More Taxes to Pay the National Debt?

Do we need higher taxes and fewer tax deductions to pay the deficit of $1.597 trillion this year?  According to the Office of Management and Budget, the federal government will spend $3.771 trillion this year, which is an increase of $1.043 trillion of spending since 2007.  This is a 38.23% increase in spending in 2011 compared to 2007!   The spending increase since the 2008 Democrat Congress budget is 32.2%.

The deficit ballooned because of this spending increase coupled with a smaller $393 billion loss of tax revenue because Americans have been made much poorer now in comparison with 2007.  Many see that as the result of government shackling the private sector with higher taxes, many more regulations, the threat of still more draconian administrative regulations, the increasing requirements and expenses of ObamaCare, and the massive printing of money.  The result has been a massive transfer of wealth from the jobs-creating private sector to the jobs-devouring government sector.

If we were to start repaying this national debt today over a 30-year period in equal payments, our annual payment would be $900 billion.  Note that is almost all of the massive spending increase that has caused our present debt woes.  If we are to come up with an extra $900 billion per year to pay our debts, we already face a frightening task.  Perhaps it is so frightening that few people are willing to face the crisis at all.  If we ignore the debt until 2012, but then start to make repayments, the long-term interest rate of 5% is likely to have returned and the annual principal and interest payment will be about $2 trillion!  Imagine making debt payments equal to 73% of the total spending of 2007.  Can you imagine squeezing defense spending, medicare, medicaid, the administration of ObamaCare, and Social Security into 27% of the budget?

We must make a choice.  We must either increase taxes and slightly decrease spending as the Democrats want to do, or we must greatly decrease spending and allow the economy to grow with modest tax decreases as the Republicans mostly want to do. 

Tim Geithner, the Treasury Secretary, just told the House Small Business Committee on 22 June that the Obama administration wants to squeeze another $1 trillion out of people earning more than $250,000 a year over the next 10 years.  Most of these people are small business owners.  They are precisely those small business owners who are making enough money that they can hire more people.  Nonetheless, Geithner maintains that cutting spending by $1 trillion would have a more negative impact on the economy than will the tax increase on the "rich."  Like most people, he is ignorant of the effect this will have on company owners choosing to invest in new production-enhancing, and thus job-creating, equipment.  He does not think about the need to buy more building space to put more production capability and employees into.  Finally, he is not thinking about the fact that few employees are sufficiently productive soon after being hired to carry their own weight.  Money has to be set aside to pay them while they get enough on-the-job training to become profit centers.  Expanding a business is commonly a very expensive proposition.  Adding one person in a small business is a big incremental step in terms of the necessary addition to company income.  Rational businessmen do not expand a business without a strong sense that they will be able to make a decent profit for their risks and effort in doing so.

ObamaCare and the Dodd-Frank financial reform act raised taxes.  The inheritance tax was brought back by the Democrats as a special scourge of small businesses.  While most other developed countries have learned the advantages to reducing the corporate tax rate, the U.S. has not.  It now has the highest corporate taxes in the developed world, since Japan recently reduced its previously equally high corporate taxes. We are also one of the few countries that taxes earnings a company makes in another country.  This causes U.S. companies to invest those earnings in other countries rather than in the U.S.  Our tax policy encourages them to create more jobs abroad than at home.

As a result, more and more companies financed by Americans are being started in other countries.  Many American companies are re-incorporating in other countries with lower taxes.  Favorites for such purposes are Luxembourg, Bermuda, and the Cayman Islands.  In 2008, there were 3 U.S. initial public offerings (IPOs) by companies incorporated in tax-haven countries for every 10 that were incorporated in the U.S.  Ten years ago, only 1% of U.S. IPOs were incorporated in either the Cayman Islands or Bermuda.  In 2010, 26% of them were!  So far in 2011, 21% of new IPOs have been incorporated in these island tax-havens.

In 2004, Congress acted to limit incorporations in tax-haven countries.  Companies with a substantial change of ownership could re-incorporate in a tax-haven country, however.  This actually encouraged the sale of many companies.  The IRS changed the rule to require a complete buyout in 2009.

The venerable American company Samsonite was taken over by CVC Capital Partners and is now incorporated in Luxembourg, but headquartered in Hong Kong.  Asia is now its primary market.  The semiconductor spin-off of H-P, Avago Technologies Ltd., was bought out by Kohlberg Kravis Roberts & Co. and is now incorporated in Singapore, though its headquarters is in San Jose, CA.  It now has built extensive operations in Singapore.  Freescale Semiconductor Holdings I Ltd. went public in the U.S. last year after a buyout from Motorola Inc. which used to own it, but now it is incorporated in Bermuda.  It still has extensive operations in Austin, Texas.  U.S. investors in 2009 had so many securities holdings in Cayman Island companies that they are the fourth highest total for any country in the world!

Most other developed countries have learned either from the disasters of their own adoption of socialism and the anti-business mentality or from watching the deleterious effects of socialism in other countries, that economic growth will be stunted by soak-the-rich and squeeze businesses schemes to fund the welfare state.  Many of those countries are stuck with the welfare state, but have learned that it cannot be sustained at all without a growing economy.  The American Democrat Socialist Party has not learned this lesson.  RINOs in the Republican Party have not learned it very well either.  As a result, we are growing at a much slower rate than many countries around the world now.  We used to talk about the Old Men of Europe.  Well, we are becoming the Old Man of the World. 

This is totally unnecessary.  We have only to unshackle business and stop penalizing the so-called wealthy or the small businessman to completely change this around.  The Democrats have made it perfectly clear through Obama, Biden, Geithner, Reid and Pelosi that they have learned nothing.  Chris Van Hollen, a particularly wrongheaded Democrat from wrongheaded Maryland, is a Democrat negotiator in the Biden deficit-reduction talks and has said that Democrat principles require a tax increase on the wealthy and business owners.  He is accompanied on the Democrat side by the radical James Clyburn of South Carolina.  It is no wonder that Eric Cantor, the Republican House Majority Leader, and Senate Minority Whip Jon Kyl were compelled to leave the Biden talks.  It had become too ridiculous to work toward a compromise with these ignorant job-killers and company-killers from the Obama administration and the Democrat sides of Congress.  Earlier, Tom Coburn, Senator of Oklahoma, had similarly given up hope of a rational outcome from talks in another set of negotiators known as the Group of Six.  I have to applaud these sensible Republicans.

When the lemmings swarm over the cliff edge, sensible men refuse to follow them.  Actually, I have heard that lemmings are more sensible than Democrats.  They really do not rush over the cliff.  That is just a fable for them, but it is the everyday purpose of our Democrat political leadership.