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Who Pays Taxes? Who Benefits?

In the last election, the left is demonized Romney as a cold-hearted liar who cares nothing about the poor and who will do or say anything to get elected.  They demonized rich Americans as well.  However, a simpler way of looking at who supported Obama and who supported Romney is to simply look at who pays federal income taxes and who receives those tax monies.

(The following numbers are rounded off for simplicity, but are accurate enough to get the general ideas.)

It turns out that the top 10% of income earners in the US pay 70% of all federal taxes.  The top 50% to 90% of income earners pay the other 30%.  The bottom 50% of income earners ($50,000 a year and below), pay virtually nothing.  (More accurately, it is the famous lowest 47% who pay no federal income tax.)

In his campaign, Obama said it is the lowest 50% of income earners in the U.S. who he is working for.   These people are his core constituency.   This is not a bad policy:  Obama is for the poor.

However, should it be any no surprise that these 50% enthusiastically supported Obama?  They will never have to pay for taxes or the debt.

Conversely, is it any surprise that most of the top 10% income earners—all 14 million of them—generally opposed Obama?  They will have to pay 70% of the federal budget and 70% of the debt’s cost!

Finally, it is any surprise that the top 50% to 90% of income earners have only mixed feelings about Obama?  They—all 56 million of them—only pay 30% of the budget and the debt, and 30% of the interest on that debt.

Below are some other interesting numbers regarding the US economic mess.

We borrow 40% of every dollar the federal government spends.

We are now $16 trillion in debt and the Congressional Budget Office predicts it will be $20 trillion in 2016 if Obama is re-elected.

The interest cost on this debt is now only 1.5% but has been historically around 3%, and will probably soon rise back to 3%.  3% of $20 trillion is $600 billion a year.  This is the interest that taxpayers will pay forever every year on that debt.

The interest rate in Greece is around 6%.  If the US economy ever approaches the economic state that Greece is in—which is exactly where we are headed—then our interest rate will also be around 6%.  6% of $20 trillion is $1.2 trillion, which is the interest future generations will pay every year, forever, for the debt that we have accrued.

Is this moral?  Is it fraud?  Is it theft?

No intention of paying it back

It seems the country is borrowing money from younger people and future generations with no intention of every paying it back.   The purpose of this “borrowing” is to stimulate the economy so that present citizens can consume as much goods and services as possible.

We’ll grow the economy and then pay the debt back

The con pitch is that we are borrowing from future taxpayers to help grow the economy.  Then because the economy is bigger, the government will collect more taxes and we will use these extra taxes to pay back the debt.

But let’s look at the math:

We have around $1 trillion deficit each year, and we will continue to have this deficit for the near future.  We tax around 33% of the GDP for Federal taxes.

Thus even to balance the budget the economy, we would have to grow $3 trillion in order to pay the $1 deficit and balance the budget.

Our GDP is now around $15 trillion a year.  Thus the GDP would have to be around $18 trillion in order to balance the budget.  This means that the economy would have grow at a rate of 20%.  ($15 trillion GDP divided into $3 trillion growth.)

The economy is now growing at a rate around 2%!  Thus we would need the economy to grow at 10 times the present rate!  An impossibility.

Thus there is no authentic plan to balance the budget, to create budget a surplus, or to begin paying back the debt!

To begin paying back the debt (which we say we are going to do) the economy would have to grow even faster than 20%!

Thus, the only way we could ever have a budget surplus and begin paying back the debt is by reducing spending.  Raising taxes will certainly help, but this might have a depressing effect on the economy.  Thus even though we must raise taxes for everyone the only way to have a long-term sustainable economy is to dramatically cut spending.

We call this policy austerity — a dirty word for progressives.

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