Monday, November 23, 2009

Raising Taxes Generates Less Revenue

This health care plan being pushed through Congress is pretty much nothing more than a tax hike on the young paying for the benefits of the old. The additional funds raised and not paid out could be "borrowed" by Congress, just like our Social Security taxes were.

Look at the picture below. 23 percent of our budget is for Medicare, 21 percent is for Social Security, 10 percent is other, and interest on the debt is 8 percent. The only things Congress can "adjust" (cut) are the 21 percent for defense or the 17 percent of discretionary spending. Good luck there.

In the second chart look at the sources of income; Social Security provides 36 percent of tax revenues. Notice, the government is only paying out 21 percent in benefits to Social Security recipients; the other 15 percent is "budget money." Note: FDR claimed that Social Security would only amount to a 1 percent tax (Democrats seem to have a problem with math and that goes hand in hand with voters having a bad memory).

This is where the health care tax will be the new revenue generator. Just like Social Security was during the Great Depression. But this time it will back fire on them. Congress in its infinite stupidity thinks this will solve all of our country's budget problems. They raise taxes and the taxpayer gets “free” health insurance. But there is one little item, that right now is insignificant, but will rise up to bite them. It is the assumption that most families will continue to have two wage earners.

The government has failed to realize the game rules have changed. We are in a depression with high unemployment and decreasing tax revenues. Your dollar has to go further when you have less of them to spend. Government spending has to be cut drastically, how likely is that to happen? Many families now only have one wage earner and it looks as if it will get worse. The government needs to raise taxes by 25% and health care will do just that. The real health insurance costs are for those over the age of 60 and that program is already “funded.”

The younger generation may be able to beat this tax. When our son was born, I became Mr. Mom. My wife had a real good job and at the time, my real estate career wasn’t setting the world on fire. My wife wanted me to get a “real” job and put our son in day care. I mentally figured it out, day care would cost about $18,000 per year and gas to drive to my job would probably be $2,000 per year. Plus we would both have to do the cooking, cleaning and shopping; figure that has to be worth about $5,000 per year. Add it up and it totals up to $25,000 (after tax income) so in reality, you need to earn $30,000 (before taxes)to justify getting a job. On an hourly basis, that figures out to about $14.42 per hour (figure $15.50 if health insurance passes). Being a house wife, may be a big positive for family financing especially if the prospective employer is only offering $9.00 per hour.

Government health insurance would be one less worry for the wife and kids. The husband could come home for “lunch.” Their actual standard of living would be better than the family with two wage earners. The net effect of this health insurance could inadvertently reduce the number of working women (with young children), which would be a reduction of taxpayers paying into the system.

Any way you look at it, there will be more people “not working,” or working under the table. Social Security collections as well as the new Health care tax could probably decrease well below anticipated government expectations.

Tax increases did not work during the Great Depression, including the Social Security tax. I read history, I don't interpret it. Congress needs to share a cell with Bernie Madoff. They both played the same game, the only difference, Bernie knew his investors.


Anonymous said...

The Health Care Bill as proposed is in reality a Tax Bill, nothing more, nothing less.

Oh, and Sen. Lieberman will vote to approve it, even though he says he will not.

Jim in San Marcos said...

Hi Anon 2:28

At least two of us see through the smoke and mirrors.

Sadly most people look at it as a health care issue. It is in part, the 23% of fixed budget costs for Medicare need funding.

Congress is a bunch of conniving chicken thieves. They need a tax increase, and a big one. The trouble is, they have gone to the well one too many times, so they have nothing to lose for trying one more time.

This health care plan is kind of like a car stalled out in the fast lane of the freeway at night. You know its going to get hit, you're just not sure when.

Thank you for your comments

Anonymous said...

yeah, stalled out on the freeway across all three lanes on a foggy, rainy slippery nite and everyone coming up on it is doing 80 mph.

in another 5 years the general consensus of this population will be that government fouls everything that it touches, those in charge have no idea what they are doing, those that were in charge should be prosecuted and imprisoned and Congress are a bunch of prostitute politicians that sold out their country to big business and special interests and all belong in the hoosegow.

Tyrone said...

in another 5 years the general consensus of this population will be that government fouls everything that it touches,

Right on. But in 5 years they will convince the sheeple that they need more control (and money) to repair the damage and corruption.

Farmer Bobb in N.E. Washington State said...

In five years the American people will still be whinning about high taxes, high unemployment, the high cost of living and most likely vote the same way we always vote. I believe most major American businesses will hang up the "Closed" sign an go else where. Walmart, here I come, do you have a job for me.

Great Blog Jim!!! Thanks

Jim in San Marcos said...

Hi Tyrone

I don't think we have the luxury of 5 years. I figure 2 at the mosts.

Plus, we are not going to like the government solution to this mess. ---------I hope I am wrong.

Thank you for your comments.

Jim in San Marcos said...

Hi Farmer Bobb

I agree it is going to get worse.

But as you suggest, where is the American engine of productivity? It certainly isn't in the USA.

That is the real problem.

It is hard to figure where we go from here, everything is uncertain.

Glad you like the blog, your comments are my paycheck.

Take care.

Bank Insider said...

A crash in commercial real estate is starting.
Option ARM loans equal if not greater than the subprime loans are just now beginning to re-set and default. How can the banks survive this? The bankers are cooking the numbers to squeeze out as big of bonuses as they can now so they will be ready to bail when the time comes.
Interest rates will have to rise to entice investors to buy the 2 trillion in US short-term debt coming up for refinancing in the next 18 months. Rising interest rates, more defaults and foreclosures = plummeting real estate prices.
The worst is yet to come.

Just remember, in the summer of 1930 newspapers reported there were "green shoots" and the Great Depression was over.

Jim in San Marcos said...

Hi Bank Insider

I'm in complete agreement. But there are two pieces of the puzzle that don't fit together.

If the government guarantees all bank loans, there there is no need to charge extra interest for the risk taken and the banks are doing home loans now at less than 5%. The lack of risk will keep rates low.

At the same time, a person with bad credit using a credit card is paying 29% interest. With that sort of interest rate, the risk seems very real.

I'm sure this will work itself out, I'm just not sure how.

Every day we hear the recession is over and as you pointed out, the country went through the same song and dance in 1930. It's going to get worse.

Thank you for your comments