AT A GLANCE: THE FEDERAL BUDGET & DEBT

As I have mentioned in earlier blogs, I am honored to be on the board of directors of the Nebraska State Chamber of Commerce and I am chairperson of the Small Business Committee. Recently the State Chamber had their annual fly-in to Washington, D.C. Unfortunately, I was not able to go to Washington but I was quite interested in their findings.

They were briefed on the federal budget and national debt by Nebraska’s First District Congressman, Jeff Fortenberry. The graphs above are from Rep. Fortenberry’s website and were presented to State Chamber members who attended the May 5 Nebraska Breakfast on Capitol Hill. Currently, U.S. federal debt as a percentage of the Gross Domestic Product is about 60%. At the current pace, it will hit 150% of GDP in 10 years, and 300% of GDP by 2050. (By comparison, the crisis in Greece began when its debt hit 115% of GDP.) The bipartisan Committee for a Responsible Federal Budget has presented six future scenarios for America – and all are reasons for concern. The best case scenario is long-term economic stagnation; the worst case is default – when the government can no longer pay its bills. Another possible scenario is runaway inflation. I thought that you would be interested in the Commissions findings, click here.

OPINION: 'States That Soak the Rich, Lose the Rich'

(Wall Street Journal) -- In a Wall Street Journal op-ed, Arthur Laffer and Stephen Moore, co-authors of "Rich States, Poor States," write that "with states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing" to "soak the rich." According to the opinion piece, lawmakers in several want to raise income tax rates on the top 1% or 2% or 5% of their citizens. The governor of Illinois "wants a 50% increase in the income tax rate on the wealthy because this is the 'fair' way to close his state's gaping deficit." The problems, the authors note, is that soaking the rich "never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states."

The op-ed notes that "research from Richard Vedder of Ohio University ... found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas."

Over these same years, "the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts," the authors write. The authors state that, "We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state." Read more at <http://online.wsj.com/article/SB124260067214828295.html>

YOU THINK TAXES ARE HIGH NOW...YOU AIN'T SEEN NOTHIN YET!

The attached Wall Street Journal article gives us a good idea of what we are looking at to balance the budget. It ain’t pretty. Oh, and forget about “read my lips,” this does not just hit those with income greater than $250,000, it hits all of us. Taxes too high? Wall Street Journal.

THE LAW OF BIG NUMBERS

As I have written before, it is impossible for a person to fathom how big a million, or a billion or a trillion is. To count to a million would take ten and ½ days...to count to a billion would take 31½ years...and to count to a trillion would take over 31,000 years.

I thought about this as I saw President Obama trim 100 million dollars from his 3.5 trillion dollar budget. A quick calculation shows that this is a drop in the bucket. For example, if a family with an income of $50,000 cut a comparable amount out of its budget, it would spend just $1.50 less over the course of a year.

Larry Kopsa CPA