We’re Broke!

We’re broke! Those were the words of Speaker John Boehner when asked why not pass a jobs plan in Congress. While there can be no argument that the U.S. Government is presently spending more money than it is taking in from taxes is the country really broke? Will the U.S. Government have to file for bankruptcy? The reality is that the government never really has money. The only resources the government has is the ability to raise the funds necessary to cover the expenditures by collecting taxes from the citizens. When the government spends more and creates a deficit that just really means that the government failed to collect the necessary taxes. If this excess spending occurs over time, the accumulated deficit becomes debt. The solution to this problem is really very simple. On the one hand, the government can spend less each year. On the other hand, the government can raise more taxes. In reality, raising more taxes makes the most sense from an economic standpoint. However, raising more taxes is the least desirable political choice. Politics aside, the annual deficit can be eliminated without raising tax rates a single percent by taking a few very simple steps, the first of which would involve treating all individual income the same regardless of source. In other words, salary, wages, capital gains, interest, dividends, would all be taxed at the same rates. Second, all income (again regardless of source) would be subject to FICA and Medicare Taxes and as at present, if self employed, the recipient would pay both halves of FICA and Medicare taxes. The only income that would be excluded from payroll taxes would be retirement income from pensions and Social Security. Third, other than a standard deduction of 35% of gross income, there would be no itemized deductions. One exception would be made in the event of a catastrophic expenditure for medical, natural disasters, or other out-of-the ordinary event. A catastrophic expenditure would be defined as an expenditure for a specified event that exceeds 35% of gross income. Fourth, a U.S. Corporation would be liable for U.S. Corporate income tax on all income regardless of where earned. A U.S. Corporation would be defined as any corporation whose stock is available for purchase by a U.S. citizen and is listed on any U.S. exchange or market. If income is reported in a corporation’s report to stockholders, that income would be subject to U.S. tax. Since corporate income tax is levied on net income, foreign income would already have foreign taxes deducted to arrive at a net income from foreign sources. Fifth, all provisions in the tax code that provide exemptions or exclusions to named companies or named industries as well as all other corporate loopholes would be eliminated. The present tax rates (pre-Bush tax cuts) should remain in place until such time as the total federal debt is reduced to an amount that is less than 15% of GDP. These five steps will provide the necessary funds to grow the economy, provide the necessary safety nets for citizens below the poverty level, strengthen Social Security and Medicare, and reduce the federal debt. No one will see an increase in tax rates and the resulting increased revenue should be sufficient to not only eliminate deficits but begin to reduce the debt. The wealth of a country is not just the amount of money in the treasury of that country but also includes the wealth of the citizens which may be subject to taxes. Much of the country’s expenditures enable multinational corporations to operate outside the borders of the country and provide resources that helped local businesses and their owners achieve success. We're broke only because Republicans lack willingness to raise the necessary amount of taxes to run the country.