Friday, August 19, 2011

Pop goes the weasel (why America is going broke)

All around the Congress' desks
The president chased the taxpayer
Round and round
Up and down
Pop goes the country.

Last week, we discussed the availability of the Federal Taxpayer Receipt which breaks down how our tax dollars are spent. This is a two edged sword because while it helps explain where the money goes, it reveals the entitlement spending that so many are worried about.

To get an understanding of the scope of our debt problem, we need to put hard numbers into the calculator. Using a variety of sources below, we learn a variety of facts. (While many sources use numbers from 2008 to 2011, the exact calculations are not determined. But, we believe that on the average, these numbers provide a good ballpark overview).
  • Annual federal spending = $2.4 trillion (source 7)
  • Approximate income tax received = 1.032 trillion (source 1)
  • 47% of population pay no taxes (source 3)
  • Annual deficit shortfall = $1.4 trillion (derived)
  • Average tax rate from all people = 12.24% (source 1)
  • Average tax rate top 5% from all people = 20.7% (source 1)
  • Number of  income tax forms received = 140 million (source 1)
  • Average tax paid by individual form received = $7,371 (derived)
Entering the average taxpayer payment of $7,371 into the taxpayer receipt calculator, we identify some startling facts.
  • Under Job and Family Security, we pay about $100 billion for supporting a portion of the poor (4.4% goes to unemployment insurance, 3.6% for food and nutrition assistance, 2.2% for housing assistance). This totals to $751 of our individual taxes.
  • Approximately 6.5 million people receive unemployment insurance per month (source 6). This means that the country pays about $45.4 billion per year to fund the unemployed (140M * $324 each taxpayer).
  • The average monthly food stamp payout is $133 (source 4). Since approximately 35 million people receive food stamps, we pay $4.65 billion per month or $50 billion per year for food stamps to support these people. As $265 is taken from each taxpayer for this, each taxpayer pays for 2 months of someone else's food stamps.
  • By comparison, we only pay $20 - $40 billion per year (source 5) for the nearly 1 million retired military and survivors. 
As we can see, a large portion of our tax dollars go directly towards entitlement spending of providing the unemployed and poor with spending money. At the same time, the country receives less than 50% of the money it spends from taxes. This means that we go deeper into the hole every year.

So, maybe President Obama is right: It's time for shared sacrifice.

In order to have enough money to cover our spending, we would need to double everyone's taxes. However, if we do that, those who are working will not have any money left.

Perhaps we can eliminate all the entitlement spending. If we do this, we only save $100 billion which is far from sufficient.

What if we required everyone to pay taxes? This would mean that the 47% who are getting a free ride will have to pay. If we do this, and require all corporations to pay taxes, then just maybe we can begin to get close to having a balanced budget.

Notice that I haven't advocated the government cut spending. While this is logical, the current administration would not consider this, even though it is a shared sacrifice.

Unless we get the economy going by creating more U.S. jobs, more and more people will become unemployed. The annual tax revenue will decline and our entitlement spending will increase. This means the federal deficit will increase.

And, if inflation kicks in and interest rates rise, then:

Pop goes the weasel!

  1. Summary of Latest Federal Individual Income Tax Data
  2. Gov’t handouts exceed taxes as percentage of average household income for first time since 1936
  3. Yes, 47% of Households Owe No Taxes. Look Closer.
  4. Food stamp list soars past 35 million: USDA
  5. Portrait of Retired Soldiers and Spouses
  6. Record number getting jobless benefits
  7. Federal Debt Ceiling


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