Note: this article was originally written in 2015. It was updated 11/1/2017.
In the election of 2012 between President Obama and Mitt Romney, the left demonized Romney as a cold-hearted liar who cares nothing about the poor and who will do or say anything to get elected. They demonized rich Americans as well. However, a simpler way of looking at who supported Obama and who supported Romney is to simply look at who pays federal income taxes and who receives those tax monies.
(Note: The following numbers are rounded off for simplicity, but are accurate enough to get the general ideas.)
It turns out that the top 10% of income earners in the US pay 70% of all federal taxes. The top 50% to 90% of income earners pay the other 30%. The bottom 50% of income earners ($30,000 a year and below), pay virtually nothing. (More accurately, it is the famous lowest 47% who pay no federal income tax.)
In his campaign, Obama said it is the lowest 50% of income earners in the U.S. who he is working for. These people are his core constituency. This is not a bad policy: Obama is for the poor.
However, should it be any no surprise that these 50% enthusiastically supported Obama? They will never have to pay federal taxes or interest on the federal debt (which, as far as we can see, will never be paid back).
Conversely, is it any surprise that most of the top 10% income earners—all 14 million of them—generally opposed Obama? They will have to pay 70% of the federal budget and 70% of the debt’s cost!
Finally, it is any surprise that the top 50% to 90% of income earners had only mixed feelings about Obama? They—all 56 million of them—only pay 30% of the budget and the debt, and 30% of the interest on that debt.
Below are some other interesting numbers regarding the US economic mess.
During most of the Obama years, we borrowed 40% of every dollar the federal government spent. Now, in 2017, we are borrowing around 12% of what we spend.
(Obama raved about how he lowered the deficit — not that he lowered the debt, which he doubled. He was right. He did lower the deficit — from the highest in U.S. history, $1.5 trillion, which he created in the first years of his presidency, to only $500 billion when he left office. Let all the children who will pay the interest on that debt give President Obama a big hand: “Yaaaay.”
Now, we are $20 trillion in debt.
(In the 2016 election Hillary Clinton said she was going to follow Obama’s policies. He “saved the economy” by driving it $10 trillion more in debt. If Hillary did the same, and remained in power for 8 years, and followed Obama’s example, the country would be $30 trillion in debt when she left office. That would be the end. The country would be broke. Collapse!)
The interest cost on our $20 trillion debt is now only 1% but has been historically around 3%, and will probably soon rise back to 3%.
At 1% interest(2) the interest payments on our debt are only around $200 billion a year. But if the interest rates rise to 3% — which the probably will…soon — the interest cost will be around $600 billion a year. (3% of $20 trillion is $600 billion.). In the near future, this is probably the interest that taxpayers will pay every year forever on that debt.
The interest rate in Greece is around 6%. If the US economy ever approaches the economic state that Greece is in—which is exactly where we are headed—then our interest rate will also be around 6%. 6% of $20 trillion is $1.2 trillion, which is the interest future generations will pay every year, forever. Of course, by that time our debt will even be more.
If the national debt goes up to $30 trillion — and that is where we are eventually headed, especially with President Trump’s policies — the interest rate may rise to 6%, as it has in Greece. Then the interest payments will be $1.8 trillion a year, almost $2 trillion. We will be broke, broke, broke. Greece would look financially responsible.Is this moral?
Is it fraud? Is it theft?
No intention of paying it back
It seems the country is borrowing money from younger people and future generations with no intention of ever paying it back. Our leaders are basically lying to our children. The purpose of this “borrowing” is to stimulate the economy so that present citizens can consume as much goods and services as possible. And everyone can have “jobs, jobs, jobs.”
We’ll grow the economy and then pay the debt back
The con pitch is that we are borrowing from future taxpayers to help grow the economy. Then because the economy is bigger, the government will collect more taxes, and then we will use these extra taxes to pay back the debt. (This is the famous “Laffer Curve” theory.) (2)
But ever since President Raegan’s — with his deception that “deficits don’t matter” — this has never happened. We haven’t paid back a penny. (Oh wait, yes we have — according to the con artists — we paid it back with new loans, thus never decreasing the debt.)
Let’s look at the math:
We now have around $500 billion federal deficits each year, and we will continue to have these deficits for the near future. We tax around 33% of the GDP for Federal taxes. (The GDP — Gross Domestic Product — is the total amount of goods and services the country produces every year. Thus we tax around 33% of what we produce.)
Thus to even balance the budget, the economy would have to grow.
Our GDP is now around $15 trillion a year. Since we tax 33% of the GDP, we would have to raise the GDP $1.5 trillion to raise $500 billion in new taxes, thus balancing the budget. Thus the GDP would have to be around $16.5 trillion in order to balance the budget. This means that the economy would have grow at a rate of 10%. ($15 trillion GDP divided into $1.5 trillion growth.)
The economy is now growing at a rate around 2%! Thus we would need the economy to grow at 5 times the present rate! An impossibility. (Even if we did achieve a 10% growth rate, we would have unacceptable inflation.)
Thus, there is no authentic plan to even balance the budget, nor to create a budget surplus, nor to ever begin paying back the debt!
To begin paying back the debt (which we say we are going to do), the economy would have to grow even faster than 10%!
Thus, the only way we could ever have a budget surplus and begin paying back the debt is by reducing spending. Raising taxes will certainly help, but this might have a depressing effect on the economy. (And with a depressed economy, we might even collect less taxes, which will increase the debt.)
Thus, even though we must raise taxes for everyone the only way to have a long-term sustainable economy is to dramatically cut spending.
We call this policy austerity — a dirty word for the pseudo Progressives.(3)
(1) Our interest rates are so low (1%) because of a big Ponzi scheme. In order to keep them low, the Federal Government borrows money from other go vernment agencies — such as Medicare and Social security — and pension funds.
(Because of this, Medicare and Social Security are both broke. Instead of the cash that taxpayers have contributed these agencies have Treasury Notes. When these Notes become due, the government will have to raise money from the same taxpayers (suckers, Ponzi scheme victims). If Republicans are in power they will probably raise taxes on the lower income taxpayers. If the Democrats are in power, they will try to raise taxes on the upper income taxpayers.
China and India love this scheme because it keeps interest rates low and thus keeps the dollar strong — and thus the Chinese and Indian currencies are weak compared to the dollar. This, in turn, helps China and India to export more goods to the US, strengthening their own economies, and thus their own political power.)
(2). It should be noted that under President Carter (1976-1980), the economy was in shambles. Then President Reagan was elected and revived the economy by growing the U.S. debt more than did all the past Presidents combined.
Jimmy Carter remarked that he could have done the same thing — and would have been re-elected and gone down in history as a big hero — if he was willing to go that much in debt, with no realistic plan of ever repaying it. So now Carter is looked at like a bum and Reagan is looked at as a big Republican hero.
(3) Paul Krugman, a Nobel Prize-winning economist, a professor at Princeton University, and a columnist for the New York Times, argues that we — and every other country — can borrow money without limit and forever (just print more money). But who am I — or any other thinking American who has their feet on the ground of financial reality — to argue with him?