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Follow the Money

By       Message Richmond Shreve       (Page 1 of 1 pages)     Permalink    (# of views)   1 comment

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Both candidates talk about tax cuts. Let's look at our debt first. We have a debt of $53,000,000,000,000 (fifty-three trillion) outstanding if you include unfunded social security and medical entitlements.(view short video). There is an easy to understand presentation of the history of our debt, and how the government spends the money here: http://www.kowaldesign.com/budget/

 

The FY2009 federal budget is about 3 trillion dollars, but it's hard to nail down an accurate number because of added supplemental appropriations for the wars, and for the bailouts.

9-10% of our taxes go to pay the interest on the debt which goes to Communist China and other creditors.

42% goes to Social Security, Medicare, Medicaid, etc. and is paid out to US Citizens who spend in the US.

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9% goes to Safety Net programs and is paid to people in need who spend it near home in the US.

22 - 30% goes to defense and is spent largely in the US but with significant amounts overseas or "burned"- as ordinance.

Again, these numbers are hard to tie down both because of war spending, and because one's point of view colors how costs are allocated.  For example, one anti-war group argues that over 50% of spending is military if you allocate veterans pensions and benefits, and the interest on war-related debt.

 

Most would agree that only about 18% remains for congress and the president to make decisions about; that is called discretionary spending and amounts to about $540 billion. (Sobering to think that we will expend close to twice that in our effort to blunt the economic crisis we face.)

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You don't need to be a math genius to see that spending freezes, across the board cuts, etc. are not going to make a big difference in this dismal debt picture. Nor will refundable tax cuts contribute much.

 

The only practical way to dig our way out is to foster robust economic expansion that increases revenue without increasing spending. There are some things we should spend more on, others we could spend much less on.  Which ones will be hotly contested in congress.

 

Here is where it gets really political. Where can we best spend the money to boost the economy? The conservative answer is, "invest in the means of production: business."-  In theory, by subsidising business we create new jobs, pay more wages, and rev up the economic engine. The money trickles down to everybody who is productive.

 

The progressive view is, "spend the money on people so that they can buy more and let demand rev up the economic engine while helping everyone live better."-

 

The one sure thing is that we are all in this together. It comes down to which level of the income ladder has the most leverage to accelerate the economy. If the rich get it they will invest it to make jobs.  If the poor and middle income sectors get it they will immediately spend it creating economic demand, also creating jobs.  Nobody has an objective answer, but most of us doubt that trickle-down really works. Tax cuts aren't going to be feasible for everyone. It's a vexing problem, and we'll probably end up spreading the cuts and spending around so that everyone is equally dissatisfied.

 

When we look to the future, and consider global realities, consumption at our current levels can't be sustained. The US consumer economy gobbles up over 25% of the world's basic resources. China and India are catching up with us, and they constitute half of the 6 billion consumers on the planet. Free market forces are sure to make commodities (oil, minerals, water, etc.) much more expensive. The US is 0.3 billion people; and there is Europe, Africa, and the Middle East to consider. There isn't enough on the planet to go around at our level of demand.

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So how do we grow our consumption economy to pay down our debt? Mr. Obama, Mr. McCain--are you really, really sure you want to the job of solving these problems? It's not going to be easy or even much fun.

 

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Richmond Shreve is a retired business executive whose careers began in electronics (USN) and broadcasting in the 1960s. Over the years he has maintained a hobby interest in amateur radio, and the audio-visual arts while working in sales and (more...)
 

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