Federal Reserve Chairman Ben Bernanke testified before Congress’s Joint Economic Committee, and issued a warning about the deficit:
Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance.
In the context of the subdued language Federal Reserve Chairmen always use, a statement like this should be taken as a stern warning. This is as close as a Fed Chairman will ever come to ringing an alarm bell.
The government has borrowed four of every ten dollars spent so far this fiscal year.
The standard excuse from Congressional leaders is that “the rich,” defined by President Obama as earning more than $200,000 per year, aren’t paying enough in taxes. But based on IRS statistics,
- “The rich” are 2% of all taxpayers, approximately 4 million.
- “The rich” already pay 55% of all income tax dollars.
- To make up this deficit their federal income tax rate would have to be 86%. A family earning $200,000 would have to pay $172,000 in federal income tax, plus state income tax, plus payroll or self-employment tax. In other words, “the rich” would have to pay more than they earn in taxes.
In reality, this budget gap cannot be closed by jacking up taxes on “the rich” who are also owners of the small businesses that employ most Americans. They create jobs by investing their after tax profits back into their businesses. Increasing their taxes will prevent job creation. Increasing their taxes a lot will kill jobs.
The Bottom Line
Congress must make deep spending cuts, beginning almost immediately.