Eat the Rich and Starve to Death

This election season is sure to bring forth some charged rhetoric against the “Top 1%.” Many politicians and political pundits have called for the wealthy to pay their “fair share,” but this call to action is simply a political scheme. The problem we face as a Nation has very little to do with government revenues, but much to do with government expenditures.

It is no secret that there seems to be a bit of a financial conundrum on Capitol Hill. The government cannot finance expenditures with current tax rates and treasury bonds are not selling due to low yields. This leaves Congress to figure out how to get more money to cover costs. Politicians have been in search for an answer without truly understanding the root problem.

Historically government spending more money has not been the answer. Once citizens become reliant on provisions that have required little or no effort to obtain, hard times have followed when those provisions are either scaled back or eliminated altogether. It is not the fault of any single person, but simply a matter of nature. Once things have been provided to us without having to work for them, we become lazy and domesticated. This mentality has certainly not worked for the Greeks; after several rounds of multi-billion dollar bailouts, the country still has seen riots and looting in response to federal austerity measures.

Meanwhile, Washington has pursued a rather dangerous taxation agenda; tax the wealthy into the ground in order to balance the budget and cover expenses. In theory this sounds like common sense, after all there are only approximately 225,000 individuals in the US who claim an annual income of over $1,000,000 (according to Politico); pitting the “Haves versus the Have-Nots” would be a pretty easy sell to the public. However many elected officials have failed to see the other side of the coin. The problem that we have is not a lack of funds going to the federal government; it is a skyrocketing level of expenditures.

Rick Santelli of CNBC recently ran the numbers quickly on the floor of the Chicago Mercantile Exchange and showed (if you assume that there are Politico’s reported 225,000 $1 million+ earners in the US) how much money the government would obtain by taxing them each a flat $1,000,000 on top of their other taxes. By his calculations, this revenue would cover the current expenditures for only one month. I was very careful not to say “cover the budget,” because our elected officials have failed to provide us with a budget for the last 2 fiscal years. A federal government should have 3 main roles; 1) defend the nation from threats and attacks, 2) promote interstate commerce to strengthen the domestic economy, 3) operate within a fiscally sound budget and report said budget to the taxpayers. The point is that even if you taxed these high earners at 100% of their income, we would still not be able to finance our federal expenditures for one year, let alone pay down any of our mounting deficit.

This concept of redistribution has been adopted by left leaning political theorists and Keynesian economists the world over, and you heard me correctly in calling it “redistribution.” Bill Whittle recently ran the numbers and showed us that in short, for every $10 spent the federal government taxes for $6 of it and borrows $4. When that money is spent, $4 goes to actually run the government while $6 goes towards entitlements such as welfare, food stamps, unemployment benefits, etc. Essentially, we tax our citizens to cover entitlements (money changing hands from the “Haves” to the “Have-Nots”) while borrowing from those who buy our debt to run the federal government. This all works out just fine until no one buys the debt anymore. This concept of providing to those less fortunate used to be called “charity,” however it has now morphed into what we like to call “Entitlement Spending.”

Leftists and Keynesians agree with redistribution in theory…but not in practice. The viral video out of California done by conservative group ExposingLeftists.com shows some UC students who want to redistribute wealth, but are appalled at the thought of redistributing their hard earned grades to their classmates who spent most nights out partying or slacking off.

The solution to this problem is actually very simple; the federal government must cut spending. If we continue on this path we could tax 100% of the citizens at 100% of their incomes and we still would not be able to finance our government. Even the beloved President Clinton was able to pass entitlement reform and balance the budget in the second term of his administration, and the economy boomed afterwards. We need to wake up as a nation and realize the root of our problems, not deceive ourselves with bad answers to improperly defined problems.

Currently in the US, we have a progressive income tax, payroll taxes, sales and excise taxes, property taxes, gift taxes, estate taxes, customs taxes, licensing taxes, “sin” taxes, taxes on business, toll roads which function as a tax for highways, energy related taxes (carbon offsets for example), capital gains taxes, not to mention tax penalties that may be levied for a myriad of reasons. With all of these in mind, how can one possibly say that the government requires more? I understand the goal and the logic from a politician’s perspective very clearly; by taking from a small group who have a lot, and giving to a large group who does not have as much, the vast majority of citizens will be appeased, resulting in high approval ratings and re-election. At the end of the day, giving a politician more money has NEVER solved any problems. This political game that is being played in Washington has been and will continue to slowly eat away at the domestic economy, unless we are willing to make sacrifices and confront the spending crisis head on.

Originally published in The Toledo Free Press.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
« Back to the blog.