We Can't Really Cut Government Spending and Survive, Can We?

Vince Hughley asked for my thoughts on this graphic.



The graphic seems to think that it is better to continue spending money we don't have instead of allowing the deficit to go down.  Keep in mind that allowing the deficit to go down does not mean that we are balancing the budget.  We are still going into debt, but not by as much.  It's like the $100 you save by putting a $900 stereo on your credit card instead of a $1,000 stereo.  You still added $900 to your debt, so you haven't really saved anything.

People have lost sight of the reason that the federal government needs money in the first place.  If you go back in time to the early days of this country, the federal government actually had very few responsibilities.

It was to provide national protection through the armed forces.  It was to facilitate trade between the states.  It was to facilitate international trade.  Our navy was to keep trade routes safe for our traders internationally.  Do you see a theme developing?

It was to provide a mail service that would facilitate communications and trade nationwide.

That's pretty much all our federal government was to do.

The government was restricted in how it could carry out its activities through the rights that were granted to the people and to the states through the Bill of Rights.  These rights were to ensure the security, sanctity and freedom of the American people.

Given this, how did we get to where we are now?

How is it that the federal government feels justified in spending 1/3 of our GDP on its own programs?

We did not even have an income tax for our first one hundred years of existence as a nation.  Did you know that?  We had tariffs, duties and excise taxes on imports, and we had a national sales tax.  That was it.

The government did not give to charity.  Charities received their money via donations, and the government allowed them to help the needy.  Most educational services pre-Lincoln were provided by local churches or mothers who would teach their children at home.  Most women did not work outside the home at that time.

What changed?

Well, in 1913, we gave control of our money to a privately held corporation called the "Federal Reserve."  The Fed, in order to be able to act efficiently, does its actions in secret, without any oversight from the Congress, the president or anyone else.  One hundred years later, our nation is trillions of dollars in debt, and the Fed cannot account for over $16 trillion of money in circulation.

In the 1930s, in an effort to save people who were not prepared for the Great Depression, FDR signed a bill into law that created Social Security and Medicare.  This was a Ponzi scheme that has ultimately led to embezzlement by the federal government of these funds and creative accounting that uses the balances in these funds to show the deficit as being smaller than it is.  The system currently has about $90 trillion of future benefits owed that will not have any funds when these payments are due.

The government eventually converted the postal service to an independent organization instead of a government department.  It is the third largest employer in the nation behind 1) The Federal Government (surprise!) and 2) Wal-Mart.

The government decided that it had to tax incomes, which the US Constitution specifically forbade.  The Sixteenth Amendment passed in 1913, which you may recall was the same year that the Federal Reserve was created.  THIS WAS NOT A COINCIDENCE.

OK, so back to the question of cutting government spending.

Right now, whether you like it or not, all decisions about national politics are made by bankers.  They fund the elections, so they own the politicians.  The run the Federal Reserve, so they control ALL of the money in America.  If you don't believe me, remove any denomination of US currency from your wallet and see to whom it belongs.

If you look at any current bill, you will see that it is labelled as a "Federal Reserve Note."  Have you ever thought about what that means?

It is a note.  A note is a promise to pay (think Promissory Note).  The money you hold is not money at all!  It is simply a promise by someone else to pay a fictitious amount in exchange for the bill.  Nothing backs the currency.  It only has value, because people agree to use it in trade.

For many years, our nation issued gold and silver certificates.  You could convert the currency on a 1:1 basis for gold or silver.  In 1933, FDR took us off the gold standard.

FDR did something unique.  He made it illegal to own gold.  If you owned gold (other than jewelry), you were REQUIRED to sell it to the government at a price the government set.  He bought all the gold held by Americans.  He then raised the price of gold by 20%, which devalued the currency by 25%.  Nice way to start, eh?

In 1971, Nixon stopped allowing US Dollars to be converted to gold.  At that time, the valuation of an ounce of gold was fixed at $35.  Spot price as of this moment is $1,338 per ounce.  Since 1971, the USD has lost 97.38% of its 1971 value.

Now, why would anyone want to allow this to happen?  Well, follow the money.

Who owns the most gold in the US?  The Federal Reserve.  Who would benefit most from an increase in the price of gold?  The Federal Reserve.  Who killed JFK?  You get the picture.

Now, back to taxes.

Since the federal government mismanages everything it touches, those in Congress over the past 125 years have decided that the federal government should be as involved in everyone's lives as possible.

There are two ways to accomplish this.  Either, make people dependent on the government or make people give everything they own to the government.

Making people dependent on government is not hard.  Government Employment, Welfare, Food Stamps, Section 8 Housing, Health Care, etc. can accomplish that.

Making people give everything they own to the government is harder.  You have to raise taxes.  You can only raise taxes without riots if you act like you are giving something back (Entitlements, Obamacare, etc.).

This graphic illustrates that:

1.  People go HUNGRY (Means no more food stamps)
2.  People lose HEALTH CARE (Funny, I thought that the reason we need Obamacare is because people don't have health care.  Actually, they are referring to a loss of free Medicare.)
3.  People LOSE THEIR JOBS (Teachers, police and safety inspectors are mostly employed by state governments, local governments and school districts.  Most of these are not federal jobs and are not directly affected by a lower federal tax base.)
4.  Roads and bridges fall into disrepair (Again, only federal highway projects would be affected by this, but it is more a matter of priorities.  The money we spent in Iraq and Afghanistan to build schools, highways and bridges could have been spent here instead.)
5.  Children receive FEWER educational opportunities (Do you really think we are doing a good job in this area now?  You must be nuts!)

The one point that makes sense is that THE DEFICIT GOES DOWN.

If your family is deeply in debt and you want to get out of debt, the fastest way to do that is to cut spending and do without some of the luxuries that you enjoy.  People forget how much of their life is spent on luxuries. The following are luxuries:

1.  TV
2.  Telephone
3.  Personal transportation (car, motorcycle, boat, etc.)
4.  Fancy clothes
5.  Washer/Dryer
6.  Air conditioning
7.  Electricity
8.  Running water

You might take issue with #7 and #8, but much of the world survives without that.  I could make a longer list, but you get the idea.  Anything beyond shelter and food can be considered a luxury.  Your wife might not be happy, but some might consider her a luxury also.  Just kidding!

Now that over 50% of Americans depend on government in some way or another (soon to be 100% with Obamacare), and the rest are forced to pay for everyone else, it is only a matter of time before the payers surrender and join the ranks of the payees.

The reality is this.  If we could get the federal government's hand out of the pockets of hundreds of millions of Americans and American businesses, and replace the current tax system with the FAIR TAX (The flat tax is regressive.  The FAIR TAX promotes savings and investment, which we need in this country), employment would increase, the tax base would grow, fewer people would need outside assistance, and our country would put itself in a position to build back into being a world leader.

This will probably be the last time Vince asks for my thoughts on a subject.  :-)

Ask anytime...

An Open Letter to B. H. Obama

I sent this to Barack Hussein Obama prior to the 2008 Presidential Election in response to his website posting asking for input. I doubt that he ever read it, because he never called me to discuss its contents.

I thought you might enjoy reading this, so here you go!

Mr. Senator:


While I agree with many of your goals, I have to disagree with your methods. You need to surround yourself with advisors who are non-political, and who really understand the driving forces around the economy, energy, foreign policy, immigration and medicine.

Income Taxes

You will not improve the economy by increasing taxes. This has never worked effectively, and it will cripple an economy that is already fighting to maintain balance. Also, remove the semantics from your argument. You state that you are not going to raise taxes. We both know that to be untrue. By allowing the prior cuts to expire, taxes are being raised from their current point. We know that the poor don’t pay taxes, but the working poor do qualify for the EIC and other programs. Telling the middle class that you are going to transfer their taxes to the wealthy is pandering. Placing more of the burden on the wealthy brings down the whole country, by taking away the incentive to produce.

The Pareto principle tells us that 20% of the people have 80% of the wealth. Well, of the 20%, we know that 20% of them have 80% of that wealth. The American Economy is driven by Free Enterprise. Owning a business is the American Dream. Now, you propose to punish those in the top 3% of incomes for having achieved success. You also want to remove the cap on FICA contributions for those who earn over $200K per year. This is another bad idea.

Windfall Profits Tax and Energy Policy

Your proposal to place a windfall profits tax on the oil companies is another idea that will not produce the desired results. This seems a lot like a government takeover, since the companies are being penalized for being successful. Ideologies aside, corporations do not pay taxes. Their customers pay the taxes, because the tax is included in the retail price of every product or service produced. The owners of the corporation pay taxes on their dividends, but corporate taxes are a cost of doing business, which is passed along to consumers. If you insist on stealing money from the oil companies, they will simply raise prices to overcome your tax. For example, a 50% windfall profits tax, when taxes are at 9% of retail price will result in a price increase of 6% to cover the tax, thereby maintaining the profitability of the enterprise, in spite of the taxes.

If we want to have lower gas prices, then we must be able to increase the supply of crude oil. While it may take ten years to realize the benefits of new domestic drilling and new refining, we still need to move forward in these endeavors. Had we done this ten years ago, we would not find ourselves in the current predicament.

We need to push for alternative fuel methods and expand production of hybrid vehicles. However, if the hybrid costs more than a comparable gas-only vehicle, the difference in cost may be too high to overcome in simple fuel savings. Tax breaks for production and purchase of these vehicles would be a good step.

It is possible to modify vehicles to work on other inputs, from used vegetable oil to propane. We should explore ways to help people that cannot afford new vehicles to be able to modify their current vehicles, so that these alternative fuels may be put into use.

Social Security

You will not fix Social Security by taking money from the wealthy. Social Security, as designed, is a Ponzi scheme, and we all know that those don't work. If you want to fix the system, make it fair to everybody. The system was poorly designed, and the government has been scrambling since the 1970s to try and fix it. If the system ran like a 401(k) or 403(b) program, where each contributor had control over the way their money is invested for their future, then the government wouldn't have to shoulder the blame for the system going bankrupt. The government has to meet its promises, but it can't. If you aim to be president, you must fix this problem right away. It can be done. If you don't know how, just ask me.

Social Security currently is an unfunded liability estimated to be as high at $20 trillion. Why not allow people to opt-out of Social Security, forfeiting all of their prior contributions, if they will agree to put at least 8% (an increase from 6.2%) of their gross income toward their own retirement under the privately-managed mutual fund family of their choice? The Financial Services Industry can easily set-up investments of this type. They would run similar to a Roth IRA, but with additional restrictions (i.e. No loans, available if permanently disabled, or retired at 62+). The rules for disbursement would be similar to current Social Security rules, with the annuity pay-out based on the amount invested and age-related factors. Accounts that are not annuitized during the lifetime of the recipient could be rolled into the account of a beneficiary or provided as a death benefit to heirs.

For those who opt-out of Social Security, their employer will continue to fund the FICA program based on wages paid, just like now. Self-Employed taxpayers would follow the same formula: Minimum of 8% into their own program, 3.1% to the government (SE Tax - capped), plus 2.9% (uncapped) for Medicare. This allows the system to continue to benefit from the labor force, without increasing the future liability of the system. Don't place an age cap on this, because the only people who will opt-out are those who can afford to fund their own retirement, and who don't need Social Security anyway.

Foreign Policy and Homeland Security

We need to get out of Iraq, but not until they can maintain their own security. We also need to continue to display to the world that we are united in our resolve to protect our interests and to remove the threat of terrorism. We don’t accomplish these goals by shrinking from fights that we are winning and by talking to despots and terrorists. Iran’s leadership is a problem that we need to correct now. We cannot wait until they have nuclear capability, and we cannot just let Israel attack, because the whole Middle East will go up in flames, and oil production and delivery will be affected.

We need to protect our borders and develop an immigration policy that makes it easier for productive members of other societies to enter, while making it harder for undesirables to enter. We need to allow those who protect our border to have access to the same technology that our military uses to perform surveillance activities during wartime, and we need to allow for military assistance with this problem.

Medicare and Health Insurance

The government does not need to be in the insurance business. Medicare is already an underfunded disaster (some estimate over $70 trillion with the new prescription drug program), and now you tell me that the government wants to increase its presence by taking over the industry? Bad idea!

Forcing employers to provide health insurance will result in higher unemployment. Forcing people to buy their own insurance will be a disaster unto itself. If you want to fix insurance, you need to deal with the underlying issues that contribute to high costs:

· Litigation costs · Malpractice Insurance Premiums · Medical Education Costs · Shortage of Doctors and Nurses · Inappropriate Usage of Benefits · Impact of non-paying Illegal Aliens

If you visit an emergency room in almost any state in the country, but especially in California and other border states, you will find a large number of patients using the emergency room, when it would be more appropriate (not to mention cheaper) for them to visit a family doctor. Why are they in the ER for a non-emergency visit? They are there, because they fall into one of the following categories:

· Medicare recipient · Uninsured Illegal alien · No medical insurance

Hospitals in the United States are not allowed to refuse care. Any other business or industry has the right to refuse service to anybody. No Shirt, No Shoes, No Money, No Service! I am not advocating the restriction of life-saving measures based on ability to pay, but I am advocating a more sensible approach to health care.

If we can reduce the cost of litigation and reduce the insane punitive damage awards, we can reduce the cost of both malpractice insurance and the provision of medical services. I know that the lawyers have a lot of money dedicated to lobbyists, but litigation legislation is necessary and long overdue.

Government assistance for medical education would be a big help, as doctors and nurses graduate with hundreds of thousands of dollars in education debt. This drives up costs as salaries must account for these debt service payments.

Deporting illegal aliens who cannot afford to pay for their care would be an important step toward reducing these costs for states that cannot afford them. Illegal aliens who reenter the country after deportation should be jailed for fraud and deported after their release.

Allowing hospitals to refuse patients who enter emergency rooms for non-emergency services, based on an inability to pay, would help reduce costs for everybody. Force non-emergency patients to seek family practitioners or urgent care centers for this type of medical care. Even if the government were to cover the cost of these services, it would still be much cheaper than ER care.

Conclusion

The United States of America is the greatest country on earth, but we have lost sight of how we became to be so great. Our country was built by entrepreneurs and tradesmen who believed that small government was good government. They did not believe that the government should tax its people, but should derive its income from tariffs imposed upon the importation of goods.

While we need the federal government to provide infrastructure and national security, the government has moved far afield from providing these basic necessities. Government is now immersed in almost everything we touch, and those in power seem to want to keep increasing its reach.

The economy would run more smoothly with a lower tax base. Gas prices would be lower without the restrictions on drilling and refining that have been imposed by the government. Government has let the people down with regard to immigration, but is finally doing a better job on Homeland Security. Medical care does not need to be provided by the government, but the government should take steps to lower the cost of care, so that everyone can afford it.

If we can get the politicians to stop and realize that their job is to protect the country and serve the citizens, rather than to succumb to the whims and fancies of lobbyists and their local constituents, then maybe, we can see some change. Until we change the way we elect our leaders, I don’t see anything changing for the better, which I find unfortunate.