An Economic Crisis Point

It’s an election year, and the Dems are warming up their “tax the rich” chorus.  Speaking at the Senate Finance Committee, Senator Mark Warner (Commie-Va.) said,

The main goal here is this can’t just be a debate about the 2017 tax cuts. This is going to be Tax Armageddon. It’s time to suit up.

The Dems want the biggest tax increase in history, and they threaten that if the Republicans don’t agree to tax the rich into oblivion, they’ll allow the Trump tax cuts to expire.  Warner is throwing a tantrum and threatening economic “mutually assured destruction.”  If they’re not allowed to pick the pockets of a minority of citizens (the evil rich), we’ll all go down.

Anyone who learned his multiplication tables and knows how many zeros are in a trillion knows that we have a spending (and debt) problem, not a tax problem.  Our federal debt now approaches $35T, and it’s expected to top $50T by the end of this decade.  That’s over $100,000 of debt for every man, woman, and child legally in the United States.  We are way beyond being able to fix this problem with a tax increase.

When politicians demand tax increases, they aren’t talking about increasing tax revenues.  They’re demanding an increase in tax rates — which does not necessarily equate to more money for our “public servants” to spend.

Economist Arthur Laffer posited that beyond a certain point, tax rate increases cause declining tax collections.  His theory is that beyond some critical peak in the rate/revenue curve, tax increases trigger economic slowdown, resulting in less income to be taxed and lower deposits to the federal checking account.  When tax revenues went up after both the Reagan and Trump tax cuts, it hinted that Art might be on to something.

The question is, are we currently past the peak in the Laffer curve, where tax increases are counterproductive?

The federal government is currently adding $1T of debt every 100 days.  That means our “public servants” in D.C. are spending $300B more than they have, every month.  If we were to balance the budget with a flat rate increase across all income brackets, the taxes for an average family of four would need to increase by $4,000 per month (over what they currently pay)!  That would simply make the average taxpayer a felony tax evader.  People in prison don’t pay taxes, so tax revenues would go down, not up.

But Senator “Tax the Rich” screams: But wait!  We’re only going to raise taxes on those who can afford it, the filthy rich.  I have a question for our math-challenged senator: how did the rich get rich?

They acquired their wealth by providing a product or service that others wanted, and they generally use their wealth to do more of the same.  What the “tax the rich” crowd hates to hear is that the rich use their money to create jobs for other people — by employing people in their businesses, investing in other creators of employment, or buying products from companies that employ people.  In fact, the rich are wealthy only because they are the most efficient growers of the economy among the population.

What happens if we balance the budget by taking $300B per month away from the most efficient creators of employment?  That increase in taxes comes out of the productive economy and goes to people who are non-productive (i.e., burdensome overhead).  Assuming an average salary of $5,000 per month, about 60 million American employees would need to get their pink slips to allow government overhead to continue at its current rate.  Those are employees that will not be

  • building hotels for Donald Trump,
  • exploring space for Elon Musk,
  • delivering products for Jeff Bezos, or
  • filing 1040 forms with Uncle Sam.

Tax revenues would go down, dramatically.  We are clearly on the backside of the Laffer curve, where raising taxes lowers collections.  Moving $300B from production to overhead would only exacerbate our problem.  Therefore, we cannot tax our way out of this dilemma.

We could cut spending. But it should be obvious to everyone that addicts don’t kick their habit while they have free access to their drug of choice.  Our junkies in Washington are not going to stop spending if they retain the power to take their drug of choice — our money — from us.

Economists suggest that we could fix our fiscal insolvency by growing the economy.  Make the economy vibrant enough to raise employment and taxable income, thereby covering our spendaholic’s tab without increasing tax rates.  It just requires a government designed to be in everyone’s business to get out of everyone’s business.  Unfortunately, a government organized around taxing and controlling is not likely to cut taxes and regulations voluntarily.  There’s currently only one presidential candidate proposing such measures to grow the economy, and the opposition party is promising economic Armageddon if he tries.

We can’t tax our way to solvency.  Our addicts won’t curtail their habit, and we can’t grow the economy without a filibuster-proof majority of small-government conservatives.  So we’re most likely going to keep doing what we’ve been doing — borrowing today to pay the interest on what we borrowed yesterday.  We’re using a new credit card to pay the minimum balance on an old credit card and calling it high finance.

Interest on our debt is now greater than defense spending, and will soon surpass the cost of Medicare.  We are at the crisis point.  The growth in interest on our debt is accelerating and will eventually consume all the federal tax revenue and the ability of a slowing economy to meet obligations.  At that point, the United States will default on its debt, our currency will become worthless, and everything will come crashing down — Armageddon.

Nobody knows if or when a climate apocalypse will arrive.  But an economic collapse is a certainty, given our current practices.

We are at a decision point.  We can turn right, and cut spending.  We can turn left, and grow the economy.  Or we can go straight, continuing our current heading, while waiting for our pilot to come on the intercom screaming, Put your seat backs and tray tables up, lower your heads, and brace for impact!

John Green is a retired engineer and political refugee from Minnesota, now residing in Idaho.  He spent his career designing complex defense systems, developing high performance organizations, and doing corporate strategic planning.  He is a staff writer for the American Free News Network and can be reached at greenjeg@gmail.com.

<p><em>Image: pasja1000 via <a href="https://pixabay.com/photos/money-cash-currency-finance-3125447/">Pixabay</a>, <a href="https://pixabay.com/service/terms/">Pixabay License</a>.</em></p>

Image: pasja1000 via Pixabay, Pixabay License.

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