How to Explain Our Budget Crisis so People Actually Understand.

By Tom Rhodes, April 11, 2011

The Republicans and Democrats agreed to $38 Billion dollars in spending cuts. Sounds big, the news and our elected leaders are all saying how grand these spending cuts are, and how draconian any bigger cuts would be. The fact is the cuts are less than the interest on the national debt for just one year, and are barely symbolic, so they continue to choose to continuing borrowing money we don’t have.

Let’s put it this way, assume you are spending $1500 more than your income by using a home equity line of credit. Every additional dollar you spend over your income adds to your mortgage. Part of what you are using that $1500 in excess of income is to make part of your mortgage payment (like using one credit card to pay another). You finally realize that you (republicans) and your spouse (democrats) can’t keep spending they way you have, because you are digging a financial hole you may not be able to climb out of. You both argue over what to cut, and it seems everything is essential. So after lots of loud arguments you and your spouse agree to cut your excess monthly spending by $38. The results are that you and your spouse are mad at each other you’ve reduced your excess spending from $1500 more than what you earn to a mere $1462 more than your paychecks. STUPID! Does any rational person think that when you are spending $1500 more than your income, reducing your spending by $38, is going to help your debt problem? When this kind of spending has maxed out your line of credit, would any reasonable person think that because you will now only spend $1462 more than your income that it’s acceptable to get yet another line of credit and borrow more money?

In the real world the only acceptable solution would for you and your spouse to make some serious cuts in your spending, and stop spending more than you take in. Deficit spending over a short period of time for a real crisis is understandable, and most people have had to do that, but to do that every day, week, month, and year without any plan to reduce spending to below your income so that you can pay off the huge debt is a surefire road to bankruptcy. What do we call nations that do this? - Greece and Iceland. Permanent deficit spending is not sustainable.

We already have the most progressive taxes in the world. Our rich (the people who hire others), already pay a disproportionate share of taxes compared to the rest of the population. Our top 20% pay over 80%, while our bottom 50% pay less than 3%. Our history has shown that regardless how we structure our taxes, we cannot collect much more than 20% of GDP in taxes. If we raise taxes people find ways to get out of the taxes by either moving to where they can keep more of their money (off shore), or hording their assets (stop investing and sit on your cash), or some other way to get out of taxes (look at GE for an example). The amount of money the government can get out of the people is maxed out. Sustained spending at 24% of GDP as Obama proposed with revenue at 20% of GDP won’t work. You cannot continue to spend 5% more than your income and not go bankrupt. To become financially stable we must reduce spending to below revenues using the difference to pay down the debt. Nothing else will put us on solid financial ground.

If we don’t institute significant cuts to spending, we will become another Greece or Iceland. We can reduce the size of necessary and painful spending cuts if we increase our revenue. Because our history has clearly shown that in our society it is unreasonable to expect revenue greater than 20% of GDP. To increase revenue we must increase GDP. The problem is our current government laws, regulations, and taxes all go towards reducing GDP and making business harder to do in the USA. Unless your GE or one of the very few other “Fortune 100” companies who have the law makers in their pockets. What congress has done over the past few decades is kill incentives to increase the GDP. From Obamacare, Cap-n-Tax, and hundreds of thousands of pages of new regulations and tax code, the Federal government appears to be systematically trying to kill expansion of the US economy.

The best way to look at it to consider a small business with 40 employees. At the end of the year this business earns for its owner about $200,000. Considering the assets invested, risk taken, and long hour a small business owner works (typical is 60/week) the earnings are modest. Our example business would like to expand because there is a market for more of its product than they currently produces. Any serious or reasonable expansion would put it over the magical 50 employee mark. Because of the additional work expanding the business would cause for the owner, the additional government mandates, and the increase in taxes, if the owner doubled the size of the business the owner would realize an significant increase in liability, responsibility and costs. These increases are not proportional to the benefits of expanding. The additional government burdens because of exceeding 50 employees are huge. A doubling of the size of the business it would only earn its owner about total of $225,000. The meager additional earnings (12.5%) for the small business owner compared to the significant increase (100%) in workload and costs, coupled with a huge increase in regulatory liability, don’t justify expansion. So rather than expand and hire more people the business, holds steady. Imagine turning down work because it would require expansion, and that expansion would put you over 50 people, so the increase in work would become unprofitable? That is what our government has done to our small businesses. Contrary to what the press would have you believe, small businesses are what generate expansion in our economy, and fuel expansion in big business.

Now the problem, the old married couple we keep electing to run the country. The Democrats and Republicans, are not responsible, their entire goal is to maintain power for themselves. The are just like the example I started with explain our financial situation except, unlike couples living in the real world, they can tell the bank what to do. The Republicans newly elected based on promises to institute spending cuts, yada yada yada. They are no different than the Democrats, they promised fiscal responsibility, but when they had the power to force the government to become fiscally responsible they caved. The Republicans ignored their promises and look at the entire thing from how to maintain power not do what’s right, and admit it. In the national Review Online, on , April 9, 2011, Rich Lowry said, “I saw the whole confrontation through the prism of two major downside risks: 1) a shutdown that could go awry politically and badly hurt Republicans three months into their House majority; 2) a poisonous split in the caucus that would make it impossible for House Republicans to fight cohesively on the big items to come.”

Latest polls show that 62% of the people don’t want the government to raise the debt limit. That was and is a major point of what the TEA Party wants and demands. The taxpayers of the USA do not want the government to go further into debt, they understand we have a spending and debt problem. The Democrats hold the people of the US in total contempt. Over the weekend Sen. Charles Schumer may have come up with the most comically derogatory metaphor for the people of the US. He considers the people less than fleas. The people elected a new batch of Republicans to control the US finances, Schumer said they are a “flea, wagging a tail, wagging a dog.” He seems to think the government not the people is the dog, and that the government not the people is in charge.

The constitution makes the House in charge of taxing and revenue laws. The Senate cannot constitutionally initiate these laws; this is so that the law makers closest to the people, the House, are in charge. Constitutionally the government was instituted by the people for the purpose of protecting our rights. Chief Senate Democrat Schumer seems to think that Government, not the people is in charge. The wishes and desires of the people as expressed in our last election are just fleas( Majority of House), on the tail (Budget and Revenue Laws) wagging the Dog (Government).

Almost 80 percent of Americans feel today that the country is on the wrong track. Last November, voters fired one quarter of the sitting Democrats and a good number of the Republicans in Congress in the name of change. What is clear is that both Democrats and Republicans hold the financial health of this country and the wishes of a super majority of the people (62%) in total contempt. They want you to remain ignorant, and their desire is to maintain and keep power. There is a method to force the government to become financially solvent. Stop borrowing, the current GOP majority in congress has that power. Simply refuse to vote to expand the national debt limit. That would be the dog, as in We the US Taxpayer, being in control.

To quote Earl Pitts, “WAKE UP America!!”