Great American Past-Time: Complaining about Taxes

So, while a small minority of people are out and about allegedly protesting tax policy, and government waste, few are mentioning what the real problems with the system are, and how to solve them. This is obviously too huge a topic to discuss thoroughly here, but here are some highlights:

Caveats/Observations: 

1) Taxes are generally thought to be distasteful, irritating, and complying with a tax code that's "seven times longer than the Bible" is bothersome at best. 

2) The Federal Government does a terrible job conducting tax policy: The estimates on revenue losses due to inefficiencies in the tax code largely surpass $100 billion. 

3) If the Federal Government were an exchange listed publicly traded company, the CEO would be fired immediately, and the business would be bankrupt- on this data set alone: The best estimates on revenue that isn't captured from existing delinquencies, mistakes, and insufficient manpower to effect collections is also in excess of 4.25% of the total federal Title 25 authorized collections. All federal receipts for FY 2008, amounted to roughly $2.66 Trillion, which means that another $113 billion dollars could be added to revenue, just by the government doing it's job properly.

So Yes (!), frustration with waste, inefficiency and incompetency are warranted regarding taxes and tax policy. However, when you look at the federal debt obligations, the open ended/ongoing commitments made, and the vast infrastructure which constitutes the Federal Government, any sane person realizes that a solid, stable, fair, lean, efficient, and effective tax policy/implementation is a necessity. 

The argument for relegating substantial components of the Federal infrastructure and returning more administrative power to the States, is a nobel one: which is to say a useful goal that should be taken seriously and made part of our road map to future effective governance. But the facts on the ground make achieving that goal in the near future a virtual impossibility. First, the Federal Government has too many obligations, especially to sovereign states, and domestic entitlements. Second, the state governments are largely a disaster: straightjacketed by referendum, incompetently managed, and also in significant debt jeopardy. 

All these entities (taxpayers, federal, states) need to stop complaining about the tax systems we have and do something. How about these basic "Econ 098" ideas for starters: closing loop holes, capturing all the revenue under code, writing sensible tax policy and enforcing it fairly, writing and utilizing better budgeting, and just generally treating every government entity as if it were a failing business needing to process through an aggressive turn around phase. 

Once we clean up our mess, then and only then, will we have earned the right to begin to invest less in the federal government and more in ourselves. And for the critics who don't like that reality:  take a more central/active role in understanding the inner workings of our government so that you can help fix what's broken, instead of sending tea bags with Fox Noise. This problem started because you were not paying close enough attention over the last several decades, and now you have an obligation to pay for your lack of diligence: and you will continue to pay in taxation until you fulfill your responsibilities as citizens.

The Real Source of Financial Instability: Consumer Debt

While the media gives it's due airtime to the feigned moral outrage of the Republican Party regarding the Federal Government's Debt obligations and continued deficit spending, the media has completely failed American citizens in addressing the true core issue of our economic imbalance: consumer spending and household debt.

  American's are justifiably uneasy about an accumulated Federal Debt total that exceeds 70% of annual GDP, but say nothing about the boat anchor around the neck of society which is consumer debt. Currently, reporting indicates that Household Debt per person for fiscal year 2007, was $46,115 or 123% of GDP. Compare that to the Per Capita earnings (in 2005 International Dollars) for America at $41,557. This in and of itself, demonstrates the escalation in debt spending to GDP, and the recent recessionary fall in GDP/economic contraction. This has made our problem far worse than most people realize.

Add to this the further contraction of tax revenues from spiraling unemployment, and the Federal debt figures, as they relate to our economy generally look to worsen considerably. And even though this is troubling, the underlying issue remains the unpaid debt obligations on the consumer side, specifically mortgages and credit cards. With unemployment helping to drive consumer debt rates higher in relation to GDP, we are in a situation not seen since the depression: Consumer debt to GDP exceeding 100%, and not forecasted to return below that level any time soon.

This situation was created by the great trap of economic restructuring and performance as America's response and contribution to globalization. We have relied on consumer spending, on a substantial amount of goods which are manufactured elsewhere, as the engine of our growth. Perpetuating that spending level became the focus of financial institutions, who created financial products and soft lending procedures that allowed people to continue to spend above their means, and over leverage themselves, all in the name of growth.

This has proven an enormous bubble produced by such a poor set of decisions, conducted by virtually every segment of society, whose outcome will be proved to be so severe, as to provide a significant repudiation of many of the economic principals of the last 20 years. And that's true for the theories of the GOP and Dems alike, both of which have proven insufficient to the tasks of understanding the effects of globalization, the emergence of the information age, and demonstrating the leadership to help steer our country into a place of lasting, sustainable dominance in both.

Just remember, a society of 303 million people, has just over 450 million Visa cards. That's not credit cards, that's VIsa cards. And we wonder....

American Budget Deficits Summarized: Extended Post-

Embedded in today's title is a link to POTUS' budget plan summary. SP thought to address the deficit production issue as a component of the budget after watching this past Wednesday's Daily Show w/ John Stewart. On that program, Peter Orszag (POTUS' Director of the Office of Budget and Management, a noted expert on finance), fell short of successfully explaining the Federal Budget Deficit in plain, lay-persons terms.

To spell it out bluntly, the US Federal Debt as of March 16, 2009 is $11,042,553,971,450.47 (over $11 Trillion) or about $36,314 per person. This amount is the accumulated debt (and interest on that debt) created largely by the shortsightedness and blatant fiscal irresponsibility of the Executive and Legislative branches of our federal government for the last seven decades. 

Unfortunately that irresponsibility, negligence, and ineptitude was severely escalated in the last decade. The contribution of #43's administration to the ongoing federal debt exceeded $5 Trillion dollars (or an annual average contribution of $687.5 Billion) from levels of $5.674 Trillion total in 2000 to it's present day levels nearly double that, as stated above. Further, as a percentage of GDP, the debt has risen to it's highest level since WWII, rising from roughly 58% of GDP in 2000 (a level comparable to post-WWII reconstruction levels) to nearly 75% of GDP today. 

So with all that in mind, why is this Administration, after preaching a new era of fiscal discipline and responsibility on the campaign trail, choosing to drive the deficit for 2009 to an annual total of $1.7 Trillion dollars thus adding massive amounts to the total Federal Debt? Why is this POTUS, and Orszag, offering a Budget that will put the Total Federal Debt past $17 Trillion dollars after 2012? Isn't that the same rate of deficit spending, and debt growth as the previously inept administration? Is this really a new era?

The answer is shockingly, yes this does in fact usher in a new era, because not all spending is the same, for the long term benefits of this POTUS' budget far out weigh the consequences of the expansion of the federal debt. The devil is in the details. 

When the government spends, it makes a commitment of allocating precious tax dollars/resources, (subtracting them from private sector growth and reinvestment) for items that are supposed to be legislated and deemed necessary by the American people. Therefore, because the private sector is usually much more effective at growing revenues (and therefore the economy), than is the public sector, any revenues excised from the economy through taxation had better be efficiently spent by the government or the drain on the system can prove unsustainable, and growth retarding in the long term. 

As an example, Government taxation and spending is very akin to the necessity of taking blood from a donor at the hospital for the purpose of creating a blood bank. It's wise for disasters, and assorted health reasons, but take too much and you harm or even fatally injure the donor. Also, when you use the "blood", you need to match up supply to demand and make sure you have the correct type for the correct recipient, and that you use your resources (blood or tax revenue) judiciously. 

The complex budget mechanisms and thorough understanding of the delicate balance of allocation (spending), and supply (taxation) are necessary to effect on time and correct remedies to public challenges and fulfillment of the obligations of governance to the governed. 

This is the KEYSTONE problem that POTUS is trying to rectify. His administration has entered into power during a time of economic contraction. This means that the government can not raise more revenue through taxation (which would be similar to killing the patient, save for those in the top 2% of the private sector that generate a sizable, even dramatic, surplus), can only expect diminishing tax revenues under the existing model (because of that contraction), and still has the responsibility to address fundamental structural flaws in the architecture of the functioning of our government and our society generally. 

The flaws exist because we have had horrible governance and a terrible waste of the precious resources of our tax revenues. Further, the mandated social safeguards/safety nets that were created several decades ago to protect our citizens, have never been seriously reformed to meet new economic realities or function as originally intended for our citizenry. 

These entitlements, have been sorely mismanaged, and are so inefficient as to create an albatross around the neck of the federal budgeting process. When you couple massive overspending littered with waste, organized corruption, and ineptitude in the standard budgeting process (outside of entitlements), with escalating and unreformed entitlement systems that soak huge amounts of revenue (at a rate higher than GDP growth) you have a recipe for financial disaster. 

With all that, add populist fluctuations to the tax code (revenue stream) as short term constituent appeasements from Legislators to the electorate made to secure political futures. Add, also, the unknown costs of disasters, wars, unexpected international commitments and contingencies, and you have the fiscal formula which led to such high debts. 

In a way, we are fortunate and unfortunate simultaneously, because American debt, to this point, has been a safe and viable investment for national and international investors. But this is the case no longer. International debt purchases are now attached to these investors seeing a more sizable return on their investment, as well as knowing that the money is being spent wisely. 

This makes POTUS' agenda so important. Because we have previously wasted massive amounts of money, and suffered huge opportunity costs while accumulating enormous debts, we need to take a breath, stimulate the economy, via the only resource that has the capacity (Federal Government) and do so by renovating our infrastructure (energy security, efficiencies in transit etc), reforming our entitlements (Medicare/Medic-aide and Social Security), and investing in the engines that will drive long term growth: our people (health care and education anyone), our housing, and our businesses. 

To continue the bad analogy from above, we need the blood from the blood bank. And we don't have it. Luckily, for now, others are willing to share theirs, because they see the pragmatism in doing so. That can all change if we continue down the path that got us here. Remember, we had a good, healthy, blood supply (and can have one again), but we were previously inefficient in how we used it. And the only way, now that we've misspent our revenue, that we can continue our over leveraging of our future revenue is to make the strides necessary to convince the world that we have changed our ways. And to do that, we need reform, we need to make every dollar count, we need to modernize, to the tough work of tackling our infrastructure challenges, our entitlement commitments, and to take the steps necessary to grow the economy at a rate that far eclipses our leveraging guarantees.

POTUS' budget starts us on this necessary path to securing our long term viability as a nation, and we should mobilize to insure it's passage, and follow through on the budget's ongoing promise of renewal for the next battle in Congress in 2010.