David Letterman is an Idiot

How did I get on this economics kick?

Anyway, David Letterman had Senator Rand Paul on the program last night.  Other than being outright rude, condescending and dismissive, Dave said some things that were outright moronic.

I was appalled.

Firing off comments like "Those numbers just don't seem right to me".  Well, Dave, they don't seem right to me either, but they are facts.  Just because you don't like the facts doesn't mean they can be dismissed out of hand with an "I don't know why, but they just don't seem right" remark.  Yes, Dave, it is true that the top 1% of taxpayers pay nearly 1/2 (actually between 38 and 40% from 2006-2008) of all of the income taxes received by the treasury.

Oh, another funny number that doesn't seem right.  32% of tax filers had zero income tax liability in 2006.  But I digress.

Nobody likes the idea of cutting federal spending if it means laying off teachers, firefighters, police or other middle-class public employees.  Let's face it, though, the United States can only afford about 1/2 of what it spends annually. The proposed 2011 budget is $3.69 trillion in spending with a projected deficit (difference between income and expense) of $1.65 trillion.  That's exactly like spending $37,000 per year on a salary of $16,500.  How long  can this possibly last?

This is not political, it's simple economics.  Budgeting 101. The stuff you should know as a prerequisite for graduating high school.  You can't borrow your way to prosperity.  Even Carlton Sheets should know that at this point, after the housing bubble collapsed.

Dave's solution is a popular one - tax the rich.  I mean, they don't need the money anyway.

For reference, the top 1% of income earners includes those with an annual household income greater than about $380,000 (2008).

So the top 1%, paying roughly 40% of all income tax collected breaks down like this:

Total income tax collected by the Treasury: 1.455 Trillion
40% of total income tax collected: $582 billion
Total households in America: ~115 million
1% of households in america: ~1.15 million
So, on average, a top 1% household currently pays $582b / 1.15m, or $506,086 dollars in federal income tax.

Seems fair.

So now, on to Dave's solution - fill the budget deficit by taxing the rich.

Total deficit: $1.65 Trillion (1,650 billion)
1% of households: 1.15 Million (0.00115 billion)
Additional taxes paid by the wealthiest 1% annually to fill the deficit per household: $1,434,782.
Add that to the $506,086 they already pay on average for an annual tax liability of $1.94 million.

Simple.  If you make over $380,000, we quadruple your average income tax liability.  Of course, there is also Social Security, Medicare, and State tax you also need to pay. We can probably leave those alone though, until we recognize that they are insolvent.  With this simple quadrupling of the income tax on the richest 1% of Americans, we can afford to pay for our government - this year.

I wonder how many jobs this new tax policy will create. . .

Don't get me wrong, I'm a long way from being in the top 1%, and I don't think it's time to cut taxes on the rich.  The point here is that the hole in the budget is just too large to fill by taxing the rich.  We need to address the issue from both sides - revenue (taxes) and spending.  The problem is too big to tackle from either side alone.  Just as many businesses and households have had to adjust to their own financial crises, our government needs to do the same.  Cut spending & increase income.  It's the only way out.

Even if we can solve the giant financial hole in our annual spending, that doesn't even begin to start reducing into our national debt, which is approaching $18 Trillion.  This amounts to about $90,000 per household in America.  The only larger debt most Americans will ever know is their mortgage - but that is the subject of another post.

If you believe in the philosophy that the debtor is servant to the creditor (as I very much do), you will be happy to know that at least 25% of our national debt is owned by foreign countries.

Chief among our creditors are: China, Japan, the UK and Oil Exporting countries (Saudi Arabia, Venezuela, Libya, Iran, Iraq, the United Arab Emirates, Bahrain, Kuwait, Oman, Qatar, Ecuador, Indonesia, Algeria, Gabon, and Nigeria).


Sweet dreams!