Tuesday, March 2, 2010

Too Much Dependence, Too Much Government

The Washington Times reports on the bad news:

The so-called "Great Recession" has left Americans depending on the government dole like never before.

Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723 billion — more than four times the record $167 billion drop reported last month by the Commerce Department.

Moreover, for the first time since the Great Depression, Americans took more aid from the government than they paid in taxes.

The figures show the devastating results of the massive job losses last year and indicate that the economic recovery that began last summer is tenuous and has a long way to go before many Americans resume life as normal, analysts said.

Economic growth typically depends on consumer spending, which is fed by wages, rents, interest and other forms of income. But the tentative revival of consumer spending in the second half of last year appears to have been fed largely by an extraordinary flood of government spending, as growth in other kinds of income has disappeared.

The numbers are ugly:

While wages and other job-related income fell by a record $206 billion last year to $7.84 trillion, transfer payments from the government such as unemployment checks and Social Security burgeoned by $231 billion to $2.1 trillion. Meanwhile, the amount of taxes that individual Americans paid plummeted by $325 billion to $2.1 trillion as a result of middle-class tax cuts and because nearly 6 million people were thrown out of work and are no longer paying payroll taxes.

And yet, we still have Congress, happily doling out billions of dollars to whomever they favor at the moment without a thought toward how they're going to actually pay for that spending.  Oh wait, maybe there is some consideration there, but you won't like that, either:

Democrats are at risk of losing their House majority over their profligate spending, their health care overreach and a general disdain for the way they do business and Steny Hoyer thinks the solution is raising taxes in an election year? Has Rove the Magnificent cultivated a mole in the House Democratic leadership?

"No one likes raising revenue, and understandably so," Hoyer said in an address at the Brookings Institution. "But if you're going to buy, you need to pay.

"If need be, I am hopeful that both parties will agree to look at revenues as part of the solution — not as a gateway to higher spending, but as part of a compromise that cuts spending and balances the budget," he added.

Hoyer, a voice for centrists in the House leadership, said reining in record debt requires a combination of spending cuts and tax increases.

Of course, we know that our illustrious federal government never actually cuts spending, so tax increases aren't going to work.  DrewM at AoS gives us a lot of great analysis on that, including:

The economics of deficit reduction isn't hard...cut spending and pursue economic policies that will spur growth. We've done the latter before so we know it's possible. The challenge is the politics of the former. Sure voters say they want to control spending but that's in theory not reality. "Cutting spending" is like "health care reform", it's real popular as an amorphic phrase, not so popular when you get around to doing it.

Even if we could control discretionary spending, and that includes defense spending which I'm betting a lot of you don't want to see cut, we still aren't anywhere near enough money. No, we too need to be Willie Sutton and go where the money is...entitlements like Social Security, Medicare and Medicaid. Here again the economics are simple...when Social Security was enacted in the '30's* the life expectancy was 60-63 years, it's now almost 78. In that same time the retirement age has gone from 65 all the way up to...67. We simply can't afford to subsidize people for this long. Add in Medicare costs and the fact that the Baby Boomers are a huge population and...we are screwed.

Tax increases are not only the wrong medicine for what we are suffering from, they will only make things worse. Yet, this is exactly what the Democrats are suggesting and likely will push through. Did I mention we are screwed?

Looking at all of these factors combined, our country is careening toward the tax tipping point, where the majority of the nation is dependent upon government and continues voting itself more and more goodies which are paid for solely by the shrinking majority.  That works for a while...until the minority either leaves the country or is taxed into oblivion itself.  When that happens, and when there are too few productive people working to fund the slacking of the majority, where will the money come from?

Nowhere.  The country closes up shop, and the spoils are picked over by the vultures hanging around just over the borders.

The tax tipping point is getting closer and closer -- we're around 47% right now -- and, under Barack Obama and the radical Leftist Democrat leadership, we've got the pedal floored straight for the magic 51%.  Unfortunately, that will be the death of America for all 100% of us.

There's my two cents.

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