Most Americans must be financially illiterate.
There’s no other explanation for the lack of overwhelming outrage over the irresponsible rate of federal spending.
Daniel Gross wrote a remarkably ill-informed article for Yahoo! Finance, blaming Congressional Republicans for our credit rating downgrade.
The very people Gross chose to criticize are the only ones in Washington trying to introduce the federal government to fiscal responsibility.
In stark contrast, Dave Ramsey did a beautiful job explaining our national spending crisis in terms anyone can understand. Our growth of federal debt is unsustainable and requires drastic change immediately, which he made remarkably clear.
At his website DaveRamsey.com, he wrote
The federal government will take in $2.173 trillion in 2011. That’s their income, and it sounds pretty good. Until, that is, you factor in that the federal government will spend $3.818 trillion during the year. So, just like many families, the government’s outgo exceeds their income—to the tune of Wellesley $1.645 trillion in overspending. That’s called the deficit. Altogether, the government has $14.2 trillion in debt.
What would happen if John Q. Public and his wife called my show with these kinds of numbers? Here’s how their financial situation would stack up:
If their household income was $55,000 per year, they’d actually be spending $96,500—$41,500 more than they made! http://icrapoport.com/pop-arts/?fb_comment_id=1142261989178649_1145324765539038 That means they’re spending 175% of their annual income! So, in 2011 they’d add $41,500 of debt to their current credit card debt of $366,000!
What’s the first step to get out of debt? Stop overspending! But that means a family that is used to spending $96,500 a year has to learn how to live on $55,000. That’s a tough pill to swallow. Those kinds of spending cuts seriously hurt, but it’s the only way out of debt for John Q. Public.
When politicians talk about cuts in government spending in Washington, they are either referring to an actual decrease in the marginal tax rate for John Q. Public or a reduction in the projected rate of increased future spending by the government.
I don’t know if Ramsey would accept being drafted for President. Perhaps like the Roman hero Cincinnatus, he would accept a four year mandate from the general public to save us from ourselves. We don’t need an expert politician to run for President. We need someone with common sense at the helm. Neither political party is blameless for our current state of disarray.
Dave obviously knows how to explain the cold, hard facts of an unpleasant reality in terms any idiot could understand.
Let’s stick with his example as we explore how things currently operate.
The liberal answer to everything is new taxes, but increased tax rates do not necessarily correlate to increased tax revenue. The conservative approach is no new taxes for any reason.
If Dave says there’s something we can do that will increase tax revenue without hurting the economy, I say let’s give it a try. If he says we cut 27% from spending overnight, then that’s what we’ve got to do.
Raising taxes “on the (demonized) rich” will probably not fix the problem. In fact, there’s good reason to believe it could make the problem worse.
People with money are not investing because of the risk in this economy. If we raise their taxes, they have even less motivation to invest.
Ronald Reagan reduced the highest marginal tax rate from 70 down to 28 percent.
Revenue flow into the treasury doubled during his presidency because our economy prospered.
Unfortunately, Congress never kept their word to likewise reduce spending. If they had, we would probably have a significant budget surplus today. We’d certainly have a credit balance in the Social Security trust fund rather than a budget shortfall.
When people kept more of their own money during Reagan’s terms and invested wisely in businesses, stocks and other tools of investment, we started a twenty year boom that lasted through the Clinton presidency. Government intervention in the housing market played a key role in the rapid decline of our financial system.
The federal government operates under what is called baseline budgeting. They must change to zero based budgeting so financial sanity will come back into play. If we give Dave the job, we also need to give him a balanced budget amendment.
How is baseline budgeting different from zero based budgeting, you ask? Zero based budgeting is comparable to the typical household budget. Dave’s hypothetical family with income of $55,000 per year must live on $55,000 per year. Now let’s see how baseline budgeting is different.
Let’s say this year’s spending baseline is $75,000 dollars, regardless of our revenue (income) of $55,000, giving us an annual $20,000 deficit — if our spending did not increase.
The federal government “family” will spend every allotted penny in their $75,000 budget in the calendar year. They will advertise government wealth redistribution programs like food stamps just to make sure they give away all their money.
The following year the spending baseline is automatically adjusted upward, let’s say ten percent, to $82,500 — even though there’s wasn’t a corresponding increase in our income.
“We” increase our projected deficit spending of real dollars by $12,500. Then we’re told that spending anything less is a draconian cut that will force grandma to eat dog food or kids to go without school lunch.
It’s grossly irresponsible to operate this way when we can really only afford to spend $55,000 per year based on our income.
In our family, we feed our own kids and help take care of grandmother. She never went hungry or ate dog food in her life.
And my grandmother lived through the Great Depression.
It’s time to face reality. We just might need a superior citizen who’s not a politician — a modern Cincinnatus, perhaps Dave Ramsey, to save us from big government. Let’s draft him for the job and beg him to talk sense to the general public so we save ourselves from financial destruction.
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