The Chicken or the Egg?

The US Federal Debt is a concern. It has exploded under the current Administration in an almost wanton fashion. The prior Administration did a "Johnson" by having two wars with no payments for the costs. The assumptions when they started were that they would not cost that much but as anyone who has a semblance of knowledge of history knows they always cost a lot more than we ever thought. Thus there was an increase. The Stimulus of 2009 was an unabashed Keynesian explosion with not positive effect, especially since we were told by Romer that unemployment would go down, it did not, in fact it increased.

Thus to reduce the debt we must do two things; cut expenses and raise revenue. In addition we must deal with the entitlements; Medicaid, Medicare, and SSI. Now Medicaid is a non-contributory entitlement, namely it goes to those having made no contribution. The other two have a contributory element and Medicare actually pays out much more to those with less contributions and thus less income, than they ever contribute.

Now there is a flap about raising taxes on the rich, and to the current Administration that means anyone with a family income in excess of $250,000. Those folks depending on where they live are not really that rich. For example in New York or New Jersey they pay Federal Taxes of say 25-30%, plus 7-9% State taxes, then 10% real estate taxes, and 8% sales taxes. That is just off the top. Thus if we have that group one must also remember that the 8% sales is after tax so we see:

1. We pay $75,000 Federal Tax
2. $15,000 State Tax
3. $20,000 real estate tax
4. 8% sales tax on say $100,000 or another $8,000.

That is a total of $118,000 of the $250,000. Also they pay 14% SSI on the first about $100,000 so that is another $14,000 and they pay 3% of Medicare tax or $7,500.

Total Tax: $139,500
Tax Rate: 55.9%

In addition they pay for college etc.

So we see that these folks are fairly well taxed already. But the billionaires are asking to be taxed more, and they are asking that the ones at the bottom of the "rich" pile get to contribute as well.

The FT has an interesting article describing these generous folks, and it states:

The call for higher taxes on the wealthy – which is shared by President Barack Obama and many congressional Democrats – appears to chime with the desire of most Americans. A CNN poll this month found 63 per cent of Americans favoured higher taxes on businesses and rich citizens to curb the soaring debt. 

 So what are they asking for, expanding the total to say 60%? But should we not reduce spending first? That is the dilemma. You don't buy an addict more junk, you get them to go cold turkey first. This is the political dilemma. The current Administration has no such idea, they just want to tax more.