A Common-Sense Look at Taxes, the Budget and the National Debt
Taxes Are Wrong, Right? We Owe What? and Other Questions Answered
Then there is the ever increasing national debt, currently north of $9 trillion, or more than $30,000 for each man, woman, and child. Someone has to pay all that money back. Can you? In the following, let's take a rational, if somewhat simplified look at these and related questions.
Why taxes?
Unless you are an anarchist, you understand and accept there are certain things we need a government for. The federal government handles national defense, foreign relations, interstate commerce and many other functions. What properly belongs in that list is hotly debated between proponents of small government and their opponents, and is outside the scope of this discussion.
For now, let's just say the government provides us with services neither you nor I would be able to provide for ourselves. These services, however, are not free of charge. Maintaining an army for example, is very costly in the best of times. Not having one can be even more costly.
Can't the government get the money without taxes?
The federal government could simply print money. That's one privilege you and I don't have, but would be kind of neat. However, money is simply a convenient symbol for goods. Money printed without tangible goods to back it up pushes up prices as more money chases the same goods. If the federal government imposes a price freeze, we run out of goods. Gas stations running dry in the early 70's showed that.
To avoid printing money the government could sell things. The budget is much higher than any resources the government can sell. However, the federal government could run its own businesses to fund its activities.
The Chinese People's Liberation Army owns many businesses, as do the government of the Russian Federation, and the Iranian Revolutionary Guard. Hugo Chavez of Venezuela is just the latest to nationalize private industries. Not exactly the shining examples we'd like our government to follow.
Government ownership of businesses results in inefficient companies. With salaries determined by position and not merit, there is little incentive to be creative or take calculated risks.
As long as government employees work "by the book" they face little risk of being fired. This is not to say there are no hard working, motivated government employees. The system, however, is geared to encourage mediocrity in all but the most senior ranks.
Just ask the defunct Soviet Union. State run businesses become bloated, inefficient bureaucracies. Rather than cutting costs and boosting productivity, staff is added to cater to managers' egos.
Taxes now or payback later...
The government can borrow money by selling bonds, treasury notes, etc. This is how our deficit is covered, which explains why the national debt has ballooned over $3 trillion in the past 7 years.
If you're like most of us, you've walked that path using credit cards and know where it leads. Ultimately, the notes come due, and the piper must be paid, with interest. Taxes are the only remaining option, a necessary evil. By taking a part of the citizens' money the government can fund its services.
There are three things the government balances. Taxes, borrowing, and budgets. As you probably know from experience, cutting budgets is hardest to do, but the most prudent. For example, if farm subsidies are no longer serving the national interest they should be cut. If big agro-business farms receive the lion's share, there is no reason you and I should write the check.
Politics, "the art of the possible." Less-than-desirable things have to be accepted for political support to be garnered. A host of ear-marks are often legislated into spending bills to buy this support in congress.
The money spent on these ear-marks is our money, which places a fiduciary responsibility on our representatives. It is past time for them to realize that although the "pork" they bring home serves their constituents in the short term, in the long run we all suffer as a result. It is time for more brave leadership and less pandering to voters' whims.
Once the budget is minimized, taxes should be adjusted to balance the budget. Borrowing should only be used as a last resort. In times of budgetary surplus the debt should be paid down, rather than used to cut taxes. When the government borrows trillions of dollars in our name, it is our children and grand children who will be left holding the bag.
Published by Opher Ganel
Researcher, teacher, photographer, storyteller. Creativity is my escape from the day-to-day. View profile
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13 Comments
Post a CommentThe only way we can fix the debt is by creating jobs. Since jobs are not being created people are not spending money. You can't spend money you do not have. A lesson the government should have learned from my mother. Stop tossing money to the rich, and give to the poor. People all have needs, and if you can not give them the money they need to get an education, to get training, or anything else you have serious issue. All of our jobs are leaving the country. There are no more factory jobs because all the factories are in another country. The companies that provide jobs outside of the country recieve tax breaks. For what? They are not helping our government or our economy. The rich libs and conservatives are destroying this country. Soon, if you do not make over 100,000 a years you wont be able to live in America.
The problem is that the middle ground is not being sought by enough liberals and conservatives to make it stick. What is needed is not simply to do away with Medicare and Medicaid, as many conservatives would like, nor to keep everything as it is, as desired by liberals. Rather, we should rationalize the system so that those who truly need help receive it and are not left to die of preventable diseases, or due to insufficient money for medication, food or shelter. Of course those who can afford these things on their own should do so. It makes little sense to provide Social Security payments to someone like Warren Buffet or Bill Gates, yet they will receive the highest level of benefit allowed. Given the record of these particular gentlemen I suspect they will donate those payments, but not every well-off individual will do so.
The issue is entitlements. All else is secondary. Deficit spending is mandated by entitlement dictates. The government has no choice. Until entitlements, primarily Medicare and Medicaid, are addressed all else is noise in the wind. Good luck to the candidate who pushes for the needed means test for social security or increasing the retirement age. As the baby boomers age this pandering will only increase. Boondoogles like the prescription drug plan will be more common blowing even greater holes in our national budget. What is needed is an independent commission akin to the military base closing commission that can make the tough decisions.
The problem with sales tax replacing income tax is that they are by nature regressive. This means they bite worse poor people than the wealthy, simply because the poor spend most or all their income, while the rich spend a relatively small fraction of their income. There are ways of addressing this through a large basic deduction, but once you're beyond that deduction, the middle class are hit worse than the rich. There are unfortunately no magic bullets in this.
Four words: National Flat-rate Sales Tax! Ah, but that's the libertarian in me coming out...
Nice article and yeah it would be neat to be able to print our own money (and not go to jail).
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Tax cuts are great when you can afford them, but financial disaster if you do not keep the budget balanced at the same time. If and when growth increases and you can spend the increased revenue or cut taxes further - that's great. Spending it before it arrives seems short-sighted to me.
As stated in the title, this is a common sense look at the big picture. It is beyond the scope of this article, and indeed my knowledge, to get into specific programs where the US government could cut. The issue of pork spending is mostly one of attitude. In the micro economic world we live in as individuals, our entire outlook and economic behavior changes once we decide to e.g. cut the $4 lattes, etc. The macro economic situation changed drastically from the time George W. Bush took office. We went from surpluses as far as the eye could see to the current repeated large deficits. Partly this is a result of the changes in the security sphere. Partly there are no doubt factors having to do with the global economy. I suspect however that the large tax cuts this administration pushed through a then-republican congress did not generate the economic growth and increased tax revenues they predicted. Tax cuts are great when you can afford them, but financial disaster if you do not k
The only problem with this is what do you cut? At this point, the idea the government can save money by trimming domestic spending is a myth, or at least a political myth. There are only two types of big spending these days: defense, and entitlements. Tampering with the entitlements is political suicide, and probably economic suicide as well (the middle class needs MORE uncertainty? right...). Defense, past the costs of the current pair of wars, probably needs to see a moderate increase. It can be solved, but the problem is much more holistic than just taxes and government spending.
You raise some interesting points. It's such a tricky system. I'm glad I don't have to administrate the thing.