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The US Government is the world's largest debtor with trillions of dollar's of debt owed to
its citizens and individuals and governments all over the world. We run massive annual deficits of hundreds of billions
of dollars that continually increase the size of our debt and increase the amount of our government's interest payments
to its debtholders each year. The annual expenditures authorized by the United States Congress are
completely out of control when compared to the government's income from individual and corporate income taxes and other
sources.
As bad as the government's fiscal deficits look when reported each year, the actual financial
performance of the government is much worse. The financial data that gets broadly reported reflects the net cash flow
of the government in the current fiscal year. Various parties calculate and quietly report the accrual accounting
of the government's finances and the deficit is actually much higher. Accrual accounting is the financial reporting method
used to analyze the success or failure of major corporations. Accrual accounting includes reserves set
aside for future financial obligations. No corporation could get away with just reporting its cash flow to its
shareholders.
Most people hear about federal deficits and the national debt and assume that the details of the
government's financial mismanagement have no impact on them. Nothing could be further from the truth.
The most direct impact of the government's financial policies on us is through its various tax policies.
It is obvious that we would all like to keep as much of our own income and assets as possible. We would like to
decide how we spend, save or invest our own money. Therefore, low tax rates are generally good and the lower the
better.
The other side of the argument is that many people want a wide variety of services from our federal government.
Many people want to have the federal government take care of any problem that may occur in our nation. They want
to be protected from anything bad that can happen in life. Some would like a near welfare state, with the federal
government paying for all medical care and education cost for everyone. Other people want the latest government
special project to be funded in their home town. There are a lot of people that want to spend the other guy's tax
dollars and more. Lower income people generally want higher income people to subsidize their life style.
Do
you understand how the federal government gets the opportunity to finance its massive deficits and debt? No person
or corporation could get away with such pitiful financial management. The organization that creates the money that is
used to buy the government's debt is called the Federal Reserve (Fed). The Fed creates money electronically by a
keyboard stroke and distributes that money through the banking system and through the sale of treasury debt securities.
There are no real assets backing the US dollar. It is a fiat currency. By creating money out of thin
air the Fed devalues every dollar that we own or we make. Price inflation of products and services we buy occurs
because the Fed creates more and more money because it has to accommodate the Federal Government's ever increasing debt.
The Fed can create all of this fiat money because the US dollar has been the world's reserve currency since
World War II. But it is the Fed that is the true creator of inflation and is responsible for the devaluation of the
dollar that has occurred over the decades. If we can't increase our net worth or incomes faster than the Fed increases
the supply of money in the banking system we are getting poorer.
This is a very complex issue and we have
only begun to discuss all the ramifications of our government's financial mismanagement. But as a nation we need
to get our financial act together. We need to fix major flaws in our tax system. We need to plan for the future
like any person or company must. We need to decide how much tax we are going to collect each year and match it to the
government's expenditures. We need to make the Fed stop creating more and more fiat dollars.
I have a
couple of specific suggestions. The current social security tax is a regressive tax. Lower earned income
persons pay a higher percentage of their income than higher earned income persons due the income limits inherent
in the current tax law. I suggest that the social security tax be applied to 100 percent of all earned income and that
the tax rates be slightly reduced. Let us make the social security tax a true flat tax.
I would encourage
our leaders to eliminate as many of the current income tax deductions and tax credits as possible and lower the marginal
tax rates to simplify the income tax payment and collection process. I would prefer a flat tax for all taxable
income above a zero income tax level tied to the poverty level. There is no point in having people in poverty
paying income tax.
The Alternative Minimum Tax needs to be eliminated or completely restructured. This
archaic tax law is now impacting millions of people when it was originally designed for a very small number of very high income
individuals. My family is just one of those that have paid this tax for the past couple of years and it is unfair.
Essentially you have to do your tax return twice just to see if you have to pay it. I find it amusing when some of our
political leaders tell us about the great tax cut they gave us when all they did was change our tax obligation
from the regular tax calculation to the Alternative Minimum Tax.
We need to retain the current lower tax rates
for both long term capital gains and ordinary dividends or eliminate the tax on ordinary dividends altogether due to
the double taxation on corporate common stock dividends.
All US citizens need to increase their financial
education and understand how the federal government is taking them for a financial ride in cooperation with the Fed.
We need to get our financial act together as a nation. There will be a day in the future where the US dollar will no
longer be the world's reserve currency and we will all share the pain that will occur when the rest of the world tells
us our almighty dollar is not worth much to them.
Copyright 2006 by TPM
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