Will Taxing the Rich Fix the Deficit?

Published on Jul 2, 2012

DEBT LIMIT – A GUIDE TO AMERICAN FEDERAL DEBT MADE EASY.

Uploaded by debtlimitusa on Nov 4, 2011

If you want the rest of the story then read this article from the Wall Street Journal about how bad it is now in Washington. Our federal government is truly broke and will not have any money to bail out anybody in a few years.

• November 26, 2012, 6:41 p.m. ET

Cox and Archer: Why $16 Trillion Only Hints at the True U.S. Debt

Hiding the government’s liabilities from the public makes it seem that we can tax our way out of mounting deficits. We can’t.

By CHRIS COX AND BILL ARCHER

A decade and a half ago, both of us served on President Clinton’s Bipartisan Commission on Entitlement and Tax Reform, the forerunner to President Obama’s recent National Commission on Fiscal Responsibility and Reform. In 1994 we predicted that, unless something was done to control runaway entitlement spending, Medicare and Social Security would eventually go bankrupt or confront severe benefit cuts.

Eighteen years later, nothing has been done. Why? The usual reason is that entitlement reform is the third rail of American politics. That explanation presupposes voter demand for entitlements at any cost, even if it means bankrupting the nation.

A better explanation is that the full extent of the problem has remained hidden from policy makers and the public because of less than transparent government financial statements. How else could responsible officials claim that Medicare and Social Security have the resources they need to fulfill their commitments for years to come?

As Washington wrestles with the roughly $600 billion “fiscal cliff” and the 2013 budget, the far greater fiscal challenge of the U.S. government’s unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one.

But it hasn’t. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury “balance sheet” does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.

As a result, fiscal policy discussions generally focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government’s true liabilities.

The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

Why haven’t Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet. But it is possible to discover them. Included in the annual Medicare Trustees’ report are separate actuarial estimates of the unfunded liability for Medicare Part A (the hospital portion), Part B (medical insurance) and Part D (prescription drug coverage).

As of the most recent Trustees’ report in April, the net present value of the unfunded liability of Medicare was $42.8 trillion. The comparable balance sheet liability for Social Security is $20.5 trillion.

Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities, they would see clearly the magnitude of the future borrowing that these liabilities imply. Borrowing on this scale could eclipse the capacity of global capital markets—and bankrupt not only the programs themselves but the entire federal government.

These real-world impacts will be felt when currently unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.

In exchange for the payroll taxes that aren’t paid out in benefits to current retirees in any given year, the trust funds got nonmarketable Treasury debt. Now, as the baby boomers’ promised benefits swamp the payroll-tax collections from today’s workers, the government has to swap the trust funds’ nonmarketable securities for marketable Treasury debt. The Treasury will then have to sell not only this debt, but far more, in order to pay the benefits as they come due.

When combined with funding the general cash deficits, these multitrillion-dollar Treasury operations will dominate the capital markets in the years ahead, particularly given China’s de-emphasis of new investment in U.S. Treasurys in favor of increasing foreign direct investment, and Japan’s and Europe’s own sovereign-debt challenges.

When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.

In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation’s debt and deficit problems be solved.

Neither the public nor policy makers will be able to fully understand and deal with these issues unless the government publishes financial statements that present the government’s largest financial liabilities in accordance with well-established norms in the private sector. When the new Congress convenes in January, making the numbers clear—and establishing policies that finally address them before it is too late—should be a top order of business.

Mr. Cox, a former chairman of the House Republican Policy Committee and the Securities and Exchange Commission, is president of Bingham Consulting LLC. Mr. Archer, a former chairman of the House Ways & Means Committee, is a senior policy adviser at PricewaterhouseCoopers LLP.

I have been writing President Obama letters and have not received a personal response yet.  (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on Nov 1, 2012. I don’t know which letter of mine generated this response so I have linked several of the letters I sent to him below with the email that I received.  I think it could have been this one 84.4 but maybe not.  Most likely it was this one below:

Religious Liberty: Obamacare’s First Casualty

Uploaded by HeritageFoundation on Feb 22, 2012

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

Max Brantley on the Arkansas Times Blog on 3-6-12 again claimed that the Republicans will lose this debate with you on Obamacare and conscience. However, I don’t see how that is true and it clearly interferes unconstitutionally with the liberty of Americans.

Congress recognizes more each day that the Patient Protection and Affordable Care Act, known widely as the Obamacare statute, interferes unconstitutionally with the liberty of Americans.  From the Obamacare individual mandate to buy health insurance that awaits the action of the Supreme Court, to the Obamacare mandate that many religious hospitals, charities, and schools abandon the tenets of their faiths and include in their group health insurance for employees coverage of abortion-inducing drugs, contraception, and sterilization, Obamacare assaults the Constitution and American freedom.

Fortunately, Members of Congress and the American people are waking up to the need to repeal the Obamacare statute and move instead to market-based, patient-centered health care.  Action in Congress this week to defend religious liberty continues to highlight the need to repeal the Obamacare statute.

The Obama Administration continues to trample on religious liberty by applying the Obamacare statute to mandate that many religious institutions’ group health insurance for employees cover abortion-inducing drugs, contraceptives, and sterilization.  The Departments of Health and Human Services (HHS), the Treasury, and Labor published on February 15, 2012 final regulations that compel many religious hospitals, charities, and schools to abandon the tenets of their faiths and comply with that mandate beginning April 16, 2012, or pay fines for maintaining their religious faiths.  The final regulations did not include any changes to respect religious liberty that President Obama had led people to expect.

Although Secretary of HHS Sebelius has said that, for one year, she will simply not perform her duty to enforce the final regulations, her decision not to enforce the regulations temporarily as a matter of grace does not eliminate the mandate’s interference with religious liberty.  Indeed, her pronouncements reflect a failure to understand that religious liberty in America is an unalienable right with which our Creator has endowed us and a right that our Constitution’s First Amendment protects.  Our religious liberty does not arise from the discretion of the Federal Government to do Americans a “favor” and tolerate their religions.  Because President Obama and his agents continue to attack the constitutionally-guaranteed right of these religious institutions to free exercise of religion, Members of Congress are stepping forward to protect the Constitution.

Senator Roy Blunt (R-Missouri) has fought for religious liberty against the Obamacare assault.  He plans to offer this week Senate Amendment No. 1520 to S. 1813, the highway authorization bill, to protect the right to religious liberty against the Obamacare mandate.  The Blunt Amendment notes that, until the enactment of the Obamacare statute in 2010, “the Federal Government has not sought to impose specific coverage or care requirements that infringe on the rights of conscience . . . .”  The Blunt Amendment would override the Obamacare mandate that religious institutions provide coverage for abortion-inducing drugs, contraceptives, and sterilization when it is contrary to their faiths, allowing them to keep their faiths and provide health care coverage for their employees.

Senate Majority Leader Harry Reid (D-Nevada) has announced his intention to keep the Senate from voting on the Blunt Amendment by making a motion to “table” — that is, to refuse to consider — the Blunt Amendment.  Senator Reid said he considered the Blunt Amendment that  protects religious liberty to be a “distracting proposal.”  Senator Reid may treat legislation to protect religious liberty as a “distraction,” but hundreds of millions of Americans hold their right to free exercise of religion to be a precious freedom.

President Obama and Senator Reid can man the ramparts of Castle Obamacare against the people for only so long.  The American people want their liberty and they shall have it.  The Obamacare statute must go.

__________-

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

___________

Here is the response I got from the White House on Nov 1, 2012:

Nov 1, 2012

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