Math Problem

Dogs, tax returns, free contraceptives, birth certificates ... are these truly the important issues facing America? Hardly. We're arguing and whining about nothing.

What America has, and appears to not want to face, is a math problem:

If the annual revenue to the US Treasury is $2.3 trillion and the US Government spends $3.6 trillion, how long will it take for the US to go bankrupt?

In FY 2011 (the latest year for which figures are available), the US Government spent $2.292 trillion on Entitlement programs (Social Security, Medicare, Medicaid, Unemployment Insurance, etc.) and the Interest on the national debt. Contrast this amount with the $2.304 trillion in revenue. That left exactly $12 billion to run the entire US Government to include the Departments of Defense, Transportation, Education, Commerce, State, Justice, Energy, etc., etc. Needless to say, we borrowed $1.3 trillion to fill the gap.

This is not a problem we can solve by taxing the rich.

President Obama's latest proposal to raise taxes on those making over $250,000 a year would end up generating an average of $85 billion a year. That $85 billion would fund the US Government for about 9 days and, had this policy been in place in 2011, reduce the deficit from $1.3 to $1.2 trillion. Yeah, tax the rich, big help.

Even if Congress imposed a 100% tax, taking everyones earnings above $250,000 per year, it would only yield $1.4 trillion. While that might be enough to eliminate the deficit in a single year, how many of those who make over $250,000 would continue to work once they had reached this income level? I'm pretty sure the percentage would be somewhere around zero.

The answer to the problem is twofold. We need to create more taxpayers and we need to cut spending.

What's the best way to create more taxpayers? Pretty simple - put more people to work. In 1921 unemployment hit 11.7%. Secretary of Commerce Herbert Hoover urged President Warren Harding to intervene. Harding did, but not in the way that Hoover had suggested. Instead of deficit spending, Harding cut spending to correlate with the drop in federal revenues. The result? In 1922 unemployment fell to 6.7% and in 1923 to 2.4%. Harding had created millions of additional taxpayers by cutting federal spending.

Contrast this with what happened in the 1930s when Presidents Hoover and Franklin Roosevelt drastically increased federal spending. Unemployment rose to nearly 25%, thereby eliminating millions and millions of taxpayers and drastically increasing our national debt.

This cycle has been repeated over the last four years. Presidents Bush and Obama have both advocated increased federal spending to stimulate the economy and the result has been an increase in unemployment, the elimination of millions of taxpayers, and a massive increase in our national debt. From a low of 4.4% in May 2007, unemployment rose to a high of 10.0% in October 2009 and is still at 8.1%. In the same time frame our national debt increased from $10 to $16 trillion.

But where to cut spending? Even if we completely eliminate the Department of Defense, we would still have had a $420 billion deficit in 2011. That's a larger annual deficit than in all but one year (2008) of Bush's presidency. And while there are certainly cuts that can be made in Defense (I've worked as a Defense contractor for 25 years - believe me, there's a lot that can be cut), we'll never be able to balance our budget or significantly reduce our deficit until we address entitlement spending.

Entitlement spending is the two thousand pound elephant in the room.

So, when you go to vote this November, ask yourself these questions:

Which candidate promised to cut annual deficits in half, yet increased them by more than 200%?
Which candidate's running mate believes that increasing unemployment benefits somehow stimulates the economy?
Which candidate has successfully turned around financially insolvent companies, saving and/or creating untold number of taxpayers?
Which candidate's running mate has proposed a serious plan for reforming entitlement spending?
Which candidate believes that taxing the rich is the solution to this problem?
Which candidate is more likely to emulate Warren Harding?
Which candidate has already shown he is the current incarnation of Herbert Hoover and Franklin Roosevelt?
And, finally, are you grown up enough to sacrifice some of your future entitlements to solve our financial crisis?

To paraphrase former British Prime Minister Margaret Thatcher, pretty soon we're going to run out of other people's money. And at the rate we're going, we're also going to run out of our children's money as well as our grandchildren's money.