Why raising taxes won’t help the US budget problem

Raising taxes won’t help because tax revenues aren’t the problem. Spending is the problem. Look at a government budget deficit this way: there is income and there is outgo. If income stays the same or increases, but outgo skyrockets, what has caused the problem?

Right, spending. When the infamous Bush tax cuts went into effect in 2003, spending more or less kept up with income. There was low unemployment and low inflation. It wasn’t until the even more infamous Bush bailout started the US government spending explosion that our deficit problem began to balloon even more out of control than it had been.

And then there’s this very old news. We can’t believe we just heard about it:

… Defense Department shrink-wrapped $10.8 billion in American money, loaded it on 175 pallets and put it on a transport plane to Iraq where they passed out $100 bills and no one has any receipts.   — Dennis Kucinich on Thursday, January 6th, 2011 in a FoxNews interview

This headline was promptly “debunked” by PolitiFact Ohio, which said,  (paraphrasing here) No, no, no! That’s completely wrong! Actually, their little truth-o-meter said, “Barely true.” Here’s the money quote, you decide:

A transcript of that hearing indicates the money at issue consisted of nearly $12 billion in cash that the Federal Reserve (not the Defense Department) sent to Iraq on C-130 cargo planes, mainly in shrink-wrapped packages of $100 bills, between May 2003 and June 2004. The money wasn’t U.S. tax dollars – it came from Iraqi oil sales that were put in a development fund for the Iraqi people. It was sent in cash because no banks or financial system existed in Iraq immediately after the U.S. occupation. Some of the money was used to stabilize the country by launching large public works programs to create jobs. Much of it was given to Iraqi ministries to pay the salaries and pensions of Iraqi civil servants who hadn’t had a paycheck since before the war.

This quote tells you everything you need to know about how the U.S. government works and why cutting spending is the only solution to our looming Greece-like crisis.


About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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