Dakota Beacon

Campaign season is always upon us as politicians ply us with their plans for the economy. Liberal candidates use the same old worn out slogans which translate to “tax the rich.” These are the same candidates who explicitly want people with money to come clean and “pay their fair share.” It is the same tired class warfare argument.

            What does the most recent (2017) IRS data confirm?

            The top 1% of all income tax payers pay about 38.5% of all federal income taxes.

            The top 5% of all income tax payers pay about 59.1% of all federal income taxes.

            The top 10% of all income tax payers pay about 70.1% of all federal income taxes.

            The top 50% of all income tax payers pay about 96.9% of all federal income taxes.

            The bottom 50% skate by paying only 3.0 % of all federal income taxes.

Meanwhile, the national debt tops $28 trillion and President Biden promises to go higher with an additional $2 trillion coronavirus relief proposal. Basically, the president initiates the budget process and submits his budget to congress. Then congress plays with it. In short, the president proposes; the congress disposes.

The national debt currently exceeds 100% of the GDP (gross domestic product). Each year’s budget deficit adds to the cumulative national debt. This year’s budget deficit exceeds $1 trillion. Oh, well. Words. Just words -- with numbers beyond comprehension.

A critical consideration may not be the level of debt or the ratio of debt-to-GDP, but rather the cost of servicing the debt. Currently, the cost to service the debt is cheap while interest rates remain low. Unfortunately this delay is a mirage and will eventually evaporate when rates rise. The debt ultimately will have to be tackled.

Most of the dollars budgeted by Congress, about 70%, go to mandated entitlement programs the biggest of which are Social Security, Medicare, and federal pensions. Only about 30% is left for Congress to fiddle with as discretionary spending. Of these, the biggest is national defense. Any tax cuts must be borne by these discretionary programs because cutting mandated programs requires a change in the law. That becomes too hard to do so, politicians take the easy route.

What if the president asks for more money than is available to fund his budget– as typically happens? The answer is simple but the consequence is onerous. Congress passes a law raising the debt ceiling allowing the president to continue borrowing and spending money.

Where does Biden get the money? His administration prints it. The current short-term political fix is to turn a blind eye to reality and print more money. However, too many dollars chasing too few goods results in inflation. Scarce goods compete for dollars, lots of dollars. Prices go up; the value of the dollar goes down. Voila! Inflation becomes a hidden tax on the poor and middle class.

How much more should productive citizens and their capital pay to support half of the population? Specifically, how should wealth be redistributed to make society “fair?”

These idle questions become irrelevant in the absence of responsible political leaders. The debt is currently so large that if the entire wealth of the upper 50% of income earners were confiscated the debt still could not be paid. Soaking the rich in a liberal socialist way is not the solution and certainly has unintended consequences. Carcasses of nations who tried this approach in the 20^th century and failed litter the historical landscape. Too bad millennials can’t see the old Soviet Union as an example of such failure.

Furthermore, a solution becomes less probable as fewer people carry the greater burden and their wealth is redistributed. With more people receiving federal dollars, there is slim chance anyone will voluntarily relinquish their “take.” Plus, Congress will in no way voluntarily give up the most powerful tool it possesses – the power to dole out money to constituents and districts thus influencing votes.

The surest way to successfully address the national debt is to encourage economic growth by reducing taxes, cutting the size of government, and reducing government regulations. This would unfetter the greatest engine of economic growth the world has ever known.

As fewer and fewer people carry more and more of the burden, reality will force a correction. Those few who carry the greatest burden will escape paying taxes through tax-free investments or moving money into investments overseas. The remaining citizens will have to suffer through the correction. By default, that correction will have to cut Social Security, Medicare, and probably government pensions. Even now demographics argue that a reality check will come sooner than later.

I won’t be around when that reality sets in and for that I am grateful. The millennial generation will learn the hard way how to deal with super debt. And it won’t be pretty.

Dennis M. Patrick can be contacted at (JavaScript must be enabled to view this email address).