We are in an unprecedented time when the economy has continued to decline and many are left either under-employed or unemployed. The Congress continues to fight among themselves and there does not seem to be a resolution in sight. Some feel there are too many taxes; some say we need to increase taxes to pay off the record debt.
So how did we end up here? What led to the economic downturn? Is there any relief in sight?
Whenever we are faced with a complex problem with a lot of layers, the best approach for solving the problem is to peel back all the layers and go back to the fundamentals. Much like a sports team, when things are falling apart, you go back to the basics.
Taxation was established by our forefathers in the constitution. The constitution reads as follows:
Article 1, Section. 8
Clause 1: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States
On the surface, this is very basic and should be straight forward. Taxes are collected to pay debts, provide for defense, and the general welfare of the citizens. The paying of debts and providing for defense are understandable and not open to too much dissention, other than how much is too much for defense. On the other hand, the “general welfare of the United States” is open to a broad range of interpretation.
In April 2011, President Obama signed the $3.7 trillion 2012 federal budget after months of deliberation in Congress. Of the budget, 6% or $222 billion is required to pay the interest on the national debt, and about 18% or $670.9 billion is appropriated for defense. That leaves 76% or $2.8 trillion for the general welfare of the citizens. According to the United States Census, the mid 2011 population of the United States is approximately 311,800,000. If that was divided up equally, every man, woman and child would receive about $8,980.00 per year, every year, to pay for retirement and health care after you retire (Social Security, Medicare/Medicaid). By the time you reach 65 years old, you would accumulate $583,700.00! This number would only go up as the federal budget increases, which it generally always does.
So now the question is, could you retire at 65 years and live on $583,700.00 while still earning $8,980.00 per year? I think most people would answer yes! And that is before you save any money on you own!
This is a very simplistic approach and there are certainly a number of issues with this method, but in the end, according to the values this country was founded on, this is how our tax money was intended to be spent.
Now that you have all this extra money, here comes the bad news. Our national debt is currently at $15 trillion, 4 times our annual national budget. That means each U.S. citizen owes about $48,000.00 in order for the national debt to be paid off!