Saturday, June 25, 2011

Want Tax Hikes? Push the Reset Button

Cut Government Spending Back to 1996

- By: Larry Walker, Jr. -

Dialing the top income tax bracket back 15 years without a reciprocal cut in government spending does nothing to preempt the debt bubble. However, if the Golfer in Chief and his inept cohorts remain stuck on reinstating those bygone tax rates, then all taxpayers must necessarily stand as staunchly fixated on cutting the size of discretionary government spending, back to 1996 levels if necessary. Those not willing to regress on government spending really need to stop kidding themselves into believing the silly notion of resurrecting 15 year old tax brackets as a serious solution. If you are confounded, then more than likely you have never heard of inflation, don’t purchase goods and services with your own money, and lack the skills required to balance a simple checkbook. In other words, those who don't comprehend would better serve the public by resigning from government and returning to their own ruinous private lives.

The fallacy of anointing $250,000 as the top tax bracket of the 21st Century is actually based on 20th Century income tax tables. What worked in 1996 won't work today. What Barack Obama and fellow democratic party residue from the last shellacking are really talking about is reimposing the top income tax brackets of 1996, which applied some 15 years ago. Omitted from this quandary are two key factors: inflation and the level of discretionary government spending in 1996.

  1. Inflation – As far as personal income, $250,000 in 2011 had the same buying power as $175,085 in 1996. And $250,000.00 in 1996 has the same buying power as $356,969.06 in 2011. Annual inflation over this period was 2.40%. Thus $250,000 isn’t what it used to be.

  2. Discretionary Government Spending – Discretionary spending in 1996 was $532.7 billion compared to the 2012 budget estimate of $1,340.3 billion ($1.3 trillion). If they want us to acquiesce to 1996 tax brackets, then shouldn't the government backtrack to 1996 discretionary spending as well?

In terms of both inflation and discretionary government spending, the budgeted 2012 discretionary spending level of $1,340.3 billion had the same buying power as $938.6 billion in 1996. And the $532.7 billion actually spent in 1996 has the same buying power as $760.6 billion today. If democrats insist on hiking taxes on those making over $250,000, then a simple compromise would be for them to agree to cut discretionary government spending by $579.7 billion in 2012 ($1,340.3 minus $760.6). This would bring both government spending and income tax rates in line with the late 20th century. But the right thing to do under Obamanomic theory is to simply return to actual 1996 discretionary spending. This requires cutting the federal budget by $807.6 billion, as shown below.

From General

This means cutting National Defense by $463.9 billion, International Affairs by $46.1 billion, General Science, Space and Technology by $15.3 billion, Energy by $10.2 billion, Natural Resources and Environment by $19.2 billion, Agriculture by $2.9 billion, Commerce and Housing Credit by $557 million, Transportation by $3.5 billion, Community and Regional Development by $14.2 billion, Education, Training, Employment and Social Services by $66.8 billion, ... etc…

Don’t worry about who gets hurt or rewarded, just cut it, and then tell governmental agencies, “Here’s your budget, now you figure out how best to spend it.” Problem solved. Next question!

"Knowledge is an inherent constraint on power." ~ Thomas Sowell

“Collecting more taxes than is absolutely necessary is legalized robbery.” ~ Calvin Coolidge

Related:

Keeping It Real: Obama's $250,000 Fallacy

Obama's Unfunded Consumption

References:

http://www.dollartimes.com/calculators/inflation.htm

http://www.gpo.gov/fdsys/pkg/BUDGET-2012-TAB/xls/BUDGET-2012-TAB-8-7.xls

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