Tuesday, September 21, 2010

What’s yours is his

There are two ways to view money in our economy. One is that it belongs to the person who earned it and that they are required to pay a certain level of it on taxes. In other words the default it that it is yours except what Congress passes for tax policy. The other view is that the government has claim to all of your money and permits you to keep some of it. In other words the default is that the government has first rights to all of your money and you should be grateful for whatever portion you are allowed to keep. Which view does this administration hold?

This is a telling statement from President Obama’s “town hall” meeting yesterday (transcript of his comments comes from the White House webpage):

The first thing you do when you’re in a hole is not dig it deeper. That's why this tax debate is important. We can’t give $700 billion away to some -- America’s wealthiest people. We’ve got to make sure that we are responsible stewards for our budget. That's point number one.

The grotesque mockery of that statement is amazing. You aren’t “giving away” money to rich people, it is their money in the first place. You are just taking less of it. If you take my wallet and pull out five twenties, put two twenties back and give me my wallet, you haven’t “given” me $40, you are just taking less of what was my money in the first place. Apparently no one has any claim to their money unless the government decrees that they do.

It is a troubling way to view the economy. Democrats seem to think that the best place for decisions about spending and investment is always the government. The private sector has plenty of foolish spending and investment but in the private sector poor decisions and unwise fiscal policy lead to failure and businesses going away. In the public sector, failure to spend wisely and insane fiscal policy is responded to with…demands for even more money to mismanage.

Thursday, September 16, 2010

An unsustainable mix

There was a troubling article in the Journal the other day that discussed the real source of difficulty in reducing the deficit. Almost everyone agrees that the deficit is untenable and that the level of national debt is unacceptable. Everyone agrees we need to get it in line. No one wants to have that impact them personally. We are becoming a European style nation of entitlements, where way too many people are receiving a perceived benefit from the Federal government and many of those people will fight tooth and nail to keep it. Here is the problem:

Almost half of all Americans receive some sort of government benefit.

Almost half of all Americans don’t pay Federal income taxes (I am in this group)

You can be pretty sure that the people in the first group are likely also people in the second. The problem is that the number of people in these groups is rapidly swelling and that is causing a major imbalance between those who directly benefit from government spending and those that pay the taxes that fund those benefits.

There is a huge issue lurking down the road in America and it is not spending. We all know about that. The more insidious problem is revenue. There are too few people paying into the system to sustain it even if we cut spending fairly dramatically. The answer to the revenue problem is not to punish the shrinking pool of workers and investors by discouraging them from investing and working via higher taxes. The answer is that we need fewer people on the government dole and more people legally working and producing and paying reasonable taxes.

We are on the path to economic and demographic catastrophe. Too few new workers to replace the old. Too few legal workers to support the retirees. Too much debt to be repaid by a shrinking workforce. Too many older workers retiring at ages set 50 years ago and drawing from the system for decades. We are rapidly approaching the day when life expectancy will be such that people will spend more time not working and paying taxes than working.

A society of people with one hand gripping their wallet and the other held out to Uncle Sam for goodies cannot long survive when the rest of the world is rapidly catching up to us. I fear it might be too late already.