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Tuesday, December 7, 2010


The Tea Party and Republicans win votes because no one likes taxes.  I personally dread the spring when I need to complete all those tax forms.  However, I have it all down to a science.  I carefully file pieces of paper as the year rolls by, spend an hour collating the bundle and, finally, two hours with my tax specialist.  That's it.  I always get money back--something kind of stupid--because I hate to pay any more at the end.

And how's this for two factoids:  The 14,872 page 2009 Tax Code and regulations were 24 times the length of the King James Bible (608  pp).  The Health Care Reform Bill was a paltry 1,990 pp, still longer than Leo Tolstoy's War and Peace at 1296 pp.

Well, President Barack Obama (photo by SusanWalsh, AP) and the GOP made a $700 billion tax deal, delaying elimination of the Bush tax cut for two years, to balance a few concessions, such as reduction of the Social Security tax from 6.2% to 4.2%.  Can you believe that just this diddly sounding concession is worth $120 billion/year?  Just the other day in this blog I reported that if we brought home all our troops (from Afghanistan, Iraq, South Korea, Europe, Japan, etc.), and eliminated their positions, we would save about $100 billion, which looked large that day.  Not anymore.  By the way, the Federal Debt Commission to be discussed below recommended:

Make $100 billion in defense cuts from the $717 billion defense budget. This would freeze Defense Department salaries and non-combat military pay at 2011 levels for three years, cutting overseas bases by one-third and doubling proposed cuts in defense contracts.

While it looks like Obama caved in to the Republicans, my sense is that by doing so, the opposition party in the Senate will not filibuster the START treaty, which now should pass, something the President probably personally wanted more than extending unemployment benefits.  This is what politics are all about:  compromise.

My first year-end prediction is that the President and his family will come home (to Hawaii) by Christmas Eve.  My second:  just as the Democrats in the Hawaii State Legislature succeeded in their primary mission to derail the future political career of Republican Linda Lingle, the House Republicans in tandem with their cohorts in the Senate will insure for gridlock over the next two years to make Obama look bad.  My third:  Barack Obama will win a second term in November of 2012 anyway while the nation and world suffers from inaction and bluff.

Now back to taxes.  We need them.  Guess what pays for defending the free world, medicare and much of research?  The Obama 2011 budget request for $3.8 trillion expects $1.1 trillion from your income tax and $0.3 trillion from corporations.  But wait a minute, that is only one-third of the expected spending.  Well, there will be a deficit of close to $1.3 trillion (yes, more than your income taxes), social security sort of washes out at $934 billion in and $734 billion out, while the rest of the input is a combination of excise, estate, customs taxes, etc.  

You ask, then, how do we cover our deficit?  We just print more money.  Before you laugh out too loud or become seriously troubled by this cavalier economic process, click on a statement from the National Debt Awareness Center.

Incidentally you can view our national debt by looking to the right, just below the Dow Jones Industrial Average, and click on U.S. National Debt Clock. Doing so, you will get a figure of something approaching $14 trillion.  But our debt limit is $14.3 trillion, which means Congress will need to lift it again sometime in the Spring.  You say, wait a minute, why don't we leave it at that figure by reducing expenditures, or, more so, begin to lower it.  Yes, that's what the Federal Deficit Commission wants, a $3.9 trillion cut in a decade, leading to a balanced budget by 2035.  But the members on this "bipartisan" committee can't reach agreement for the same reasons as all the above.  And the future debt is definitely frightening:

What is worrying people now is the debt to GDP ratio.  It turns out, as significant as our debt is, the monthly interest is less than the budget of the Department of Homeland Security.

Pundits like to point out that the Japan gross debt to GDP ratio is 230%.  Ours is around 100%.  Not good, but many critics use  gross debt to exaggerate the reality.  According to Wikipedia, the truth is that the Japan ratio is 189%, world average 56% and U.S. 53%.  The difference is:

This is a list of countries by public debt as listed by CIA's World Factbook 2010. It is the cumulative total of all government borrowings less repayments that are denominated in a country's home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings. The figures here are represented as a percentage of annual gross domestic product.  

Which is closer to reality?  This Wikipedia version, but click on The Economy Guy, he gives an excellent explanation.  We both apologize for using Wikipedia, but come to the same conclusion that a debt a government agency pays to another department within the same country should not be counted as debt.

In summary, then, while compromise is the essence of politics, toss in the lobbyists, and we have a mostly non-functioning governing system for Planet Earth and Humanity.  What then is the solution?  Write blogs like mine but don't lose any sleep over this seeming hopelessness.  The USA remains the premier country ever, and we will maintain our dominance for generations.  The other countries are even more screwed up, particularly the European Union.  Russia is getting old, while China will crash in some way at some point in the future, and, too, is also getting old.

The Dow Jones Industrials fell 3 to 11,359, while world markets mostly rose.  Gold tumbled $20/toz to $1400 and petroleum is at $88/barrel.

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