Thursday, February 26, 2009

How to Raise $3.94 Trillion

When you hear about the new Obama Budget that hit the wires today which forecasts record outlays for the current fiscal year of $3.94 trillion (up 32 percent from a year ago)... don't think it stops there.

The Obama administration also plans to spend $3.55 trillion in fiscal 2010, beginning Oct. 1 thru Sept. 30/10, with the deficit narrowing to $1.17 trillion (down from this year's record deficit expected to be at $1.75 trillion with this new budget).
“While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity,” Obama said today before the budget was released. [link]

Now then, how do you raise that kind of money?

Taxes - no surprise there - seems to be their BIGGEST push. And, as many predicted, it isn't only the rich he's going after...
The budget proposes to raise taxes on couples earning more than $250,000 a year, generating $636 billion over the next decade. To do so, Obama proposes raising the top two marginal income tax rates to 39.6 percent and 36 percent, limiting itemized tax deductions and increasing taxes on capital gains to 20 percent from the current 15 percent.

Keep that little 5 percent capital gains increase in mind, folks.

Think it's hitting just the rich?

If you answered yes, then you need a wee bit more schooling in the arts of economics.

When the breadlines lengthen as more and more jobs disappear with this move, you'll probably see our B.O.B. leaders exclaim, "...we-ell, that's part of the 30% we told you would probably fail."

Keep in mind, this is just the FEDERAL budget.

Who knows what kind of tax increases you can expect in a trickle-down effect that will hit you at the State and local levels in what I believe will soon become the biggest tax grabs in the history of this nation's independence.

Before you start nicknaming me "Chicken Little" here's a little Bar Stool Economics I've been saving for all of you.

You may have seen this before, but even so, it is worth a revisit as we struggle to survive the Obama years...

Bar Stool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

“Since you are all such good customers,” he said, “I'm going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his “fair share”?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink their beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before and the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man, “but he got $10!”

“Yeah, that's right,” exclaimed the fifth man. “I only saved a dollar, too. It's unfair that he got ten times more than me!”

“That's true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn't get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

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