How would you handle a “debt ceiling” at your house?

Unless you’ve been hiding under a big rock, you’ve heard about the ongoing fight in Washington as to whether Congress should raise the US debt ceiling.  The Republican’s are holding the line that if we’re going to raise the debt ceiling, we must ensure there are cuts in spending that more than make up for any additional borrowing.  They’ve also said that raising taxes is off the table (we’ll see about that, though).  The Democrats want to do more with what they like to call revenue increases, which really means raising taxes.  They figure if they say that the additional taxes will only be on the “millionaires and billionaires” and “private jet owners”, then most of America will be on board with that.

What is the debt ceiling?

First, let’s talk about what’s really going on.  Here’s an analogy.  Let’s say that you and your family have been living high on the hog.  You’ve bought two luxury cars that are both in the second year of a five-year loan, so they’re upside-down.  You’ve got a big house that you’re also upside-down on. You really couldn’t afford it, but the bank let you take out an interest-only loan a few years ago when the government was encouraging banks to give anyone and everyone a home loan, regardless of whether they could ever pay it back. You’ve been charging lots of other stuff you can’t afford on credit cards that are now maxed out. You’re at a point where you can’t make all your payments, and you can’t get any more credit.

This is where our country is right now, and what we’re all arguing about. How do we handle this problem?

Well, what would you and your hypothetical family do?  One option would be to stop paying some of your debts or declare bankruptcy, which would ruin your credit.  You could try to increase revenue by getting a higher paying job, working more hours, or getting a second job. You could talk to your creditors about raising your credit limit, but they know you won’t be able to pay back any additional money you borrow.

A fourth option is to sit down with the family and decide what things you can do without so that you can continue to pay all your bills and slowly get your debt under control. You might decide to cancel cable TV, drop the data plan on your cell phone, and drop out of the golf club. You would stop going out to eat and to the movies, and instead eat in and watch TV (via your roof-top antenna).

This is the course of action the Republicans are suggesting, with the added benefit that if we make the necessary cuts, they’ll approve an increase in our credit limit so we can borrow some additional money, making it less likely we’ll default on our loans.

President Obama and the Democrats want to take the increased revenue route as a big part of their plan.  But, this is not like you getting a second job.  This is like you going over to your neighbor’s house and taking his money by force. President Obama says everyone needs to sacrifice, and he feels that the “rich”  need some skin in the game. This is classic class warfare, and it plays well with a lot of folks.  Why?  Because about 50% of Americans pay little or nothing in taxes, and most liberals who do pay taxes don’t have a clue as to how much they and other productive members of our society already pay. They also don’t realize that if you tax the “rich” even more, it actually reduces income into the treasury as top earners cut back on investments, send their money overseas, and stop hiring.

Here are the taxes paid by various income groups according to the last CBO report from tax year 2008.

While the top 1 percent of households got 18.1% of all income, which sounds pretty good, they also paid 27.6 percent of all federal taxes, including:

  • 38.8 percent of federal individual income taxes
  • 4.0 percent of federal social insurance taxes (Social Security and Medicare)
  • 58.6 percent of corporate income taxes (indirectly, through stock ownership)
  • 5.5 percent of federal excise taxes (on such things as gasoline, tobacco, alcoholic beverages and telephones.)

It’s not gotten any better, by the way, and has actually gotten worse. The top 1%  are now paying a higher percentage than they were before the Bush era tax cuts.

Here are the tax figures for the rest of the US households:

  • The Top 5% of income earners (households) paid 59% of all taxes
  • The Top 10% paid 70% of all taxes
  • The Top 25% paid 86% of all taxes
  • The Top 50% paid just over 97% of all taxes.

This leaves the bottom 50%, which paid just under 3% of all taxes.  Do you know where the average gross income level of the bottom 50% starts? $33,048. That’s right.  In 2007, households making over $33,048, which was 50% of all households, paid 97% of all federal income taxes.  The top 25% of households consists of those making over $67,280, and they paid over 86% of all taxes.

It’s easy if you’re not in the top 5% or 1% to say, “sure, tax them more… they can afford it.” But, these households also represent the entrepreneurs and small businesses that create the jobs that keep our economy running. They’re already paying their fair share, and much more than everyone else.

Collecting more in taxes is not going to help our country, and neither is raising the debt ceiling without cutting spending. That would be like the credit card company raising your credit limit when you already can’t pay them back for what you’ve previously spent. We have a spending problem in Washington. That’s what needs to be addressed.

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