Federal spending is completely out of control: Outlays dwarf receipts by 69% in 2021

 

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How to tax the rich and only the rich as originally intended in 1913, and solve a lot of problems

In 1913 when the average Joe made about $800 a year, the first income tax under the 16th Amendment didn't worry him because he didn't pay it and probably thought he never would. The personal exemption for a married couple in the original tax code was $4,000.

Today that $4,000 personal exemption adjusted for inflation using the Consumer Price Index amounts to about $100,000.

Even in 2016 that kind of income is made by fewer than 10% of individual wage earners. Under the original income tax of 1913, 90% today wouldn't have to worry about paying the dreaded income tax either.

Is there a way to return to this golden age of taxation?

I'm here to tell you that I think so, and I say that as a conservative. We could easily simplify the tax code by returning to the status quo which prevailed before the First World War, pay all the bills, abolish Social Security and Medicare taxes, the corporate income tax and all the other little irritating taxes and reduce income inequality in the process. We'd also save a lot of time and money wasted in complying with the tax code's myriad baroque features.

Here's the math.

In 2016 according to the Bureau of Economic Analysis personal income in the United States was $15.9287 trillion.

Social Security's Office of the Chief Actuary tells us that in 2016 there were 163.5 million individual wage earners. If you exempt the first $100,000 of everybody's individual wage income in 2016, including from the rich, you're talking about $6.213 trillion of individual wage income which would be tax-free.

That leaves $9.7157 trillion of personal income left in 2016 to tax, to pay all the bills.

According to The Tax Policy Center, the bills were the total estimated federal outlays of $3.9513 trillion in 2016.

So, the tax is 40.67% (9.7157 X .4067 = 3.9513) on all personal income in excess of $100,000 a year, no itemized deductions, no credits of any kind (this is where they all came from in the first place, because the rich pissed, moaned and complained and bribed the politicians to carve out privileges for them to escape paying).

The rich, all 14.9 million of them, will still have $7.2544 trillion to play with ($1.49 trillion from their first $100K tax-free, just like everybody else, and $5.7644 trillion left over after taxes from the income in excess of $100K).

The rest of us, 148.6 million, won't pay any federal income tax, Social Security or Medicare tax, gasoline tax, or any other kind of federal tax on our $4.723 trillion. The only taxes we'll have to pay will be State and Local Income Taxes, property taxes, sales taxes and the like. Of course rich people will have to pay those too, but that's a problem for all of us and for a different level of politics.

I summarize:

$15.9287 trillion personal income 2016 (BEA)

-  3.9513 trillion federal taxes, all from those making $100,000+ per year @40.67%

-  7.2544 trillion left over for the 14.9 million making $100,000+ per year (top 10%)

-  4.7230 trillion left over for the 148.6 million making less than $100,000 per year (bottom 90%)

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And the budget balances.   

The dollar has surged 2.26% since Wednesday to trade at 95 this morning

The dollar hasn't traded at 95 since late 2003.

Much more of this dollar strength is due to the continued improving fiscal condition of the United States since 2012 than people realize. 

Tax revenues are way up under the made-permanent Bush tax cuts and the made-permanent Alternative Minimum Tax fix, both of which heralded in 2013. Federal receipts are up a whopping combined 36% in 2013 and 2014 over 2012.

And continued Republican control of the purse in Congress has meant almost zero expansion of federal spending. Federal outlays are up a paltry combined less than 1% in 2013 and 2014 over 2012.

The federal government is up a net $845.5 billion in the last two years. That's huge.

The dollar is not simply a fiction which competes with other fictions in the global marketplace, but a symbol of the determination of the American people to play by the rules and pay their bills. It is not a coincidence that this determination lately expressed politically paved the way for falling commodity prices generally, and oil in particular. It is uncertainty which breeds fear-trades.

Speaker John Boehner doesn't get the credit he deserves for achieving under the Democrat President Barack Obama what Republicans before him could only dream about.

And if you want to know what's wrong with Republicans, that's it.

Stereotypical Federal Spending Wei Tu Hai

Federal outlays from fiscal 1985 through 2012 are up 274%, from $946.3 billion in 1985 to $3,537.1 billion in 2012. Federal receipts have lagged those outlays, however, up only 234% over the period, resulting in a net addition to deficits in nominal terms of $9.08 trillion as of the end of fiscal 2012, exploding the national debt. The political argument has been whether the taxes were insufficient to cover the spending, or the spending too high given the taxes. But in 24 of those 27 years there were annual deficits, each a message that Sum Ting Wong. Many Democrats shrugged and answered on taxes "Wi Tu Lo". Republicans looked at all that spending and said "Ho Lee Fuk, spending Wei Tu Hai". And now that we are $17 trillion in the hole the people say "Bang Ding Ow". But will they demand a cut to spending? No Fuk Hing Wei. Nao Tu Suun, they will say, as always. Po Ni up Tai Ni Sum later, maybe, but No Like Lee. Besides, Ri Li No Won Tu, anyhow. No Fun. Rather Tai Wan On.

Real Federal Spending Growth Since 2000 Has Outstripped Real GDP 3 To 1

Your government in action

People who keep saying government should spend more to grow the economy more don't want to confront the fact that despite the growth in real federal outlays between fiscal 2000 and fiscal 2012, real GDP growth has lagged far behind by a ratio of 2.77 to 1.

Federal outlays in fiscal 2000 (in 2005 dollars) were $2.0406 trillion, and $3.2125 trillion in 2012, according to the Tax Policy Center, here. That's an increase in real spending of 57.4% over the period.

Contrast that with real GDP. On October 1, 2000 real GDP stood at $11.325 trillion. Twelve years later it was only $13.6654 trillion, an increase in real GDP of only 20.7% over the same years.

If federal spending counts just as much as private spending for GDP, it's not self-evident from these numbers that the higher rate of spending is doing anything to boost real GDP. Quite the opposite.

A more prudent way to look at would be to say that maybe all those federal expenditures in excess of the 20.7% of real economic growth were wasted, even destroyed, and that in fiscal 2012 real federal spending should have been $750 billion less than it was.

Meanwhile the bureaucrats scream bloody murder over a lousy $85 billion across the board spending cut for 2013.

Cutting off a drunk is never pretty.

On the other hand, he probably won't remember who last put a foot in his ass, either.

Wily Democrats Ramped Up Spending Baseline Almost 18% In 2009

The Tax Policy Center here provides a useful history in pdf format of federal outlays and revenues going back to 1940.

After taking complete control of the federal purse strings in January 2009 with the election of President Obama, the Democrat-controlled House and Senate proceeded to ramp up federal spending almost 18% in 2009 compared to 2008, from $2.98 trillion to $3.52 trillion. You can see from the chart that expenditures have continued at that new, higher level ever since, despite the fact that revenues have not recovered. Is this the height of irresponsibility, or what? It certainly is one of the more baneful consequences of one party Democrat rule. Now you understand why Democrats won't pass budgets. Continuing this excess using continuing spending resolutions keeps their names out of the papers.

You'll notice on the revenue side for 2008 and 2009 that the government's income from taxes of all sorts declined almost 17% while these expenditures were being dramatically increased at nearly the same rate, opening up a gigantic fissure in the government fiscal landscape. Revenues declined by $419 billion between 2008 and 2009 while expenditures increased $535 billion. The revenues declined due to the bursting of the housing bubble, the ensuing financial panic and the massive unemployment which followed. Nearly 11.31 million Americans lost their full time jobs between November 1, 2007 and December 1, 2009. People who don't work don't pay taxes. With federal outlays already running over $450 billion in excess of revenues, you can understand why the deficit in 2009 swelled to over $1.4 trillion, and continues elevated at that level every year since. Deficits for fiscal years 2009-2012 will top well over $5 trillion in the end. At the Bush-level of deficit spending, the number would have been closer to $3.5 trillion.

In exchange for that astounding liability we have fat bankers not prosecuted for their crimes; bigger banks more dangerous than ever; fat government salaries at every level compared to the private sector; crony capitalism in banking, autos and healthcare; 5 million homes repossessed in seven years; over 12 million officially unemployed; over 2 million per year leaving the labor force for Social Security disability, reduced lifestyles, poverty, or retirement; nearly 48 million on food stamps; GDP struggling to average 1% per year under Obama, the worst performance in 65 years; interest rates near zero destroying returns on retirement capital; an exploding wave of reduced work in the form of impermanent contract and part-time labor; and on and on.

And what's hot on the web right now?

"Where's my refund?" 

Post-War Doubling Times For Federal Spending: Every 9 Years at 8 Percent per Year

US government spending on World War Two reached a crescendo in 1945 at $107 billion, after which spending reset to a post-war low of $36 billion in 1948.

Within 4 years, spending had doubled to $72 billion, in 1952.

It took more than 14 years for federal spending to double again, sometime between 1966 and 1967, when spending shot up on the Vietnam War and the Great Society programs under President Johnson. Spending in 1966 was $135 billion.

By 1974, just 8 years later, spending had nearly doubled again to $269 billion.

Under Jimmy Carter it took just over 5 years for spending to double again, sometime between 1979 and 1980. Federal spending reached $504 billion in 1979.

By 1987, 8 years later, federal spending had doubled again to $1 trillion under Ronald Reagan.

Federal spending did not double again until sometime between 2001 and 2002. It took more than 14 years to do so going through the Bush 41 and Bill Clinton presidencies to the presidency of Bush 43. Federal outlays reached $1.9 trillion in 2001.

Which brings us down the pike to today, when spending is projected to finish the fiscal year at $3.8 trillion, doubling in the 10 years since 2001.

That's 7 doublings in 63 years, or a doubling of US government spending every 9 years since World War Two.

According to the Rule of 72, a doubling every 9 years implies an interest rate of 8 percent per year.

In other words, federal spending has an effective rate of built-in spending increases at 8 percent per year every year since 1948.

When you consider that real GDP growth from 1930-2000 has been 3.5 percent and only slightly better than half that in the decade just past, our spending is completely out of step with reality.

(data from usgovernmentspending.com)