What would you do if every time that you gave your child allowance, he or she spent it and then some?
What if over a period of years, your child not only spent its allowance regularly, but racked up credit card debt -- debt that you are responsible for -- by a factor of almost six-and-a-half times what you, his parents, make in an entire year? So, if you make $100,000 in your household, imagine if your kid spent his allowance, plus put you on the hook for more than $640,000 in debt over a course of several years.
Then, your child wants more money -- above and beyond the allowance he still receives from you -- because hey, it's not enough for him to keep up with the kids at school. Or perhaps he wants it for a more noble cause -- such as to help out his friends who aren't as wealthy as you.
Besides wanting to give him a serious spanking, what would your solution be? Would your solution be to give your child more money?
Of course not, because the child has a spending problem. Until he shows some financial discipline, why would you give him more money?
What if you had a wealthy millionaire uncle? Would you, as a responsible parent, ask the uncle to give your kid some money, knowing that your child isn't accountable for what he or spends?
I hope that your answer is still "no," because the problem is still the same and that money would end up being wasted and spent because the kid has no sense of fiscal responsibility. Moreover, he will not likely get any until he is held accountable.
This is the foundational matter regarding the debate surrounding raising taxes. Regardless of what income bracket you may fall into, regardless of party affiliations, gender, age, or geography, it is our money that is collected by the government for their spending. Plus, in our case, they get to decide how much they collect for their "allowance."
The U.S. federal government spends more than their allowance -- and they have done so every single year for as long as I have been alive. This means that our elected federal representatives have racked up incredible debts that you and I are on the hook for since the government doesn't actually make money like a business does, it only collects money from its citizens. This amount of debt is more than $16 trillion dollars, which is not only five times more than the government gets in allowance each year, but more than the entire yearly output of our country.
When I talk about taxes and our economy, some people note that I come across as angry. I am angry, and you should be too. According to the president's proposed 2013 budget, salaries and expenses for the House of Representatives alone are more than $1.2 billion (see page 18 of 1474). The Senate's expenses are in the hundreds of millions. So our government, which is supposed to be by, of and for the people, is costing us more than a billion dollars a year to overspend our money in an irresponsible fashion. To spend more than they are allowed and to create a debt on the scale that they have accumulated threatens our security, both physically and financially. I won't even address their lack of getting things done, which has created the fiscal cliff situation staring us in the collective face.
I often hear the argument that certain individuals that are doing well have a responsibility or moral obligation to pay more to the government. What's the government's responsibility and moral obligation? Fiscal accountability should certainly rank up there. What about leading by example? During tough times, why aren't those representatives- our representatives- taking pay cuts? Why are their medical and retirement benefits in a different system than the ones they are legislating? Shouldn't they have some skin in the game for the programs that they are legislating?
We are at a critical crossroads based on the economic situation of our country right now, one that can determine whether we grow or regress in the future. Because I favor solutions to move forward rather than a cycle of blame, here's a high-level outline of what I think needs to be done.
Two tax "hikes" do need be implemented immediately:
- Payroll tax cut: this Bush-era cut needs to expire because it is taking money directly from Social Security, which needs that money to support its structure;
- Obamacare Medicare Tax increases: While I do believe that Obamacare needs to be reformed, it should be addressed after the rest of the immediate fiscal cliff issues are taken care of, as it will take a lot more work. This is, in fact, a tax on the highest income earners directly
These are the only two tax hikes that our economy can support right now, given both the sluggish economic growth and the out-of-control government spending.
In the meantime, the most critical work that needs to be done is curbing the out of control spending of the government. Our representatives need to reform entitlements, eliminate waste and ensure that they are not spending more than the approximately $2.5 trillion that they are projected to take in this year.
When it comes to asking any US citizen to pay more in taxes, this is completely unacceptable until the government shows that it has credibly reformed its overspending ways. No additional taxes or rate increases should be discussed until at a minimum:
- The U.S. posts at least three consecutive quarters of increasing GDP growth above 2 percent
- The government creates and commits to a plan of continued, sustained balanced or surplus budgets
During this time, Congress and the president must work to simplify and streamline the tax code so that it is transparent and easy to understand and abide by as well.
You wouldn't give your child a raise in his allowance to reward irresponsibility. You would demand that he learn some financial discipline. It's the same thing in the tax discussion right now. Don't give the government a raise in their allowance until they do the same.
Follow Carol Roth on Twitter: www.twitter.com/caroljsroth