Taxes and spending cuts. Billions and trillions. The numbers being thrown around are astronomically large and mind-numbing. Perhaps that is why President Obama used such large numbers to define his proposal to cut $4 trillion over the next 12 years.
Before we go forward, let’s get this in prospective.
The 2011 budget, if looked at in thousands of dollars like a monthly budget most Americans have, works out like this:
Revenues (taxes) $1,938
Total spending $3,460
Spending cut compromise -$38
Net result = a loss of $1,522
Yes, the way the Government spends money is a joke. But the reality of the last several months of debate and finger pointing amounts to nothing.
A bit more reality.
Intrest on $14.3 trillion in debt is $3.5 billion a day. That’s $1.278 trillion a year. Which is why in mere weeks the debt ceiling is planned to increase to over $15.5 trillion. Which does not consider the increase that will be needed in 2012, estimated to be another $1.1 trillion.
But the answer proposed by President Obama today, sounds like it will reduce the deficit to merely $11 trillion – where it stood the day President Bush left office. Forget that President Obama won’t be in office at the time. Forget that ANY other President in office will alter proposed plan with their own budget, and hopefully plans to reduce the deficit.
Most importantly, forget that the current interest rates of 3.25% (in place since 2008) are drastically abnormal. From 1971 – 2010 the average interest rate works out to about 6.45%. That’s nearly double what it is today, meaning that the debt in any 1 year would double to $7 billion a day or $2.56 trillion a year.
Over the next 12 years, it is all but impossible for interest rates to remain at current levels. Therefore, President Obama is not cutting the CURRENT deficit, he at best is porposing to REDUCE the future HIGHER defict.
The realization of this fact has a massive impact. It means that the President’s proposal merely slows down the speed at which the nation will fall into insolvency. It DOES NOT prevent it.
But let’s assume the impossible happens. Rates don’t change and the next 3 Presidents hold to the proposal made today.
Once again simple math, done with a calculator, proves that the proposal from President Obama is worthless.
First, it is well known that increasing taxes REDUCES tax revenues. Currently the top 1% of taxpayers (earning more than $380,000) pay 40% of all taxes. The bottom 50% of taxpayer (earning $33,000 or less) pay 3% of all taxes. Thus increasing taxes on people that already pay the bills, increases the burden on the nation when they have less money to pay taxes on.
That means that 25% of the “plan” by President Obama is already in trouble.
But let’s think about the rest of the plan. To save $300 billion a year (which is what he has proposed) we must ignore that intrest on the debt will still increase by roughly $900 billion a year. Again assuming interest rates don’t move, and the Government is not required to spend a dollar more on Social Security, Medicare, or any of the entitlements.
By the way, Baby Boomers are begining to retire and ARE increasing Social Security, Medicare, and other entitlements. The Health Care Reform creates a brand new entitlement program, with increased costs that are still unknown – as well as how quickly they will grow.
The net result is simple. The President is NOT attempting to reduce the deficit. He IS trying to preserve entitlements. He IS trying to punish success among small business owners and individual taxpayers.
Most importantly, he is pushing the entire problem of the deficit down the line to a time when he CANNOT possibly be in office, and thus blamed for the catostrophic problem he is allowing to snowball on future generations of kids, and grand-children.
All we can say is that this is definitely “CHANGE”. Not what we expected, but then again, President Obama never did define what “CHANGE” meant.