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The Easter Bunny, The Tooth Fairy, Santa Claus, and Your Rich Uncle… Uncle Sam

Profile photo of cincinnatus 92 By cincinnatus
June 25th, 2012

Launch Blog, Category 4: Federal Spending

 

The Easter Bunny, The Tooth Fairy, Santa Claus, and Your Rich Uncle… Uncle Sam

It’s not really clear why American parents would have their children believe that a fictional character is the one to thank for all of the presents under the Christmas tree. Parents are the ones who work hard to earn the money, and then blow it all on toys that will be played with for about 48 hours… fighting traffic and crowds of other parents all along the way. Why give all the credit to someone who, after a few years, you’re going to tell your kids doesn’t exist anyway? It seems rather pointless.

Of course, the biggest problem with the Santa Claus meme is that it teaches us from an early age that the things we desire just kind of magically appear, brought to us by a white-haired, bearded, jolly old man we don’t know… with nothing required of us in return, except some vague requirement to be “nice” instead of “naughty.”

Thankfully, most parents eventually tell their children that there’s no a Santa Claus. But I’ve never heard of a parent telling their kids there’s no Uncle Sam… that other white-haired, bearded, jolly old man we don’t personally know. Uncle Sam is, for those of you who haven’t heard, another fictional character: he is a personification that embodies of the strength, will, and generosity of the United States. In many respects, Uncle Sam is a lot like Santa Claus, a personification that embodies the strength, will, and generosity of your parents.

Unfortunately, after Americans stop believing in Santa Claus, they simply shift their belief to Uncle Sam: he defends our borders, gives us police and fire protection, runs our schools, paves our roads, staffs our libraries, provides food and shelter for the poor, mans our national parks, funds our retirement, and takes care of almost all of our other needs.

The problem is, he’s broke. For years, for every dollar he’s been spending on you, he has been borrowing up to 43 cents. So he’s in hock up to his eyeballs. Worst of all, because you are family, his creditors are going to come after you to collect what he owes.

Uncle Sam’s problem is that he spent himself nearly to the point of no return, trying to “Keep up with the Joneses.” Imagine a person earning $23,000 per year, but spending $36,000 per year on their credit card. They’ve been getting by getting by making minimum payments, but today their credit card balance stands at $160,000. They have almost no hope of getting out if debt, unless they start to live within their means.

Proportionally, that’s exactly how deep a hole the United States is in (to calculate the example above, we just lopped off a few decimal points, by multiplying Federal Spending by 0.00001.) Today, America’s actual income is $2.3 trillion… but we spend $3.6 trillion, and our “official” national debt – or credit card – is approaching $16 trillion.

Of course, some experts argue that our “real” debt is more in the range of $70 trillion; others saying it’s as much as $130 trillion. But while Uncle Sam has been borrowing to bail out American banks and businesses, no one has the financial means necessary to bail him out: “All The Money in the World,” as the saying goes, is only about $60 trillion by some estimate.

So whether America’s debt is $16 trillion or $130 trillion, it’s going to have to be repaid, mostly to China, Hong Kong, Japan, the UK, and oil-producing nations. And the bill is coming to you, the U.S. taxpayer. At this writing, each U.S. citizen will have to pay more than $50,000 in future taxes, just to pay down the past borrowing and interest… above and beyond taxes needed just to run the country.

The most tempting faux solution is simply to raise taxes on the wealthy. According to the National Taxpayers Union, the Top 1% already pay 36.73% of all taxes; the Top 5% pay 58.66.73% of all taxes; the Top 10% pay 70.47% of all taxes… what’s a little more?

Forget about it; too little too late:

  • Even if you confiscated the entire wealth of the 400 richest Americans, it would only raise about $2.4 trillion… more than a trillion dollars short of even one year’s spending.
  • A report from the Internal Revenue Service found that in 2009 the super-rich (8,274 people with incomes of $10 million per year or more) earned a total of $240 billion; another 227,000 people earned $1 million or more in 2009. That sounds like a ton of money, just ripe for the picking; but…
  • Higher taxes on those people, as proposed in recent months, wouldn’t dent the deficit. Even if you confiscated all of their annual earnings, you would only generate enough money to keep Government running for a few weeks.
  • And the instant you did either of those two things, there would be no more “rich” people to pay for subsequent years: you would have already cleaned them out.
  • Even if you were to try to stick it to the rich, you’d have wealthy Americans doing what Facebook co-founder Eduardo Saverin recently did: he renounced his U.S. citizenship the day before Facebook went public, saving himself an estimated $600 million in U.S. taxes.It’s not a new phenomenon, and it is particularly popular with mega-rich rock royalty: one the achieved prominence, members of the Beatles, Rolling Stones, U2, David Bowie and many others reportedly found tax havens outside their native countries. (The Beatles’ song, “Taxman” decries the then 95% super-tax bracket in the UK, beginning with the lyrics: “Let me tell you how it will be: there’s one for you, nineteen for me…”)

So how did we get into this mess? Well, suffice it to say the axiom “The road to Hell is paved with good intentions” really is true. In America’s case, you cannot begin to address the problem of the National Debt unless you delve into our most expensive and fastest-growing programs: Social Security (established in 1935), Medicaid, and Medicare (both established in 1965), three programs that prove another saying: “No good deed will go unpunished.” (We’ll discuss a third, the Community Reinvestment Act later.)

In the last budget cycle, Social Security costs about $725 billion (about 20% of the budget) and was originally created as America’s Retirement Program for seniors – an overzealous but understandable piece of legislation, in the middle of the Great Depression – but in the years that followed became a catch-all for all types of financial support programs. Medicaid and Medicare cost about $835 billion (about 23% of our Federal Budget) providing medical care for the poor and elderly.

Though these programs were all started with the best of intentions, the projections and assumptions put in place to establish them proved to be fatally flawed… leaving us today with unsustainable costs, and worse, unattainable commitments to future generations.

  • In the case of Social Security, in 1935, no one anticipated the 1950s “Baby Boom,” or the fact that – because of advances in medicine, lifestyle, and workstyle – that people would live nearly 20 years longer today. It’s like the parents who put together a college saving fund for their baby… and then got hit with triplets… and learned that over time costs for tuition would double… and that all three kids wanted to attend private colleges… on the “Six Year Plan.” Clearly, expectation levels need to be reset.
  • In the case of Medicaid and Medicare, projected costs were equally amiss. According to the Washington Times, in 1965 Congress projected that Medicare would cost only $9 billion by 1990; the actual cost came to $67 billion. In 1987, Congress projected that Medicaid make special relief payments to hospitals of less than $1 billion in 1992; the actual cost was $17 billion. The 1993 cost of Medicare’s home care benefit was projected in 1988 to be $4 billion, but ended up at $10 billion.

Thus, what were minor and recoverable errors in financial navigation decades years ago, have now taken us far, far off the course heading that was originally intended. And like a ship that strays further off-course the longer it sails, America needs to make major course corrections in its spending… including, sadly, spending in areas in which we’ve made promises to our citizenry that we have no conceivable means of keeping.

Given all of that background information, clearly, there is no way for Uncle Sam to dig his way out of the hole he’s in; America needs to figure out how to spend less. A lot less. Though we have some tough decisions to make on Social Security, Medicare, and Medicaid, thankfully, the rest shouldn’t be too difficult.

You see, today we have a Federal Government that wastes hundreds of billions of dollars a year giving “benefits” to people who don’t need them, on programs that don’t work (or, they sound just plain stupid), or underutilizing the assets it already owns. As examples:

  • A White House assessment of Federal agencies found that 22% of Federal Government programs, costing taxpayers a total of $123 billion annually, fail to show any positive impact on the people whose needs they were created to serve;
  • Today – as a result of Great Depression-era Government price fixing that was never undone – the Government pays people living on land once zoned as farmland about $20 billion a year not to grow agricultural products… even though they had no intention of doing so, anyway.
  • According to New York Times and Fox News reports, the U.S. government is the nation’s largest landlord, owning or managing more than 900,000 properties, many located in prime, high-rent cities with some of the highest rents in the world. It is estimated that about 14,000 are unoccupied and another 55,000 are regarded as underutilized – valued at tens of billions of dollars – but instead of generating revenue from them, they sit empty… and taxpayers are on the hook for expensive maintenance of them.
  • Similarly, the U.S. Government owns much of the land throughout the 50 states – about 650 million acres or roughly 30% of our total land mass – managed by a range of different government agencies. Most of these lands are in the western United States… where beautiful mountains, mesas, ski areas, and sprawling forests make it some of the desirable and valuable land in North America.With the appropriate environmental and mixed-use laws in place, the Government should be selling or leasing large parcels of these lands to private citizens, developers, and corporations interesting in their oil and mineral rights. States – especially states like California, facing a $16 billion state deficit – should be screaming for the Federal Government to put these idle lands to work.
  • One thing that is working very well – too well – is the construction of public facilities named to honor U.S. politicians. The grand champion of this is the late Robert C. Byrd of West Virginia, humbly referred to as “The Soul of the Senate,” on a website honoring him… including listing more than 30 public and private facilities bearing his name http://soulofthesenate.org/named.html
  • The U.S. government will spend $2.6 million training Chinese prostitutes to drink more responsibly on the job, and another $400,000 studying the sexual conduct of gay men in Argentinean bars. Here’s a thought: call your kids’ school principal and ask them what they would do with an extra $3 million.

Those example are just a snowflakes on the tip of a very, very large iceberg. If you want to learn more, examples check out the website for the non-partisan group, Citizens Against Government Waste: http://www.cagw.org/reports/pig-book/2012/ Or read three great non-partisan books on this topic: “Economic Facts and Fallacies,” by Thomas Sowell; “A Nation of Moochers,” by Charles Sykes; and “National Suicide” by Martin L. Gross.

Of course, learning about these problems is only the first step. Doing something about them requires action… and quickly. After all, Uncle Sam, for all of his good intentions, is broke… and the bill collectors are at the door.

This entry was posted on Monday, June 25th, 2012 at 8:25 PM and is filed under Category 4 : Federal Spending, Launch Blog.

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