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How to Balance the Federal Budget

As the United States rapidly approaches the current debt ceiling of $14,294,000,000,000 (fourteen trillion two hundred and ninety four billion dollars) it seems balancing the federal budget is something our politicians enjoy leaving till the last minute.  While it’s in nobody’s best interest for the U.S. to default on its debt, a few are willing to take the risk and see what happens by threatening not to raise the debt ceiling.

As most acknowledge the dire need for reform in order for the United States to pay its bills and help Americans recover from the recession, there is a historic change of how Republicans and Democrats are approaching the economy. This time it seems Republicans can’t stop spending taxpayer money as they refuse to cut oil and ethanol subsidies and continue to give money to industries that should be the last to receive any sort of welfare. On the other side of the aisle, top Democrats have identified trillions of dollars of savings to entitlement programs such as medicare and social security, when previous cuts to these programs where entirely out of the question.

Other missed opportunities when trying to balance the federal budget is to allow companies like GE and many others to take advantage of corporate tax loopholes which allow them to get away with not paying any taxes at all. If the IRS would collect a fair share of corporate tax from every company in every industry, this revenue would pay for trillions of dollars towards the debt the United States owes. Top Republicans including John Boehner, Eric Cantor and Mitch McConnell have dismissed the idea of balancing the budget by raising revenue for the federal government, claiming that President Obama is only interested in raising taxes. The problem isn’t with the current tax rate, but rather that it isn’t enforced for all companies.  It doesn’t make much sense for some companies to pay one of the highest corporate tax rates in the world, while others pay significantly less or in some cases nothing at all.

Defense and military spending is another area of government that can be scaled way back without compromising our safety. It’s absurd for us to send billions of dollars to other countries in order for them to “help us fight terrorism”. We have to take a tougher stance and demand that knowledge is shared in order to fight terrorism without having to pay them. Countries around the world have the same enemy and the U.S. can’t be the only country spending our resources to keep the rest of the world safe.

Now that politicians in Washington know how to balance the budget, the question remains of how they can get Americans back to work, so people can pay their bills and live the lifestyle we are used to. The answer is to get out of the way and let the market take care of itself. Raising taxes on anyone must be entirely out of the question during good times and bad and in fact politicians should continually find ways to reduce the size of government. Every American, poor, middle class and rich already pays much more than their fair share of taxes.

Democrats like to say the tax cuts passed in 2001 and 2003 during the Bush administration only benefit the wealthiest, when they in fact reduced the tax burden for most Americans. Below is the current tax brackets for the United States.

Marginal Tax Rate Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household
10% $0 – $8,350 $0 – $16,700 $0 – $8,350 $0 – $11,950
15% $8,351– $33,950 $16,701 – $67,900 $8,351 – $33,950 $11,951 – $45,500
25% $33,951 – $82,250 $67,901 – $137,050 $33,951 – $68,525 $45,501 – $117,450
28% $82,251 – $171,550 $137,051 – $208,850 $68,525 – $104,425 $117,451 – $190,200
33% $171,551 – $372,950 $208,851 – $372,950 $104,426 – $186,475 $190,201 – $372,950
35% $372,951+ $372,951+ $186,476+ $372,951+

Below this is the tax increases and decreases that have passed since the early 90’s. In 1993 you can see when President Clinton raised taxes for the wealthiest Americans to 36% and 39.6%. Then in 2001 you see the tax cuts go into effect for everyone except those that pay the very minimum, but still requiring the richest Americans to pay a larger percentage than they were paying  before Bill Clinton took office.

1992 1993–2000 2001 2002 2003–2007
15% 15% 15% 10% 10%
15% 15%
28% 28% 27.5% 27% 25%
31% 31% 30.5% 30% 28%
36% 35.5% 35% 33%
39.6% 39.1% 38.6% 35%

(Source: Wikipedia)

Everyone knows you can balance the budget by either raising revenue, decrease spending, or a combination of the two. The best way to balance the federal budget is a combination of the two, but instead of raising revenue by increasing taxes, the federal government can instead make more money by cutting taxes and collecting more money when all Americans prosper. The government has to create systems and make it easy for Americans to prosper and become wealthy and it can only do this by reducing the tax liability for all Americans. Jobs are created when Americans can reinvest their money instead of having to pay a larger percentage of taxes. Once unemployment is decreased more people are able to pay taxes which is a much better way of making money than gouging the remaining few that are employed. Government can’t continue to punish the wealthy by forcing them to pay more taxes. Politicians should look at Americans as business partners and make it as easy as possible to become wealthy by decreasing the percentage of money everyone must pay.

The United States doesn’t feel much like a free country anymore when the government makes Americans hand over more than a quarter of their paycheck. Then after taking 15% – 35% off the top, still charging property taxes, sales taxes, death taxes, payroll taxes and other excise taxes the government charges Americans just to keep up it’s wasteful spending habits. Any hint that any politician ever gives in the foreseeable future to raise taxes in any way should be immediately exiled from the country. Every new tax placed on the shoulders of Americans takes us further away from the reason we fought for our independence in the first place.

The talks to balance the federal budget take place behind closed doors, but as far as anyone can tell, Democrats are suggesting to raise revenue by closing tax loopholes and ending unnecessary subsidies. It makes no sense for Republicans not take this golden opportunity to reduce the size of government by ending subsidies and significantly scaling back medicare and social security in order to keep the country running once it hits the new debt ceiling.

Democrats now seem like the business friendly party, trying to get government out of the way of the free market. If Republicans continue to support subsidies and fail to make significant strides towards balancing the budget it won’t be long before the tea party movement begins to support Democrats. Politicians that will win American support will be those that reduce the size of government by ending subsidies, closing loopholes, scaling back on entitlement programs to make them sustainable and continue to find ways to reduce taxes for all Americans.

As a last resort if politicans can’t figure out how to balance the federal budget and negotiations fail, the country can always resort to legalizing nonviolent crimes and collecting taxes from these industries. I think even the most conservative member in government would rather have to inhale second hand smoke from his neighbor smoking marijuana, than having to resort to raising taxes on working Americans.

7 thoughts on “How to Balance the Federal Budget”

  1. It’s amazing how I agree with almost everything you said. However, you need to remember the largest expansion of goverment ever has taken plan in the past 2.5 years under a Democratic controlled Washington. So it is a little hard for me to believe Democrats are the ones pushing for smaller government and being held in check by the Republicans. Also, what is an exercise tax?

    1. Adrian Childers

      Yeah, I’m not blaming either side for the mess we are in. I think most Americans know we are in the situation we are in because of everyone in Washington. I’m just think it’s significant that Democrats are willing to make cuts to medicare and social security and I can’t for the life of me figure out why the large majority of Republicans support subsidies when they traditionally have fought for small government.

      An exercise tax is a tax I made up that I corrected on the post. What I meant is an excise tax which is a tax on events that take place as opposed to something we own. Taxes involving a transfer of estate as a result of a death for example is an excise tax. Excise taxes are also put in place to discourage certain behaviors such as smoking.

  2. I’m sure your dad’s recollection of when government payrolls were increased is just as accurate as your explanation of the “exercise tax”.

    ps – The word you were looking for is excise.

  3. Ronald Gaspard

    Inherent it this discussion is the assumption that a balanced budget has a virtue. This, and a budget surplus, certainly do have such virtue in a budget based on a commodity. A budget based on US currency, as a commodity, such as a home, business, or state has, must be balanced or show a surplus over time or the entity in question will go bankrupt.

    However, the US government is a sovereign issuer of its own currency, a fiat currency. There is no constraint of a commodity as to how much it can “print” and issue. There is no mathematical constraint at all.

    Of course the currency it issues would have no value if it didn’t have the power to tax and to demand that the taxes be paid in the currency it issues. That is to say that that taxes have an initial purpose of giving the currency value. Taxes have a secondary purpose of draining excess currency out of the economy and control the inflation caused by issuing excess currency.

    Simply put: The government can print money and unprint money at will.

    There is no need for the government to borrow money at any time. It issues, sells, and buys bonds as a secondary means of controlling inflation and as a means of controlling interest rates. Any debt it incurs is never paid back in anything but the currency that it is the monopoly creator of.

    A sovereign issuer of currency is, inherently, a non-profit. There is no way for it to collect and hold, as a commodity, its own money.

    However, there are significant consequences to budget decisions made by the government. Obvious is the threat of inflation by running to high a deficit. But inflation is unlikely in a period of high unemployment. Running a deficit and lowering taxs, especially on the lower marginal incomes, would serve to increase supply and demand thus decreasing unemployment. As the economy recovers and we see full utilization of our business capacity, then is the time to balance the budget, not now.

    1. Adrian Childers

      Extremely insightful comment Ronald. I’ve also put a lot of thought into the U.S. dollar and the benefits/disadvantages of a fiat currency. Couple questions though… What benefit is it to anyone that the U.S. would allow its deficit to run up so high relative to GDP? It’s a good point you made that we don’t necessarily need to have a budget surplus, but why let debt rise to what seems an almost unmanageable level?

      Also, in reference to what you mentioned in the last paragraph, I’m not sure I understand how running a deficit and and lowering taxes on lower income earners would decrease unemployment? I think the only way to decrease unemployment is to lower taxes on everyone so they can use the money they earn to hire employees or even just spend it and it go back into the economy.

  4. Balancing the budget is a quaint phrase made up by Bumsted types who never studied history enough to know how Alexander Hamilton’s American system of credit works. Briefly, the U.S. does utter currency as needed to run household chores and then in addition to have a science driven economy. In the depths of a depression we got the TVA, Grand Coulee Dam and many other scientifically advanced projects to create jobs, a tax base, elevate our quality of living and generally get prosperous. With success other nations looked at us as a beacon of light. We absorbed immigrants galore. Yet if other nations in a global fixed currency rate community of sovereign nation/states tried this system we would likewise benefit from their success. It’s a science driven economy or else.

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