United States Congress | Personal Profitability

It is no secret to Narrow Bridge readers that I am a fan of Warren Buffet. His investing strategies have helped him grow investments from family and friends in Omaha into the company with the seventh largest revenue in the United States. As the debate moves forward on dealing with United States debt, the second richest American has voiced strong opinions on how to fix the problem.

I have long been an advocate of social programs such as social security and universal healthcare. I enjoy driving on freshly paved highways and hate the two lane highway that should be at least double the size that I take to work every day. I enjoy the fresh air and clean water protected by the EPA. I like going to public firework shows on the fourth of July. I am glad impoverished Americans can access Medicaid and can visit a doctor when they are sick. I am thrilled that every young American can access a free education, though I wish many were better and that the education lasted through college.

Of course, many could be managed better. The wasteful spending at some organizations, like the military and IRS, could be fixed. If run more effectively, the military could have the same power and effectiveness at a lower cost. The IRS could require electronic filing and save millions, if not billions, in costs. The US Federal Reserve could stop printing paper dollar bills and replace them with coins, also saving billions.

Overall, I am happy with government programs. I enjoy taking advantage of them. I don’t mind paying for them.

Buffet wrote an op-ed in the New York Times this week accusing our legislators of coddling the super-rich. They are. He uses his own company as an example:

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

Does that not disgust you? The second wealthiest man in American followed the law to the letter. He paid his taxes, just as I paid mine. However, my effective tax rate was closer to Buffet’s staff than the man himself. Why do the 98% of Americans no revolt at the plutocracy in this country? The government has engineered a structure that protects and helps the wealthiest Americans keep money and power while encouraging the rest of us to finance our Middle Class lifestyles with debt.

Buffet does not get it either. He clearly attacks the ludicrous claims of the far right. I once had a personal discussion on this topic with a blindly conservative friend. He said that if taxes go up for the wealthy that they will not work as hard because they will take home less for earning more. First off, learn math beyond what Rush Limbaugh teaches you. (Hint, it does not add up) Second, that is the most ridiculous thing I have ever heard. Yes, if your income is $2,000,000 a year and the tax rate goes up on rich people, you will take home less if you earn the same $2,000,000 a year. However, my heart does not bleed for you.

The amazing thing about our graduated tax system is that they pay the exact same tax rate on the first $40,000 they make the same as I do. However, as you make incrementally more, you pay incrementally more on that additional income. If you are confused, here is a good explanation at Bargaineering. As you can see, people that make more money still make more money. Buffet goes on to explain how the tax rate does not scare rich people away from trying to make more money:

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

I will not argue that the current tax system is perfect. I also believe that $200,000 per year is not the right place to start a super-rich tax bracket. Again, I agree with Buffet. Increase taxes at $1 million. Have another bracket at $10 million. I promise you people making over $10 million a year will not starve. If you think that they will donate money to the government out of the goodness of their heart, you are mistaken. But if you think they will give up on making money and being rich because they pay a little more in taxes, you are an idiot.

Image by Ethan Bloch.

The United States government is on the verge of collapse. You might not know it just by going out to the grocery store, restaurant, or work. People are going on as if nothing is happening, but if you know what is going on in Washington and understand economics, you know how close we are to disaster.

What is the Debt Ceiling?

The debt ceiling is the legislative approved maximum total debt the United States government is allowed to take on. This ceiling has been raised every year without any debate for decades. Republican hero Ronald Regan once famously wrote:

“Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns.”

I am not a fan of Reganomics, but this is something he clearly understood.

What Happens if We Raise the Debt Ceiling?

Life goes on as usual. The government can continue to accrue new debts to pay for current expenses and liabilities.

The downside of new debt, of course, is that we have more debt to pay in the long run. The growing national deficit is a major issue that we have to deal with as a country. It will involve painful decisions.

Like many large corporations, the United States does need to utilize debt to continue to function. To lower the debt, we need to do one of three things.

1) Raise revenues (taxes)

2) Lower expenses

3) Print money (inflation)

None of those options are good for Americans or the United States economy. However, we will be forced to utilize a combination of those methods to deal with the increasing debt. The politicians that vote for these changes will be unpopular, so politicians have avoided the looming topic for decades as the debt has grown.

What Happens if We Don’t Raise the Debt Ceiling?

First, the government will stop writing checks. Government workers will be effectively laid off. That is 1,909,000 people.

Social security, Medicare, and Medicaid would stop. Senior citizens and disabled Americans who rely on their monthly check would be left without income.

Debt payments would cease. The credit rating of the United States government would be lowered. National and international stock and debt markets would become unstable and crash. If you think the Greek Debt Crisis pushed the stock market down, just wait for the United States Debt Crisis.

This is not an overnight recovery. Just waiting one day too long (we are already too close) to raise the ceiling would lead to billions of dollars in increased debt costs for the United States government as interest rates increased. Our already fragile economy would come crashing down. Unemployment would rise and consumer confidence would fall.

These Assholes Are Playing Chicken with Our Livelihoods

I occasionally make a political statement on this site, but I usually leave most of that for my personal blog. I have a very strong, factually based opinion on this and I am not going to hold back.

These idiot Republican and Tea Party legislators are playing chicken with the United States and global economies. They hate Barack Obama so much that they are willing to cause irreparable harm to the economy and tens, if not hundreds, of millions of people.

They are acting like children. They are throwing a temper tantrum because Mom and Dad (aka the voters) did not side with them in the last Presidential election. If you want my support, the best way to do it is act responsibly in a way that benefits the majority of Americans. If you act like this, I am closer to using my Second Amendment right for revenge against you than voting for you. (I would never be violent and I hate guns, but I am trying to make a point)

Like most of my well educated friends with a business, law, or engineering background, I am better off today than the day Barack Obama was elected. My stock portfolio is up. I had a promotion and found a new and better job. I am looking at buying a home. Life is good. The Republicans are threatening all of that.

Call to Action

If you are a Democrat, Republican, or unaffiliated voter, you will be dramatically impacted if the debt ceiling is not raised by August 2^nd. Traditionally conservative organizations such as the United States Chamber of Commerce are lobbying House Representatives to step back from this dangerous path.

Join them. Write or call your congressman or congresswoman to talk some sense into them. This is not just politics, this is the future of the United States. This is too important to use as a political pawn. We cannot let this happen.

Simply too much is at stake.

Image by Nick J Webb.

Buffet and the Great Tax Debate

What Is The Debt Ceiling and Why Does It Matter?