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.
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