Data Analysis Reveals Consumers Are Paying Down, While the Federal Government Is Piling Up, Unprecedented Rates of Debt; Massive Tax Increases Loom
by Bill Sardi
Recently by Bill Sardi: The Flu Vaccine Horror Story You Never HeardAbout
Data gleaned from governmental agencies reveals consumers are beginning to reduce their personal debts while the rate of debt growth by the federal government in the past two years is 3—7 times greater than in prior years in this decade.
While the annual rate of debt growth for consumer debt rose by around 10—11% at the beginning of the decade, it came to a halt in 2008 and declined in 2009. Meanwhile, the rate of debt growth by the federal government, which ranged from 3.9 to 10.9 percent per year from 2002 to 2007, rose to 24.2% in 2008 and 28.2% in 2009.
A data review also reveals that:
- For the first time since 1930 the rate of growth of the gross domestic product, everything produced by all the people and all the companies in the U.S., has almost come to a complete stop in 2009.
- The federal government provides a rosier picture of the current economic meltdown, choosing to portray it as a brief recession rather than the complete and prolonged collapse of modern banking and currency systems that it is. There is no technological breakthrough that would give reason for high rates of unemployment to drop, nor is there any meaningful reform of financial systems and institutions to prevent a repeat of the recent economic bubble that created false prosperity throughout the nation. Any stimulus programs appear to be fleeting attempts to temporarily cover for major economic problems that demand true reform.
- The growth in federal debt will peak in 2009 and begin to be reduced thereafter, according to projections by the Office of Management & Budget (OMB), but this debt reduction reflects higher tax revenues rather than any cutbacks in government spending. While the OMB predicts a $192 billion decline in individual federal income tax revenues between 2008 and 2009, it inexplicably projects individual tax revenues will rise from less than $1 trillion in 2009 to $1.6 trillion in 2014, which foretells huge increases in federal income tax rates rather than any rise in employment, wages or increases in exports or consumer spending.
- While total federal debt increases over the next half-decade, it falsely appears to drop by nearly $400 billion in 2010, as federal spending declines in the aftermath of the bank bailout/Fannie Mae-FreddieMac/ troubled asset relief program. Federal debt still is at unprecedented levels in upcoming years. Furthermore, the OMB figures don’t add up correctly. The OMB estimates the gap between Federal revenues and federal government spending will be $535 billion in 2014. (See chart below.) But using OMBs own figures, by 2014 there is a huge gap between individual income taxes collected ($1.612 trillion) and federal outlays ($4.016 trillion). Taxes on corporations will make up for some of that gap ($420 billion), but that leaves a spending/tax revenue gap of $1.984 trillion in 2014! Taxes would need to be nearly doubled to eliminate debt financing of federal spending in 2014.
- The federal government gets into onerous debt when it passes legislation that requires funding without any source of revenue. The gap between revenues and spending is then closed by obtaining loans, which becomes the national (collective) debt. The President recently urged Congress to refrain from passing any future legislation that requires spending that isn’t offset by cuts in federal spending. The week following the President’s appeal for budget-neutral legislation, the Executive Branch proposed a massive health insurance reform plan that widened the gap between federal revenues versus spending by more than $1 trillion. This gap was to be reduced by taxing health benefits provided by employers and by increased taxes upon wealthy Americans.
ECONOMIC STATISTICS: PAST OR PROJECTED PERFORMANCE
Sources: Office of Management & Budget, Federal Reserve and Congressional Budget Office
GROSS DOMESTIC PRODUCT — In Trillions of Dollars (Source: Office Management & Budget)
GROSS DOMESTIC PRODUCT — Percent growth or decline (Source: Office Management & Budget)
INDIVIDUAL INCOME TAX — In Billions of Dollars (Source: Office Management & Budget)
FEDERAL OUTLAYS — In Trillions of Dollars (Source: Office Management & Budget)
SURPLUS OR DEFICIT — In Billions of Dollars (Source: Office Management & Budget)
DEBT GROWTH — HOME MORTGAGE — Percent growth or decline (Source: The Federal Reserve)
DEBT GROWTH — CONSUMER CREDIT — Percent growth or decline (Source: The Federal Reserve)
DEBT GROWTH — FEDERAL GOVERNMENT — Percent growth or decline (Source: The Federal Reserve)
NET INTEREST PAYMENT ON DEBT — In Billions of Dollars (Source: Office Management & Budget)
UNEMPLOYMENT RATE (See Congressional Budget Office data projections)
* 2nd Quarter 2009 data
The reaction of the federal government to a downturn in the economy has been to spend wildly almost as if there were no consequences. Interest on the National Debt will rise from $142 billion 2009 to $460 billion in 2014.
An article in the New York Times reveals interest payments on the current $12 trillion of accumulated national debt will exceed $700 billion a year in 2019, up from $202 billion in 2009. As the New York Times article points out, an additional $500 billion a year in interest expense would total more than the combined 2009 federal budgets for education, energy, homeland security and the wars in Iraq and Afghanistan.
Such massive debt causes false employment and a false economy. The current downturn in the economy, as the aftermath of the economic bubble brought on by cheap money policies at the Federal Reserve Bank and by relaxation of requirements to qualify for a home loan, now challenges every level of American society as to how to pay interest on its crushing debt.
The federal government is adding to the collective debt of Americans at a time when incomes are plunging and unemployment is rising. It is unlikely the principal on the national debt will ever be paid down given derelict spending now underway.
The US Debt Clock tells all, in real time. The Debt Clock shows that the US, with 108 million taxpayers out of a population of 307 million, with 43 million workers who pay zero income tax, and with 21 million US workers being on the public dole as federal, state or local employees, and nearly 16 million unemployed chasing about 2 million available job openings, this leaves less than 100 million taxpayers to shoulder the nation’s bills.
The National Debt now adds up to $39,000 per taxpayer and other unfunded liabilities (Social Security, Medicare and a prescription drug program) amount to an additional $345,000 of debt per citizen.
Despite denials by politicians, according to a pie chart issued by the OMB (see below), more federal revenues will be derived from huge increases in federal income taxes, while borrowing to make up for the federal deficit will subside.
This is because foreign lenders (mainly China and Japan) are reticent to lend America any more money, fearing the US will default on its loans either by devaluing the US dollar or by non-payment. In 2009 the gap between spending and revenues was closed by printing more money, which threatens to cause inflation. Fortunately, the newly printed money was parked at US banks and did not enter the economy to fan the flames of inflation. The US Treasury says it will not print money to make up for spending gaps next year, which again suggests massive tax increases are inevitable.
Burden the wealthy
The United States has chosen to lay the burden for this economic mess upon upper-income groups. According to the nonpartisan Tax Foundation in Washington DC, the tax burden upon the top 1% of tax payers now exceeds that paid by the bottom 95% of taxpayers. (See chart below.)
However, the Washington DC-based Tax Foundation reports that even the most onerous tax upon wealthy Americans cannot possibly close the anticipated deficit for 2010.
According to Bill Ahern, director of policy and communications at the Tax Foundation, a 90% federal tax rate on wealthy Americans plus state and local income taxes and other taxes would well exceed the entire income for many upper-income households.
There is no possible way the wealthy can shoulder this debt burden. It will have to be spread across the income spectrum, raising taxes of joint filers from 10—35 percent to 27—95 percent. This essentially represents a tripling of the federal income tax.
For example, to balance the 2010 federal budget, a taxpayer paying $7,055 dollars would have to pay $20,515, and a wealthy American who pays $800,000 in federal taxes would have to pay almost $2 million.
The Tax Foundation reports that even in 2012, when the President’s Budget projects a lower deficit, tax rates would still be need to be prohibitively high in order to balance the budget: nearly double, with rates ranging from 18.7 percent to 74.1 percent.
Whatever consumers are now saving in trimming their credit card debts and paying down home mortgages will soon be tapped in increased taxes to make up for the swelling national debt. The only federal government programs where budget cuts would make a significant difference in debt reduction would be Medicare and defense spending, both which are inexplicably scheduled for expansion.
Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.