Peter asks for comments about the income tax, the EITC, and reparations over at his blog. A debate over income taxes ensues in the comments, and it perfectly illustrates our problems. Let me explain:
There are those who advocate for a 10-15% flat tax. This won’t work for one simple reason: that is nowhere near enough money. The US GDP is just over $27 trillion. The Federal government spends just under $7 trillion per year. In fact, it works out that the Federal government spends about 23% of GDP. This means that the flat tax would need to be about 24%.
Then came the people who wanted carve outs. The flat tax, they argue, should not be paid by anyone with large medical expenses, the poor, Social Security recipients, or half a dozen other special categories, which means that it wouldn’t be long before the new flat tax code would be just as byzantine as the current one.
There was a guy arguing that a flat or sales tax wouldn’t be fair because poor people would pay a higher proportion of their wages than rich people. Hogwash- flat tax means everyone pays the same flat percentage. Why do so many people want to punish success and reward failure, sloth, and laziness? Not only that, but many on the left say that the rich don’t pay enough taxes under the current system.
Then there are the types who say since the government always runs a deficit, why not eliminate all taxes and just run the government 100% on deficits.
Most people, even those who claim to be conservative, are wholly ignorant of the situation and only want the rules changed to benefit themselves.
Here is the problem:
The US government spends a total of $6.8 trillion a year. Of that amount, $3.7 trillion was mandatory spending, otherwise known as entitlements. In other words, money that has to be paid out by law: Social Security, Medicare, Medicaid, Unemployment Compensation, Refundable Tax Credits, Paycheck Protection Program (PPP), and other mandatory spending. Another $890 billion is interest on the debt that we already owe, bringing the total outlay for mandatory spending to $4.6 trillion. The government only collected $4.5 trillion in taxes. So without spending a dime on the rest of the things that the government must do: defense, courts, prisons, and all of the alphabet agencies, the government is already running a deficit of $100 billion. Add in all of those expenditures, and the deficit rises to $2.2 trillion.
There is no amount of cutting that is going to fix this. The math is eventually going to sink this fiscal ship. Those who think it will might as well buy a violin and learn how to play Nearer My God to Thee, for all of the good it will do.
16 Comments
Noway2 · December 5, 2024 at 10:53 am
There’s an old saying: how does one go bankrupt? The answer is slowly, and then suddenly. I’m pretty sure we’ve rounded the inflection point and are heading into the suddenly portion. As you said, the mandatory spending already exceeds the taxed income. Regarding the things you mentioned: Social Security, Medicare, Medicaid, and Unemployment Compensation, those too are tax funded and it’s in addition to the so called income tax and theoretically should cover their outlays (but they don’t). I’ve done back of the back of the napkin calculation and when you add it all up, I find roughly $0.70 on every dollar spent goes to tax in one way, shape, or form. How much more appetite for taxation do you think the people have?
Govt. needs to be reduced, as you correctly put it, within the existing framework it’s not possible to cut enough to avoid deficit spending. This is much like the bankrupt person trying to get by on their credit cards while the balances keep going up. Things need to be shut down and eliminated. Hopefully the new administration and their new office with Elon and Vivek will do that. Real change will likely require congressional action, yeah right, I know, but in the mean time shut the departments down, send the employees home, even if we still have to pay them. It would still be a step in the right direction.
JimmyPx · December 5, 2024 at 11:41 am
DM, 100% correct and NO ONE..not the citizens or the politicians want to face the reality that we are spending WAAY too much money.
The only reason that we have gotten away with this is because we are the reserve currency so printing more money causes inflation but other countries are forced to accept the dollar.
The dollar was originally backed by gold and then since 1972 by Saudi oil but that deal is over and the dollar is backed by NOTHING now.
What happens in a few years when BRICS (including Russia, China, India and Saudi Arabia) becomes the new reserve currency backed by precious metals and oil ?
(This IS coming especially since just about every country outside of the G7 is joining BRICS.)
We become like Greece and will have no choice but to cut government spending massively or we will become like Zimbabwe where it costs 1 billion dollars to buy a loaf of bread.
Trump and Elon Musk are going to TRY to save the sinking ship but I’m afraid it is too little too late. Mitt Romney was right and half our population is getting a government check and that is just not sustainable long term.
J J · December 5, 2024 at 1:13 pm
Those who think that this can be fixed with solution “a” through “z” are just unwilling to admit that the Corporation of the United States of America is hopelessly financially bankrupt. They know or have a dreadful sense of what’s coming and refuse to acknowledge it.
SoCoRuss · December 5, 2024 at 1:59 pm
Its a simple fix. We just print all the money the .GOV needs. And PRESTO the problem is fixed..
I watched an interview last week of some big financial fund guru and he said we have no problems with our debt since we are the worlds reserve currency and we can just print what we want forever.
So its not just the ignorant masses or the left or right, this is everywhere. And these fools believe it and that to me is frightening. This cant be fixed anymore, a full civilization collapse will be the only way to even try a restart.
And it will sound bad, but this country truly deserves it.
BobT · December 5, 2024 at 2:36 pm
Your math is sound. The assumptions you make are sound for the current system we are living in. But, I see something different. Once DOGE is done and we quit using the Federal Reserve Note (borrowing) and go back to a US Treasury Dollar that is redeemable, a 5% sales tax will pay for everything with money left over. Several studies have been done over the years – memory may be wrong, but I think: Univ Of Mich, Univ of Arkansas, et al.
Straight Shootr · December 5, 2024 at 4:59 pm
The thing with a flat tax affecting even the lower income people….
Guess what? That makes it so that EVERYONE has a dog in the fight, including the welfare takers..
Linda S Fox · December 5, 2024 at 6:25 pm
I wrote on this subject before – here is my latest on that. https://lindasfox.substack.com/p/a-tactic-for-over-riding-congress
Tree Mike · December 5, 2024 at 7:54 pm
There’s a shit ton of waste in the system. Every Executive department that is the result of an executive order, kill it. Any department that is Constitutional, keep and/or repair it. Before the outlaw Fed Reserve was created, there was NO inflation, going all the way back to the Founders, so kill it, it’s unconstitutional. Can that work? Absolutely! Will it work? Unlikely. Too many crooked, evil, lazy, stupid, ignernt, normie, status quo’ers won’t let it. There is too much inertia on too steep an angle of attack to pull out. MAYBE the good guys can influence the crash into a hard landing with enough saved to salvage a viable Constitutional Republic. Do I have too much hopium? Likely, but that’s better than opium, though, I may change my mind about that.
We’ll see, pretty soon.
HANG ON!
Hariman · December 6, 2024 at 12:10 am
Flat Taxes have to come with spending cuts and entitlement program reform.
The economic growth increase of a Flat Tax would also make up some of the margin of difference too.
The hard part is keeping democrats/the incompetent quisling GOP Old Guard out of office long enough for it to have full effect. When the opposition party screws everything over every 4 to 8 years it makes long term reform hard.
We’re pretty deep, but we’re not doomed yet, and not being willing to think beyond the surface math/doomsaying isn’t going to help.
It’s part of why I want to #ArrestDC to get ALL the corruption at once, or as close to that as possible.
Because a truly free and restored American can survive this… but not if people are still working from the inside to only profit for themselves and leave a dead husk behind.
JimmyPx · December 6, 2024 at 8:39 am
The problem is that EVERYONE says CUT CUT CUT until we get to where the real problem is — entitlements.
I’ve seen town hall after town hall and when they start saying “government and military pensions THAT THEY NEVER PAID A DIME INTO need to be cut”, people freak.
Then of course there are the expensive VA and medicare/medicaid money, etc.
What about Social Security and the millions of people getting SSI or getting money beyond what they paid into the system ?
“You bastards want to cut disabled veterans and grandma off” ?
It’s fine to cut the Education Department, no one gives a shit. Start going after everyone’s monthly check where the REAL problem is—no way.
It’s going to take a collapse to change things because people are addicted to “free government goodies” and they will fight to keep them.
Divemedic · December 6, 2024 at 8:46 am
I agree with everything except your first statement. Allow me to rephrase it:
The problem is that EVERYONE says CUT CUT CUT until we get to a program that impacts their own wallet or pet project.
Steady Steve · December 7, 2024 at 8:18 pm
I’d be willing to give up my future Social Security/Medicare if ALL taxes on my income were to cease immediately. What I pay out in income tax,Social Security, and FICA would allow me to save and invest enough to live modestly in retirement. America would be an enormously wealthy country right now if these taxes had never been enacted.
Divemedic · December 8, 2024 at 7:22 am
Sadly, there are far too many who believe otherwise.
oldvet50 · December 6, 2024 at 11:34 am
I think we need to revisit Social Security entitlements. It is not being administered in a way that is fair or even logical and definitely not how it was intended. I have heard, and I don’t doubt, that some illegals have worked and paid into the ‘system’ for a few months and are then guaranteed minimum benefits for life. I’m sure there are many other abuses. Your SS contributions should not be available to all your 10 kids after you die prematurely since your paltry payday donations to it don’t begin to cover it; it should only be available as a benefit to your wife as a set amount regardless of your ability to sire litters. I’m sure some Democrat bought a bunch of votes with that change to the SS act. I’m sure its all going to implode soon anyway, so all economic plans may be moot.
Divemedic · December 6, 2024 at 9:28 pm
I believe that it’s 7 years of work to earn the lifetime payout.
The Cold, Hard Truth – Area Ocho · December 6, 2024 at 8:43 am
[…] In our recent discussion, many of you say that this financial situation the nation finds itself in is fixable. All we have to do is eliminated this Federal department, that one, and then convince the recipients of all the Fed Bucks that it’s for everyone’s benefit that they stop getting government checks. Do you even hear what you are saying? Comments like this are simply not realistic: […]
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