The National Debt and Taxes – A Solution

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I like to think of the government as a giant, non-profit business.  Every single American is a customer.  As customers, the government’s job is to keep us happy.  As a business it is responsible for keeping itself “profitable” and viable for the future.

Government Profitability?

I am sure many of you would be disturbed at that idea.  When I say government profitability, I mean the government should have to run like a business.  If you run a giant deficit in the corporate world, you go bankrupt and out of business.  Obviously most of us (sorry Libertarians and uber Republicans) don’t want the government to go out of business.

So, what does the government need to do?  Like in the Clinton era and many Presidents before him, the government needs to run without a deficit.  There are three ways to turn around from the terrible deficit situation we are in.

  • Option one: increase revenue (raise taxes)
  • Option two: cut costs
  • Option three: print money

This is a fairly simple concept.  I once had someone argue with me that this is not true.  That person obviously has no understanding of economics.  Just like a business, the way to keep from having deficits is to increase income or decrease spending.  That’s it.  The government, unlike businesses, can also print money to pay for things, but that would be worse than having a deficit.

How to do it

A giant increase in taxes would shatter our now weak, but improving, economy.  Similarly, a major cut in vital services would devastate millions of families.  We need, as a country, to find a middle ground.  In Washington, this is proving very difficult.  While I definitely support one party over the other, we can safely place the blame on everyone that has run our country for the last ten years for what is going on now.

The national debt as it is today did not begin to rapidly grow until the Regan administration.  “Reganomics” led to skyrocketing debt.  For someone who believed in small government, he sure used the government to spend our way to greater economic growth.  That spending is unsustainable in the long run, and all Presidents since Regan, except for Clinton, have helped build on our enormous deficit.

This country is going to have to go through a painful change to fix the problem.  Unfortunately for all of us, as a whole we are stupid.  We vote for our checkbooks and not for our long-term well-being and future of the country.  If any congress were to make the necessary changes to our system to fix the problem, they would most likely be voted out of office in the next round of elections.  This leaves us in a “catch 22” situation where no one is willing to fix the problem.

My ideas for what could really work

Raise Taxes on the Super Rich

The two richest people in the United States, Bill Gates and Warren Buffet said we should raise taxes on the top two percent.  Buffet had this to say:

“If anything, taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further,” Buffett said in an interview with ABC’s “This Week With Christiane Amanpour” that is scheduled to air on Nov. 28. “But I think that people at the high end — people like myself — should be paying a lot more in taxes. We have it better than we’ve ever had it.”

This would not impact 98% of Americans.  Billionaires and multi-millionaires are not creating jobs for the average American.  Raising taxes on super rich people would not impact job growth and would not kill the economy.  Period.

I am personally against increases in the estate tax, as that is double taxation on the same income.  I think they should drop the estate tax and raise the rich income tax bracket level.  People would not earn less for making more money, as a friend once told me.  If you don’t understand how the US income tax system works, here is a good primer.

Cut Spending on Waste

President Thomas Whitmore: I don’t understand, where does all this come from? How do you get funding for something like this?
Julius Levinson: You don’t actually think they spend $20,000.00 on a hammer, $30,000.00 on a toilet seat do you?

That quote from Independence Day hits the nail right on the head.  The government doesn’t actually spend $20,000 on a hammer.  So why do they charge the tax payers that much?  The government needs to put very strict measures in place to ensure the lowest price is accepted on projects.  No bid contracts should be a thing of the past.

The IRS should require electronic filing.  The army should not spend billions of dollars a month on unnecessary bases around the world.  Administrative costs at all major government agencies should be cut.  The TSA should waste less time on “touching my junk” and spend more time on what really works.

Some jobs will have to be cut too, which is not good for the short-term economy, but I don’t want to have the country worrying about their paycheck for the next four generations.

Overhaul Social Security

Allan Sloan at Fortune wrote one of the best articles I have ever read on the Social Security problem.  I am not going to re-write the entire article here, but I will summarize the important parts.

  1. We are going to be paying for people’s retirement by borrowing money for foreign governments in about five years.  This is a serious problem.
  2. The average life expectancy in the United States has risen dramatically since Social Security was implemented but the benefit has remained about the same.
  3. The government will have to resort to inflation or increased borrowing to pay for this if something does not change very soon.

I suggest we do something here that will not be good for me, but we have to think as a country if we are going to have long-term economic success.  We have to raise the retirement age to qualify for social security (slowly over time allowing people in or near retirement to be “grandfathered” in to current expectations), increase the cap on payroll taxes that fund Social Security, and decrease the benefit.  That will suck for all of us, but it is the only way I can come up with for this to work.

This is gonna suck

Our country is going to go through dramatic changes either way.  We can have our currency and economy collapse or we can be pre-emptive and fix the problem before we end up like Greece, Ireland, and Spain.

I know this is controversial and many people will not like my ideas, so please keep comments constructive and civil.  You can critique my ideas and other people’s comments, but I don’t tolerate mean people.

Please give your thoughts, ideas, comments, and solutions in the comments.

32 thoughts on “The National Debt and Taxes – A Solution”

  1. I have to say, I am very wary about the United States (our) financial future. Things seem to be going better, so there's more spending and such, but I think things are bound to get worse. It's sort of a doom feeling in the pit of my stomach….

    Good ideas. I wonder what is ultimately going to have to happen to get us out of this mess. Like you, I fear that it is going to be painful, whatever it is.

  2. collegeinvesting

    You are absolutely right that the government needs to run more like a business. Government was created to provide services that private companies could not profitably provide, such as defense, roads, and postal service (there are more, but these are good examples). These things cost money…lots of money.

    However, Americans are becoming more and more weary about paying for these services (i.e. they don't want tax hikes). So the government is stuck between a rock and a hard place.

    You are right that there is a lot of waste – usually in the form of bureaucracy. However, even if we eliminated 100% of the waste, we would still fall short of what Americans want (i.e. Social Security and Medicare) versus what Americans are willing to pay for.

    So, what is the government going to do? Who knows…I agree with Amanda, I'm very wary about the US's financial future, because I don't think our government is capable of making the choices necessary, as explained above. Politicians have a personal interest not to cut benefits and raise taxes, but they must.

    Honestly, I think the best solution is what Obama originally thought of – create a bipartisan committee that would be required to come up with a solution (i.e. must recommend increases and cuts that get spending within 2% of GDP), and the solution would be required to get an "up or down" vote in Congress (no changes can be made on the floor). This is similar to BRAC (which is very unpopular but had to be done). This takes a lot of personal pressure off politicians, but we can still get results.
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  3. I think we need to cut defense. It's such a huge chunk of government spending and we need to get out of the wars.
    Raising tax on the rich is not a good solution. They know how to avoid tax.

    Personally, I think I would like the government to print money. I'm planning to put more money in rental properties and borrow a lot of money in 2011. If inflation goes through the roof, my borrowed money will be a lot easier to pay back…. Short sighted? maybe…

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    1. Eric - Narrow Bridge

      I hope we can come up with a better solution than massive inflation. Inflation has taken down the "Asian Tigers" and much of Latin America in the past. It is a serious problem if the Fed doesn't have the resolution to work through problems. It is a very, very shot term solution. I think there is inevitable inflation in the future, but I also hope it is under control.
      My recent post The National Debt and Taxes – A Solution

  4. Agree with your proposal. We should raise taxes on people making over $1,000,000… which is what the Democrats should have STOOD THEIR GROUND on, but didn't.

    We certainly can and should raise taxes on those making over $10,000,000/yr. They aren't hurting!

    $200,000 a year threshold is way too low, esp if you live in an expensive major city.

  5. Very well thought out and researched article. I do believe deficits were in play BEFORE the Reagan era as well. I particularly resonate with raising the retirement age. It is insane to suggest that the government should pay for 20 plus years of retirement since we now have doule the lifespan than when the legislation was enacted!
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  6. Eric, You have a well thought out argument. If only it were possible to come to a quick consesus in goverment.

    Maybe we'd be better off with a monarchy (and not a fake one like the UK)! Think about the change that could be made with just one person calling all the shots! 🙂
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  7. We should all have 10 kids each so that they can pay for our retirement instead of the government paying. Of course, they'd need to all find jobs…

    Or maybe the states should all break up into separate little countries? Then states with bad economies won't be bringing down the states with strong economies. Except then we'd have lots of little countries we could start wars with… hmm.

    I think a combination of spending cuts and tax increases are going to be needed. Unfortunately, none of those are politically appealing, and there's a good chance they would destabilize the economy now.
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      1. I think the real problem is a socialism that took over in the 1930-1950.
        This graph shows government spending.  Look before and after 1940s. Can you imagine what it was like to have total government at only 4% of GNP like before the 1900!
         I find it very interesting that most graphs only go back to 1940’s.

        1. It is an interesting graph, but I am not someone who thinks socialism is a four letter word. I believe that in some areas, like healthcare, society should take a role to ensure everyone is taken care of. On the other hand, for many parts of government policy (i.e. drug policy, abortion, and many other areas of regulation), that the government needs to just stay out of people’s lives. That would save money and give increased freedom.

    1. just to touch on this "state" issue. for all the praise we have for "united states", we are probably the least "united" country. a real "united" country would have all of their territories under one rule of law and would make decisions as a whole.

      1. hm.. my post was cutoff.

        anyways I also said the EU had a good idea with the Euro but orchestrated it miserably with the different governing countries. now some of those countries are in dire straits including Greece, Ireland and Spain.

  8. The problem with the Obama plan was that he started too low. $250K of income just isn't 'rich' as in terms of lets lynch the rich. I bet if he started at $1mil of taxable income per year it would have slid through.

    You know what I don't hear about all that often? Fixing the AMT to make it actually what it once was – A Way to make sure the uber rich don't avoid paying income tax. Make the threashold on that a $1mil and tax.


    How about we fix the fact that 50%ish of our Country doesn't pay any taxes at all! But this won't be as effective as the above measures.
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  9. So the solution is to take from the rich (higher taxes) AND the poor (raise retirement age)?

    The only legitimate fix to Social Security is to privatize it; everything else involves stealing from somebody.

    1. Eric - Narrow Bridge

      Is raising taxes to fix the government really stealing? To me, it is a necessary cost to get services we all appreciate in return. I enjoy highways, the safety our national defense provides, and the protection our environment gets from the EPA, for example.

      And, do you really think private social security would work? What about outstanding responsibilities to pay for people that have been paying in for decades? Who pays for that?
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      1. The problem is social security is very broken. It is only half there now and will not be there when I need it. We are paying more then ever for it and get way less (if we are that lucky) . Sounds like a good play to me.

        1. This is the best social security article I have ever read. It is two years old but still very, very relevant.

  10. Here is a definition of the rich – anyone who makes one dollar more than you.  Tax them all to death.  No, I do think the high incomes should be paying more taxes. But that will not make much of a dent in the deficit. Half of government spending is entitlements and we are afraid to touch any of  these.  Most of these people need to take care of their own self  or have their families help. The government’s “war on poverty” is now 50 years old and has failed.  Entitlements have grown by leaps.  It has encouraged people to be lazy and not work. People must take care of and be responsible for themselves. Family should be  important too. Next, local community should step in. Federal government should be last.  We are doing it backwards. The government can not regulate stupidity. There  are too many ways to be stupid and more ways everyday. If I want to buy a $40,000 new car and lose my home or not eat, great! The government needs to let me do it.  But I am the the fool for it. Hopefully, I learn quickly from my lesson. Wiser and better yet, learn from somebody else’s lessons so I don’t have to pay the price!  I think the real problem is we killed our common sense. Also, our greed is to our destruction.

    1. I don’t think the government assistance programs are bad, but I do agree that their operations need to be reviewed. I am not counting on social security, but I am hopeful that we can slowly change the system enough to ensure it sustains in the long run.

      Like any business, you need to raise revenue and cut costs to continue providing services to customers. The government provides great services to us taxpayers, and I want it to continue doing so in the future. It just needs to find a way to pay for everything, and that takes shared sacrifice and a balanced approach. However, asking someone who makes $20,000 per year and someone who makes $1,000,000 a year to make the same sacrifice is ludicrous.

  11.  All planned out. In early 1970’s both political parties endorsed and released “Workforce 2000” plans starting with the Fortune 500 companies. Workforce 2000 and NAFTA is Americas contribution to the new global economy. Jack Welch, then CEO of GE designed the model and the rest of the big leaguers followed in his foot steps. He started sending “Low Tech” devices like toasters and coffee makers over to get the farmers out of their fields. Look where they are today. I remember it well working for a large aerospace company in So. Cal. We attended a four hour presentation on how America was going to change. We were to become a service oriented country. How labor intensive work was going to be out sourced. How Chinas average pay scale was a whopping .35 cents per day. The man hours it took us to build one large airplane would be an equivalent cost to the most expensive BMW motorcar. Were all our stock holder excited. The Demographics of America were also explained. Guess what? The Hispanic communities was going to be the major population in the LA basin area. That’s right. See where we are today. All part of the plan and don’t forget, all endorsed by both political parties. Then the whipshooding began. Jack Welch implemented a theme called, “Keeping the Ideas Coming”. Ref. March Fortune 500 article. With the threat, or inevitable loss of our jobs, he started a manipulation cooptation strategy to pick the employees brains and make them think they could compete and save their jobs/asses. The CEO’s, corporate leaders and politicians are raking in all the benefits. So when I hear and read about this new economy BS, remember our government has it all under control. The part I have trouble with is if people are not working and or making half of what they use to make, income tax revenue will drop as well. How dose a tax system expect to sustain and pay for basic services, afford a healthcare program and frequent handouts to the world in trouble? In 1992 United Auto Workers union, (UAW) predicted that only 4% of the American workers will be represented by a union. Police, fire services and a few more government jobs will be represented to show the world America is still labor friendly. As Americans Change so to speak and our earning power diminishes Americans will eventually take what they can get. Just like other third world counties did. Its Americas turn to become the stepchild. And now Obama has brought in Jeffrey Immelt CEO from GE. Immelt cut his teeth under Jack Welch and Harry Stonesypher. GE was the model corporation which has led to American’s loosing their jobs. And now a Muslim in charge of Homeland Security. Amazing how everything predicted is coming to pass. Wal-Mart has become the new commissary to America. Our future holds, “Beans, Blankets and Bullets.

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