entitlements – Medicare, Social Security, Medicaid – are currently at 43% of the Federal budget, 10.3% of GDP.  By the time our children reach retirement age, that 10.3% will mushroom to 20%.
  • The first members of the baby-boom generation are beginning their retirement.  Fifty years ago, there were five people working to pay for the benefits of one retiree.  Today, the number of workers is 3.  In 20 years time, the number will further decrease to two workers per retiree.
  • As Treasury Secretary Tim Geithner corroborated on Meet the Press this morning, the US is borrowing forty cents for every dollar it spends.

As some already decry, tax the wealthy at higher rates, close the tax breaks for the large corporations.  However, if you look at a chart from the Heritage Foundation, based upon numbers from the Congressional Budget office, not only the taxes of the wealthy will have to increase to pay for future entitlements.  This is assuming we do nothing regarding structural reform.

It’s also been a rallying cry, as in the President’s last presser, to make sure that oil and gas companies forego their tax breaks.  Quoting an American Petroleum Institute spokesperson, “Our companies have an average 41 percent effective U.S. tax rate – that’s higher than almost any other company. We pay almost $90 million in taxes and other payments every single day to the federal government, that’s about $37 billion a year. So this idea of paying their fair share and looking at all industries in the context of tax reform, which I think Speaker [John] Boehner (R-Ohio) was saying, is, sure, I think that’s a legitimate question to ask.”

I find it ironic that Democrats and other interest groups who have a problem with the oil companies making a profit of approximately 4%/gal of gas, don’t seem to have a problem with the government’s tax rate of 15%/gal, that we consumers pay for each time we’re at the pump.

I don’t for a moment believe the US government is going to default on its obligations.  The Congress and White House are playing the political game of brinksmanship instead of taking the opportunity to seriously agree to put much needed reforms in place.  It’s political business as usual with the Republicans wanting to deny Obama the slightest modicum of perceived victory, and the Democrats holding on to the out of control entitlement spending that their base demands of them.   If we continue down this road, you won’t have to go to Athens to experience Greece.  You can watch your country implode from your own living room.

For more opinions of a non-political nature, visit my sister blog

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