by Jody Tallal - 2006
Much has been written about the federal government and its procedures for taxing the American people. However, very little has been said about our government's ability to steer our country to long range financial security and solvency.
Our country was inspired by a quest for individual personal freedoms and conceived through a violent revolutionary war. The cornerstone of that war centered on a government's rights to tax.
The United States government's right to invoke personal taxes based on an individual’s income was deliberately and severely hampered by the Constitution of the United States. From 1862 to 1872 the United States enacted its first income tax. This was used to finance the Civil War. The minimum rate was 3 percent on income above $600 with an eventual maximum rate of 10 percent on incomes over $5,000. The tax was repealed in 1872 after the problems of the war debt subsided.
In 1894, President Grover Cleveland again enacted an income tax on a platform that promised lower tariffs and other reforms sought by farmers. The Supreme Court, however, later held this law to be unconstitutional.
In 1913, the Sixteenth Amendment was passed to the Constitution granting Congress the right to levy income taxes and thus began our present income tax structure. The new tax ranged from 1 percent and grew to 7 percent on incomes in excess of $500,000. Keep in mind that these rates were at a time when the average working family earned a fraction of what today's working family would earn. Some of our parents who are still alive today were born before 1913 so everything that this article covers will have technically occurred in just one lifetime.
In fiscal 2005, the federal government spent 2.473 trillion dollars. Our national debt is currently over 8 trillion dollars and the annual interest on that debt is the largest element in the total budget. In 2005, the federal government spent over 318 billion dollars more than it earned.
One of our biggest problems is that the size of our federal government has reached levels that are beyond the comprehension of any rational human being. Imagine trying to compute the number of grains of sand on all of the beaches of the world or the number of stars in the universe. Such is the task of trying to imagine dollar for dollar the shear volume of being almost four trillion dollars in debt. The problem is further compounded by the fact that the very congressmen and senators who allocate and spend our money have little better grasp of this concept than anyone else.
The Outstanding Public Debt as of 20 May 2006 at 10:28:43 PM GMT stood at $8,345,903,524,572. The estimated population of the United States is 298,748,579 so each citizen's share of this debt is $27,936.21. The National Debt has continued to increase an average of $1.78 billion per day since September 30, 2005!
The $2.251 trillion this year our federal government will spend is equivalent to spending about $3.5 million dollars a day each and every day from the birth of Christ to the present. Additionally, another $314 is estimated to be added to the national debt through overspending next year.
Contrary to most of our politicians' beliefs, the laws of financial management do apply the same to government as they do to corporations or individuals. If you continually spend more than you earn, only your original financial strength will determine how long it will take to eventually go bankrupt.
Most Americans believe that this problem is an old problem, not one for immediate alarm. The fact is that nothing is further from the truth. According to the U.S. Treasury Department, America's first 42 Presidents from George Washington (1789) to Bill Clinton (2000), borrowed a combined total of $1.01 trillion from foreign governments and financial institutions. From 2000 to 2006, the Bush White House has borrowed $1.05 trillion alone.
The problem, as Senator Dirksen put it, "...a billion here and a billion there, pretty soon and you will think we are talking about real money." The fact remains that the spending of one billion dollars, which is all too often frivolously tossed around in Congress, is equal to spending more than $2,000 every minute for an entire year.
A review of the nations 500 largest Industrial Corporations (from Fortune Magazine's 2005 List) reveals that their cumulative Net Profits are approximately 513 billion dollars. Our government is going to spend 4.5 times that amount this year. A further review reveals that the combined assets of these top 500 companies are around $21,044,000,000,000 (twenty one trillion, forty four billion dollars). Our federal debt is over 35% of that entire value. In other words, if you liquidated 35% of all of the assets of all of the Fortune 500 Companies, combined it would merely pay off of the governments current total deficit. And let's not forget, these are now multi-national corporations with no national allegiance, and our government does not own one cent of those assets!
How did we get into this predicament? Who is responsible for this incredible dilemma? It is this author's viewpoint that our political system is responsible. It is not because of the Democrats or the Republicans, but the actual political process of how this country's finances are run.
Our system of government was hammered out by 55 delegates to the Constitutional Convention in Philadelphia's Independence Hall in 1787. Outside of 26 Amendments our Constitution remained unchanged. The first census taken after the Constitution's enactment was in 1790 and it revealed that the population of the United States was about 4 million people.
Today our government is attempting to control and take care of over 295 million people through a political process that has remained relatively unchanged for over 200 years. This article is in no way an effort to try and imply that the basics of our Constitution are wrong or out of date. It is an effort to expose our political system as one which has exceeded its own level of competency.
The Chairmen of the Boards of Fortune 500 Companies are groomed over a lifetime for these coveted positions. They represent the most competent of our Nation's elite businessmen. They spend their productive lives learning every aspect of running major companies. Yet even companies such as Kroger (ranked as the twenty first largest company in the country) finds themselves in financial trouble (losses last year in excess of $128,000,000) despite the competency of their management.
The twenty men in charge of financially running this country are the members of the Senate Finance Committee. These men are in great part responsible, along with their counterparts in the House Ways and Means Committee, with the creation of our Federal Budget. It is these individuals who authorized the spending of $2.473 trillion this year. They were the ones who spent 4.5 times more than our Nation's Top 500 Corporations were able to earn in profits last year.
The question has to be asked, "Who are these men?" "What are their financial backgrounds which enable them to make decisions of this magnitude?" "How did they rise to the position that they now hold?" "Who is the support staff that researches and funnels them the information they used to decide on these important issues?," and "How do they find enough hours in the day to run our government's financial dealings which are immensely larger than those of the Fortune 500 companies combined?" A reflection of our political process holds the answers to most of these questions.
Once every two years we elect our congressmen to office for terms of two years. Our senators are elected on a staggered basis, every two years for terms of six years each. The personal backgrounds of these individuals are combed to excess in the political process. The U. S. Senate is the pool from which the Senate Finance Committee is selected. Some of the Senators originally were lawyers; others, the sons of some of our nation's richest families; one a famous astronaut; another is a famous POW; some were big celebrities or married big celebrities; and some have just been successful politicians for decades.
Yet, what are their financial backgrounds? What have they done to give them the insight and knowledge necessary to run the finance of this country? Nobody seems to ask those questions or makes us focus on those issues.
Another point of equal magnitude is the amount of time that each of these "Chosen Twenty" spends serving on the Senate Finance Committee each year. The top management of the Fortune 500 companies undoubtedly devote all of their time to the running of their corporations. Think about the time commitment that is required of the Chairman of the Board of Exxon or General Motors. Our "Chosen Twenty" don't even work all year long exclusively on the Senate Finance Committee. They are also on other committees which require their time and, unfortunately, not all of their time is spent in Washington, not to mention the large amount of time that is takes just to campaign to keep their jobs. Obviously, there are not enough hours in a day for these 20 men to run a corporation which spends over $2.473 trillion dollars a year.
The final issue is to whom our "Chosen Twenty" turn to for advice. In major corporations there are organizations of people, dedicating their lives to their companies. Directly under the Board of Directors in any Fortune 500 company are scores of expertly trained executives from when the next generations of Board Members are selected. Obviously, the Board calls upon these "next in command" for backup, research and valuable input to aid the board in making crucial decisions. These "think tanks" of our Nation's major corporations are renowned worldwide for their excellence and quality.
What about our "Chosen Twenty?" Who do they call upon?
Obviously, they have huge sums of money to hire the largest consulting firms in the world. Millions of dollars are spent every day studying anything from the average body measurement of airline flight attendants to the bisexuality of the Polish bullfrogs. But, for the most part, senators rely on a few very select legislative aids. There must be a study available somewhere, performed by Congress, concerning the average age of these legislative aids. Unfortunately this author could not find it. But a brief stroll through the Dirksen or Russ Long buildings quickly reveals that the average age cannot be over 30 years old.
How do so many people under 30 years of age come to such important positions of power? Remember, the companies' power positions underneath the Boards of our Top 500 Corporations come from the company's own internal strength and experience.
A legislative aid is a non-elective position appointed by the senator himself. Some of these appointments are made in payment for help received in the election process or are the children of large campaign contributors. Others are lawyers who choose not to practice law but, instead, create it. At best, it is a fair statement to say that some of our senators' right hand people are not the most experienced or qualified people in the country for the job.
This newsletter is not intended to be an expose aimed at discrediting individuals who run the finances of this country. To the contrary, given the system and circumstances in which they must operate, they do an incredible job. The point is that our political system has exceeded its capabilities. It was created 200 years ago to govern 4,000,000 people. It is inconceivable that our forefathers could have imagined $2.4 trillion plus annual budgets. It must also be obvious that no matter who is elected, no twenty people can run a $2.4 trillion a year enterprise, part time, using advisors that don't have a lifetime of experience in preparing for their jobs.
Changes must be made if this country is to survive economically. Unfortunately, it is highly unlikely that we will see any significant political changes that will attack the real problems. The culprits are elective positions that go back on the block every six years; a job description that is too diverse for any one human being to perform; not electing people to serve on specific committees based on their experience, etc. At present, the best we can hope for is to put controls in our present system over elected officials in order to protect them from themselves.
One such mini-cure would be the enactment of a Constitutional Amendment requiring Congress to submit a balanced budget for each fiscal year. The projected expenditures must not exceed the projected income. The amendment must also prohibit Congress from raising taxes to help balance the budget. A freeze of the present taxation level would require Congress to find ways to increase productivity (thus increasing tax revenues) instead of raising the gross percentage rate of tax, which reduces productivity.
A second mini-cure would be the abolishment of personal income tax with the enactment of a flat rate sales tax. It has been positively shown that a lower flat rate sales tax of 15 to 17 percent on all purchases would produce equivalent revenue for the government. Additionally, a flat rate tax eliminates the incredibly unfair present system of taxation, a system which becomes worse each year and has slowly turned a nation of proud taxpayers into ones who look for any tool of avoidance. These two mini-cures won't solve the problem, but will substantially slow its pace. Maybe later we can address the real issue of how to update the American political system to better reflect the job it is currently responsible for performing.
The third and most important mini-cure would be to make it illegal for any non voting entity to be allowed to contribute money in any form to our political process. Our system as always been designed for voters to elect and send representatives to Congress to represent they interest. Today Washington is completely control by corporations, labor unions and other special interest groups; none of which have any right to vote. As such, none of our elected political representatives should be allowed to be influenced by the financial contributions. This is nothing short of blatant bribery.
An example of how far away we have moved away from the system our founder fathers designed is easily demonstrated by the new bankruptcy laws just passed by Congress and signed into law by our president. These laws took away a person's right to declare bankruptcy as has been allowed in the past. Now a person who would have been able to declare personal bankruptcy must work under a new 5 year payout plan while the court uses the bulk of their income to pay back their creditors.
Please try and think of one registered voter who directly benefited by this change that was passed by a majority of our representatives. The answer is none. The fact is that they only reason this law was passed was that the very strong banking lobby pushed it through. This lobby represents the same banking industry that sends out free credit cards never requested to every high school graduate in this country as soon as they reach their 18th birthday. This same industry then sends out repeated unsolicited offers over and over again offering to increase their credit line and then offers new cards with new credit lines encouraging them to transfer other credit balances onto them.
Then when they get a person in so much debt that they can never repay the loan because their annual interest payments exceed their disposable income they stop the credit line and start the collection process. In the past, those people were the ones that had to face the disgrace of bankruptcy and start over. Now they don't even want to let them do that, but instead want to saddle them with a court ordered payout plan for an additional 5 years.
If we do not get special interest groups out of Washington, with the need our politicians have to raise more and more money to stay in office, this system is doomed and it is only a matter of time before it collapses under its own weight.