So, with that being said, I wanted to try and break down current events and show the correlation with the everyday American. My hope is that if enough people learn enough about what's going on in the world and how it actually impacts them, perhaps they will want to become more involved. I will do my best to show events for what they are without a partisan point of view, however when it comes to certain issues I can make no promises; a person's character is bound to bleed through on issues that strike close to the heart.
With this post I will try to highlight a high-profile topic that is in the news a lot, and bring it to a level that everyone (not just the politically passionate) can understand. I will always do my best to provide enough background information so that those of you who are completely oblivious to current events will be caught up to speed.
The first topic up for discussion is our national deficit.
Two years ago I had no clue what a "deficit" even was. Odds are, some of you are most likely in that same boat. Miriam-Webster defines deficit as "an excess of expenditure over revenue." So, basically spending more money than you take in. A lot of people use "debt" interchangeably with "deficit", however that's not 100% accurate. You can have debt without ever running a deficit, but in most cases you can't have a deficit without taking on debt, If you own a lemonade stand and it takes $150 dollars a month to operate, but one month you only make $100, you have a $50 deficit; most of the time you have to borrow money and go into debt to cover your deficit. If the next month your stand makes $200 then you have enough to pay off your $50 debt/deficit from the previous month; however if you again make only $100 dollars you will be running a $50 deficit two months in a row and will have accrued a $100 debt. As you can see, it can become increasingly difficult to pull oneself out of a rather large debt while continually running a deficit.
In essence, this is what our country has done. Our current amount of U.S. debt is over $16 trillion (with a "T"). If you need to see it to understand how big it actually is, it's $16,000,000,000,000. That is alot of 0's! You may think, well the United States is a large country and I'm sure we are making enough to slowly widdle that amount down.....wrong. This past economic year that ended September 30th, the U.S. ran over a $1 trillion (again with a "T") deficit. That means we spent $1,000,000,000,000 more than we earned in the past fiscal year. It's kinda hard to pay of a $16 trillion dollar debt when you can't even break even to avoid going into more debt, don't ya think? The past four years the United States has run a trillion dollar deficit, and we are well on our way to the 5th consecutive year.
Now, on to how this relates to you.
Living in a country that is in as much debt as we are, and that has a deficit as big as ours, certainly puts us in a scary situation. One of the first worries that alot of people have is what happens if the countries we owe money to suddenly decide to call in our debt and we can't pay them. Well let me try and assure you that this is highly unlikely. The political ramifications of a country randomly calling and asking for us to pay back money they know we don't have would be huge. The U.S. also has a large amount of foreign debt owed to it that we could "call on" anytime we wished, but the result would be counter-productive being as almost every country owes something to another country and the majority of the debt would, for the most part, cancel out. Secondly, there is really no way a country can force a country the size of the U.S. to do anything. Other than our military strength, which would overcome most European or any South American military with ease, the U.S. also holds a huge economic card up its sleeve. The U.S. is one of the world's largest consumers (the world's largest depending on what stats you are looking at), so if the U.S. were to suddenly stop purchasing things from countries that we owed debt too, the world economy would be in a dire position. The United States alone consumes close to 25% of all the worlds resources. So, apart from the financial and political ramifications to a country attempting to call in our debt to them, there is a huge military obstacle they would face as well. The U.S. would not allow a foreign power to come interfere with the U.S. in such a way that it would alter American culture and negatively impact the lives of its citizens. The military would be used to either have our debts released, or simply put off for a great while.
So, hopefully I have helped comfort you slightly when it comes to the possibility of that happening.
Now when it comes to other ways that this deficit could impact you or your children, I'm afraid I cannot offer the guarantees I did before.
One of the ways our deficit is going to have an effect on you in the near future is spending cuts and tax increases. I won't go into which I prefer over the other who I believe is at fault for our current situation, I will simply try to present the solution as I can.
There are 3 traditional ways for a country to get out of debt:
1. Borrow money to pay the debt
You may laugh or call me ignorant for saying that, but for hundreds of years countries have borrowed money from countries to pay other countries with the hopes of being able to raise the funds to pay off the other country with its own funds. Believe it or not this used to work fine when the economies of countries were much more micro-oriented and the impact of one nation on another economically wasn't as great. Now, with the size and scope of the markets, and the inter-linking of the world economies, this practice is all but extinct. Also, since borrowing money is one the reasons we got into the hole we are in now, borrowing will not be used as a method to get us out.
That leaves the other two methods:
A. Taxes
B. Spending cuts
Taxes are one of the only forms of true revenue a country has. There are many different types of taxes from taxes on income, consumption, and even inheritance. But rather than waste time defining all the types of taxes, we will just look at how you might be effected. If the government decides they want to tax itself out of debt, that will mean tax increases for every American. Whether it is a tax increase taken out of how much you get paid, or a tax based on how much you spend, every American will have to bear this burden, and some much more than others. Also, no matter what politicians say, no tax is certain. Just because a bill is passed does not mean it will stay that way. Taxes have a way of fluctuating over the years. This could mean you could end up losing thousands of dollars to the federal, state, and local governments.
Spending cuts are the other side of coin when it comes to attempting to control our deficit. Instead of asking citizens to pay more for the country's debt, the government begins to spend less as to make our revenue match our expenditures. This process quickly becomes very complex as politicians argue over what to cut and how much to cut. More often than not, politicians cannot agree on what is best for the country and we end up getting the worst of both worlds. Just like taxes, spending cuts do come with a sacrifice. Sometime we are required to give up benefits or entitlements, or cut the amount of money we use in national defense. Many people also fear cutting social security or welfare programs that some are dependent on to survive. Spending cuts may not cost you more in taxes, but you may pay for them by losing some form of benefit down the road.
So after looking at the two options it would appear as though you have the choice to spend more, or lose more. It's almost a lesser of the two evils choice. Most likely a solution to our deficit will have to some from both options, not just one entirely; because even if you can cut enough out your spending to meet your budget, you will still have a huge debt; and if you can tax your way into meeting your budget, you still have no way to pay off the daunting debt, or any other expense that may occur.
So, if you haven't yet seen how our deficit could affect you, I will try and lay it out as simple as I can.
Obviously I have no way of knowing what tax increases or spending cuts may take place, but just for fun (yes I realize my definition of fun is very different than most), let's bring up some hypothetical numbers and play around.
Say that my wife and I's current income tax rate is 15%. If we made only $24,000 a year that means we would instantly lose $3,600. That's money we would never see. The highest state sales tax in Alabama is 12%. Let's just say my wife and I spend $600 a month over the course of a year on groceries and things we have to buy. That's $7,200 taxed at 12% for another $864 paid to the state of Alabama. So far, that's $4,464 out of my original $24,000 that I will never touch. That's 18.6% of your money you can't spend. That's almost 1/5th! Now, propose the federal government decides to raise our income tax rate to 18% and the state of Alabama brings their highest rate to 15%. That brings the amount of my money going to the government to $5,400. That means you would pay 22.5% of your money to the government. And that is not counting social security tax, insurance, and other things that you may require.
So in short, more money in the governments pockets=less money in yours.
Now for an example of spending cuts.
Social security checks are estimated to keep 40% of retired seniors out of poverty. The average monthly social security check at the start of 2012 for a single person was $1,230. Also, there is expected to be a 1.7% cost of living increase beginning in 2013. However, what if the government decides that it has to cut back social security. There are currently 56 million people receiving social security benefits. So if 56 million people each receive $1,230, that is $68,880,000,000 a month, and over a year $826,560,000,000. That's almost a trillion dollars. Now say the federal government only wants to spend $650 billion on social security. So, you divide the $650 billion by 56 million people, and suddenly their monthly check drops from $1,230 a month to about $977 a month. Oh, and you could probably kiss that 1.7% increase good bye. So for all those seniors that relied upon social security to stay out of poverty, things begin to look pretty bleak.
So in short, more cuts=less benefits.
So obviously the best way for our country to get out of the hole we are in is to work together and come up with a way to reduce our deficit. Below is a short summary
- Our country cannot continue running a deficit every year
- Taxes or spending cuts are ways to fix our deficit
- Taxes will cause you to lose money, whether from your paycheck or at the supermarket
- Spending cuts may endanger national security, or tamper with entitlements that some rely on
- We as Americans must become more informed and work together to solve this issue
- More money for the government=less money for you
- More spending cuts=less benefits
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