Staggering Numbers

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The current administration has "created" $700 billion dollars to rescue the banking, insurance, and probably automotive industries. The new administration is proposing to "create" another $700 billion dollars in public works projects. The total debt "created" in the last few months will be $1.4 TRILLION dollars. So what?

Well, according to the Tax Foundation, there are just over 135 million Federal tax filers with a positive adjusted gross income (AGI) - those who will actually pay taxes to the Federal government. Their average AGI is a bit over $59,000 and average tax payment is $7,543. That means that on average the Federal tax rate is 12.6%. Yes we have a progressive tax, so those who earn more pay a higher percentage of AGI, but for our purposes in this post lets just discuss the average taxpayer.

This theoretically average taxpayer "owes" an additional $10,315 in taxes to pay off the total current bailout packages. In order to pay that off in one year, that taxpayer's average tax rate would have to increase by 137% or more than double. If we were to amortize the payback over ten years, the average tax rate would have to increase by about 14%.

Since those are averages, I think we can ignore the popular political rhetoric of just charging high income earners more, since the increase would be across the board. So an average earner would see his/her real rate go up about 1.8%, while a top bracket taxpayer would see a rate increase of over 4%. I know, its confusing: we are discussing a rate times a rate there. But the basic idea is that we can use averages here to understand the magnitude of the problem.

We are told that our total debt is now nearly $7 TRILLION, or $51,577 per average taxpayer with a positive AGI. We would have to pay over 98% of our income (average taxpayer) in one year to pay this off. If amortized over ten years, we would see an average tax increase of SIXTY EIGHT PERCENT.

This whole situation seems rather unmanageable to me. We need to reduce, not increase, government spending but neither the Republicans nor Democrats seem willing to do so. We cannot raise taxes enough to pay this debt and still keep a reasonably thriving country under our feet. No-one will risk popular unrest over super high tax increases which will affect all of us - not just some mythical group called "the wealthy."

How do we pay this debt? The value of our currency will decrease, which means we will see inflation perhaps on a scale we have never seen before. I hope each of you is prepared for that.