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?
Any candidate who proposes this as a tax plan immediately loses my vote. This way of thinking is one of the fundamental problems that have got the middle class where it is
Tx for the comment. But here’s the problem, here’s your problem. Come up with a tax plan that will work, long-term and for all groups (not just the top 1% and the bottom 50%).
If you have any ideas, let us know. Perhaps we can work on them.
Isn’t it astonishing the GOVERNMENT utilizes our cash at the same time and afterward charges the general population when we begin to gather it? At that point to finish it off you just get 33% of what you ought to have the capacity to gather. The entire framework is a Bernie Madoff sckeme. In the event that you figure it out and utilized a straightforward 5%-6% interest over your life of contributing and made between $40-50k a year by and large you would have just about ONE million dollars for your retirement. Simply take the interest to live on that would be about $3,000.00 a month. That is plus or minus a couple. Its straightforward math.
Tx for your comment. According to my math, you are generally correct. But try to get that idea through Congress.
Then, in political reality, would it work?
Also, you have an interesting insight in calling the whole government process a Bernie Madoff scheme. This is especially true with the Social Security and Medicare programs. I read that President Clinton raided the Medicare trust fund to balance the budget. Now neither programs have any money — just a bunch of IOUs that other branches of the government gave them. The only way the programs will work if we get more Bernie Madoff-ish investors to put more money into the pyramid scheme. You guessed it: get our kids (that is, the top 50% of the earners) to pay off their student loans and then start paying for our Medicare and Social Security costs.
Rachel Moss says
I think you’re right. If we increase the corporate tax, it will only lead for corporations to cut down employees, leading to higher unemployment. If only we can come up with a tax reform that makes everyone contribute in balance, would be the solution to this.
I agree with your main solution of cutting our spending. Again, the main thought is to spend less, by living simply. But I think it’s equally important to come up with a tax plan that would balance the top and bottom percent of taxpayers.
I couldn’t agree more. Let’s come up with one!
What about a value added (sales) tax on all goods and services that add nothing to our quality of life, and even some that hurt it.
Once we figure out a new authentically progressive tax plan, let’s figure out how to encourage people to live more simply. One idea that is getting traction is to have an “equity tax.”
Families and individuals with a total equity of more than, say $5 million would pay, say, 5% on their equity a year. This would equal $250,000 a year. They wouldn’t even feel it, and it would make the whole system a little more just; help reduce the deficit, and make the rest of us feel a little less ripped off. See my policy on this.
These policies are sure to get me at least ten more votes!
Right! Maybe we should increase taxes on items that are damaging our health.
Norad Tumble says
If the corporate tax rate drops to 20% my small lawn care business will just skyrocket. It will allow for me to buy more equipment to grow my business.
Good point. I feel a business like yours is the key to the economy: help the small businesses grow that contribute to the quality of life of the country. Small businesses are a key to freedom and happiness, I feel. It allows an ordinary citizen the freedom to pursue his economic dream, as well as be the biggest employer of new employees.
However (and there’s always an “however’), what about the question of the national debt. People who promote the antithesis to the corporate tax cut argue that it will increase the debt to trillions of dollars. I know we can dream about cutting taxes and get more tax money (the Laffer Curve), but is this economic reality?
There is another antithesis: let the grass grow and fight against global warming!
Norad Tumble says
R G, I think that I trust myself more with the money I earn as compared to the government spending it for me frivolous things (the bridge to nowhere is a good example) and increasing the debt as a result.
Balance is key. I think that it’s just fair to receive benefits as much as you contribute by paying taxes.
To follow up on Norads and RGs’ proposed antithesis, I think that one way to look at it is to think that by lowering the corporate tax rate we would be increasing the debt. This is fake thinking though. What it misses and what History shows us is that by lowering the corporate rate, corporation have more money to employ more people and grow their businesses. In the process generating more revenue that actually decreases the debt. Just ask Regan!
Rachel Moss says
Aside from the things that damaging our health and environment, I think we should also increase tax on some things that are excessive to us. I think it’s time we start to live a minimalist lifestyle and eliminate the unnecessary baggage that pulls us down and that keeps on accumulating.
I can always count on you to come up with a good idea!
It seems that those excesses are simply junk. They don’t add anything to our quality of life or our happiness. We could tax the hell out of them and our quality of life wouldn’t diminish at all — and in fact probably improve.
But the question is: how much tax money could be collected this way (especially when the junk would ceased to be manufactured because of lack of profit)? But then the follow-up question: what would the government do with this money? Waste it?
Tx fior your thoughts,
Davina Johns says
I hope the government wouldn’t waste the money for war and other personal agendas.
“Hope” is the operative word here. Unfortunately your hope may be in vain.
I lived in DC for around 10 yrs. This was back when it wasn’t as much of a money town. Now DC is surrounded my McMansions and money is flowing out of the Capitol as if the dome was the tip of a volcano. In think the budget is around $15 trillion. Do you think any of it is wasted?
And talk about war. It seems President Trump wants to turn the world into an international wrestling match. He loves to rattle the tail of the tiger, e.g. North Korea, Iran, and now the Palistineans.
The sad aspect of world history is that a lot of people love war. Everyone thinks they are going to win.
The amazing thing about government waste is that virtually every administration comes in committed to reducing the waste, and it just gets bigger.
But I’m not an innocent man. If I was still in DC and working for the government I too would want as high of a salary, as much security, and as many benefits as I could get. And if I were a lobbyist, I would want to get as much government money for my clients as I could.
So here’s a question to keep you up at night: what can we do about it?
Cecilieaux Bois de Murier says
Yes, let’s please do the math.
1) In 2017 the federal government is projected to have borrowed 43% of expenditures, NOT 12%.
2) The GDP is $16.98 trillion (almost $17 trillion) NOT $15 trillion. It is the second largest largest in the world, after China, which has three times as many people.
3) The federal government taxes 18.4% of GDP ($3.21 trillion in revenue, against a GDP of $16.98) NOT 33%.
Cecilieaux Bois de Murier says
This is also riddled with conceptual errors.
1) The relative tax contribution of the top 10% is disproportionately low given that their income comes largely thanks to: a) public investment in the infrastructure that allows them to make profits; b) unfairly low wages given the productivity of the workforce, whose incomes have stagnated since 1973 while top incomes have soared; c) various forms of subsidization and contracts (the “defense” industry, for example). You swallowed the Romney Kool-Aid.
2) The debt is not a sum peremptorily due at a fixed date and the debtor is not a person. Therefore, the duration of the debt may exceed several human lifespans without the slightest problem — Britain, for example, finished paying off lend-lease from World War II in 2006.
3) The United States is not even remotely comparable fiscally to Greece. Denmark, Sweden, Belgium, France, Finland, Italy, Norway and Austria all tax and spend higher percentages of GDP than the USA. Greece taxes less and spends somewhat more.
4) U.S. interest rates are not at all related to the Social Security Trust Fund nor Medicare. Rather, interest rates are based on the demand for cash (corporations are awash in cash they don’t know what to do with, hence stock buy backs) and the relative safety of the debt instrument. U.S. interest rates are low because the U.S. economy is growing, the U.S. government is a trusted borrower (even China puts money in U.S,. bonds) and the dollar is sturdy.
Remedial economics are encouraged.
Tx for the feedback. I will do my remedial economics and get back to you with an editing of my facts.
As you may surmise, much of what I write in this blog is NOT authoritative, but rather generalized ideas off the top of my head, or out of the barrel of my gun. They are also based on my readings, and most of the facts written in this article were from somewhat reputable sources.
As you know everyone twists these facts to sharpen the ax that they are grinding.
Also, some of the “facts” are generalized to get the basic idea. Thus $15 trillion or $17 trillion GDP doesn’t much matter when we are talking about a $20 trillion debt with no end in sight.
Nothing I write is pure truth, but rather reasonable truth until something better comes along. And part of your response may be that something better.
I don’t have the time — nor the desire, nor the talent — to be an authority of every subject under the sun. However I do have the time and desire to give thoughtful responses to what is going on — like destroying the Earth.
As far as “people” not paying for the debt, sooner or later the interest on that debt is going to be paid by a person, whether it is in direct taxes, sales tax, poor economy, lower stock prices, and so on.
I still have the idea that we are stiffing our children and grandchildren with our unlimited credit card, regardless of how much we are rationalizing this by tossing around economic figures.
It seems to me like a fantasy — like the perpetual motion machine — to think that we can borrow –as you say — 43% of what we spend, and that we can do this forever.
But I do agree that it is a nice dream, and a dream with which a politician can get some votes.