Taxes, Politics, and America

Please see the disclaimer in the "About Me" section before proceeding.

As I was sitting in my CPA review class this evening (REG, for those of you familiar, is basically a crash course in the American tax system), a few thoughts occurred to me and bothered me. Since a blog is virtual soap box, I thought maybe I would share those thoughts, and see what others think, perhaps.

The thesis of this post is that the political system in America starts with the tax system. The government spends money, and politicians are in office, basically to decide how to spend it. Everything revolves around the spending of money, for the most part. Every new law or program that Congress enacts has an associated monetary cost with it. Think about it, it does.

I liken this to the way I conduct my life. I get a lump sum of money twice a month, and I decide how to spend it. Very few things in my life are truly free. I can't watch TV for free, read a book for free, read the newspaper for free, or procure any sort of food that is truly free unless I eat myself.

As you can see, there is an obvious parallel, and the basics of fiscal responsibility are the same for individuals, as well as governments. Individuals procure their money through jobs or investment, and governments procure their money through taxes. The only way that governments take in the money to pay for their expenditures is straight from yours and my wallets. When governments spend more money than they receive, that's a deficit. When individuals do so, that's called "on credit".

Now for my point. While sitting in class this evening we were discussing refundable tax credits. For those not familiar with what a refundable tax credit is, here is a link. Basically, a refundable tax credit allows a "taxpayer" to owe negative tax. Basically, the government pays you for meeting a condition it has set forth, like having a kid. Seriously. The $8,000 homebuyer tax credit is also considered a refundable tax credit. For those of you so inclined, here is a link to a list of both refundable and non-refundable tax credits here.

In my opinion, it is both wrong and counterproductive to pay humans money who are nonproductive and contribute nothing monetarily to the system. Being paid to be a citizen of the United States goes against both logic and the principals of a capitalistic society.

In my opinion, it would be much more productive for the government to limit the tax liability to $0 for individuals. That is, an individual who pays nothing into the system will do exactly that, pay nothing into the system and receive nothing more.

The current United States deficit is over $12 trillion. That is a lot of money, and most would argue unsustainable. The projected budget for government receipts in 2010, otherwise known as taxes, are budgeted to be a little over $2.3 trillion, up from just over $2.15 trillion projected in 2009. In addition projected government outlays are $3.997 trillion in 2009, and $3.591 trillion in 2010. In both years, the government is projecting a deficit. The data mentioned can be found here.

In my mind, common sense must takeover somewhere. No sane person would ever budget themselves to lose money. If we did, we would pick up a second job or simply cut spending. In my opinion, the government must first cut spending, as well as increase the revenues taken in. Reducing spending begins with reducing the payments made in the form of refundable tax credits. That means that everybody would have a tax liability (sort of), as opposed to being a liability to the government. Second, the government needs to increase revenue. The government must raise yearly revenue to the $4 trillion amount yearly at current budgeted levels of spending in order to begin to make a dent in the deficit.

Sorry for the long windedness of this post, that will be all for now. To conclude, while tax credits are not the fundamental problem, in my opinion they are a tiny piece of the solution. More to come later (maybe)...