What does the Government Do when Legal and Illegal Occupants Demand Unlimited Benefits?  (The Show Must Go on At Any Cost)

The USA has an annual Gross Domestic Product (GDP) of about $21 trillion dollars.  That is the value of all the goods and services produced and out of this an estimated $3.5 trillion is collected in taxation. The federal government spends over $4.5 trillion to support all the programs it provides. That leaves a shortfall of about 1 trillion that will have to come from somewhere.

Over half of the country’s occupants and operating companies depend on receiving redistributed tax dollars from the taxpaying class.  35% of the US population is now on some form of welfare or transfer payments and, the size of government and dependency always increases.

The labor force participation rate is defined as the subset of the working population in the age group of 16-64 currently employed or seeking employment. Since 1954 the workforce participation rate has gone from a low of 58.1(1954) to a high of 67.30(2000) and then declines to about 62.8(2018). There is a recent uptick of about 63.2%. What this means is that 36.8% of those who are available for work cannot find work, are not pursuing a job, or have dropped off the job statistics.  The real number of folks who could work but aren’t is 95 million while 163.229 million are currently employed. The statistics about work include minimum wage and most part-time employees. There is no suggestion here to degrade minimum wage folks. They work with the desire for a productive pursuit and to earn a living.  Some have become discouraged workers, some have suffered discrimination, and some have dropped out and elected to live on government transfer payments. Sometimes subsistence pay is easier than productive work.

The bottom 50% of the taxpayers pay about 3.73% of the taxes.  The next 15% of the taxpayers between 50% and 65% pay about 5% of the taxes.  The next 15% of taxpayers, between 65% and 80% pay about 10% of the taxes.  That leaves to the top 20% who pay over 83% of the taxes. The top 1% pays 37.32% of the total taxes paid.  The top 5% is pays about 58.23%, top 10% pays 70%, and top 25% pays 86%. Imagine that we pass soak-the-rich taxes and regulations and eliminate the top 37.32% of tax dollars of the 3.5 trillion collected in taxes.  The tax base would be dramatically reduced. Essentially, taxes available to run the country would be cut in half.

How does the government purpose to make up the difference? Governments are quick to give in to the demand for unlimited benefits whenever any rowdy cohort demands more stuff. The chosen method to ensure power and purchase votes is to give in to demands under the disguise of something similar to the illusionary “Green New Deal.”  Stuff may arrive in many forms from cash payments to goods and services. New demands “for all” include free medical care, free housing, free preschool, free college, the forgiveness of college debt, free abortions, free birth control, and Viagra, and income for all including those able-bodied folks who refuse to work, all new infrastructure, and race-based reparations. This is the chosen method to redistribute income and wealth from the productive class to the unproductive class and ensure that the government always grows in power and intrusion. Collectivism benefits individual groups as well as corporate interests. Medicare for all, education for all, transportation for all, a living wage for all, until we run out of other peoples’ money.

Government agencies hold a portion of the national debt in federal debt instruments such as the Social Security Trust Fund ($2.85 trillion) and federal employee and military retirement funds ($2 trillion). All that is left as security in these agencies is a digital file full of non-negotiable bonds from the Bureau of Public Debt. These are debt instruments that can only be redeemed by the federal government creating more debt to replace the debt.

 President Lyndon B Johnson issued an executive order in 1968 raiding the Social Security Trust Fund as a method to balance the federal budget and close the gap in the federal deficit to pretend that the budget balanced. Johnson did not want to raise taxes but needed money to pay for several ambitious government programs including the Vietnam War, The Great Society War on Poverty (expanded welfare programs) and NASA Space Race.  Thus, a star was born in the practice of using the Social Security Trust Fund to hide the size of the overall federal budget deficit. No president or administration has ever changed this back, social security could accumulate real assets to pay for future retirees. Social Security is currently paid by active workers to recipients. Social Security took in $912 billion and spent $991 billion in the fiscal year 2018. There as a $79 billion shortfall that had to be covered.

Imagine that assets sitting on the books of these Trust Funds were swapped for debt instruments that are expected to be owed and paid from future taxpayer receipts. This was the ultimate form of financial prestidigitation. Yes, the debt you owe in the future becomes an asset to hold on your behalf to pay you in the future, when you pay back the original debt. Who remembers the song, “The Show Must Go On,” by Queen, the 1980s rock group? “Show must go on.  The show must go on. Inside my heart is breaking. My make-up may be flaking.  But my smile still stays on.”

Your future social security payments are just a hollow shell of debt instruments, which can only be paid by current taxpayers or by issuing new debt.  It is bookkeeping magic. This strategy has worked so far, but the accrued government direct debt obligations and the interest due coupled with the under-funded pension and medical obligations will eat up the entire national budget, then the merry-go-round will stop.

Consider the largest debt bombs in the world, the unfunded portion of social security, Medicare, Medicaid, public employee pension shortfall, and military pensions. This estimate of $122 trillion does not show up on the Federal Reserve books as a liability.  It simmers, like a boiling pot of water soaking the public. These are promises that will never be paid back except by a massive erosion of purchasing power of the dollar or by a massive influx of new foreign workers who pay taxes. Since 65 to 70% of newly arrived illegal immigrants go on welfare or subsistence payments, this is not a solution. Only public employees who dispense the benefits and manage the crisis benefit.

There are currently10,000 people retiring each day or 3,600,000 per year.  Each retiree will cost the public an estimated $30,000 per year, or an additional $108 billion per year on top of the $1 trillion current deficit. There are approximately 63 million retirees,’ but the annual retirement adds an additional 3.5 million people times 10-15 years, fewer death rates will end up resulting in 100 million retires to financially support. End of life medical expenses for the last two years can exceed $150,000 per retiree. About 2% of retirees die per year, which would be about 1.26 million.

 If you consider that the US is collecting about $3.5 trillion in annual taxes, creating 1 trillion of new debt, deferring future financial obligations to the tune of 1.5 billion per year, then must borrow an additional 108 billion for each year of additional new social security recipients, how long will this strategy sustainable? Over a 10-year period, this will cause the national debt to skyrocket over 35 trillion or 10 times the annual tax receipts. This strategy only works if five things occur.  You must tax more, and more, and more. Proposals are currently on the table to tax you and your property for the rain that falls out of the sky, get rid of Proposition 13 for property tax saving, and require sales taxes on all consumer services, such as CPA tax returns, attorney fees, estate planning services, realtor fees, loan broker fees, dry cleaners, hair and nail visits, athletic event visits, music concerts, computer support technicians, and of course your daily 1 hour work-out at the fitness center. I bet you can list 100 different services that the government plans on taxing you for.  The enactment bill has already been introduced in the California legislature with a high probability of passing.

There would never be a suggestion of eliminating or reducing useless bureaucracy in government since that will never happen. That will only happen if there is a revolution by the productive and tax paying class.  We need to keep the public ignorant of what is going on. We must get rid of people through death to reduce expenses (yes, I said that.)   And, finally, the real hardcore fact that the government must accelerate the speed of the reduction of purchasing power of the dollar to diminish the value of the outstanding debt, which is an ever-increasing at an upward rate through inflation.

The Government coordinates and encourages this strategy because the governing body keeps the status quo power and control while continuing to grow in size and intrusion. As the value of each dollar diminishes the worker will demand higher wages.  The worker will end up with diminished purchasing power but in a higher tax bracket and pay more taxes.  This system will keep the taxpayers on a financial hamster treadmill. Workers will work for pay and borrow from their future at high-interest rates to bridge the shortfall of money to keep up. We have over 1 million people living in their cars today because financially they could not keep up. The middle class has been decimated over the last 10 years because of government mandated close to zero after inflation interest rates. Values have risen beyond the possibility of affordability.

 The news media is used as a pawn by the government established to keep the public entertained with one outrageous sensational story after the other.  The public has become mesmerized as if this were the way it is supposed to be.  It is not. The real clear and present danger is the debt crisis, not the border wall, the Russian collusion investigation, which athlete refuses to stand for the national anthem, or what famous person got caught chasing sex.

Individual accountability, self-sufficiency, family, law and order, borders, language, culture and national sovereignty have all been blurred into a phony paradigm of collectivism.

Free-for-all demands by the public will only speed up an economic death cycle where unproductive classes of people demand and expect to receive unlimited benefits to be paid by taking from the remaining few productive-class while creating more national debt to sustain the additional expense. Saul Alinsky’s 1971 book “Rules for Radicals” is a blueprint for the strategy. Rule 8-Attack, attack, attack from all sides, never giving the reeling organization a chance to rest, regroup, recover, and re-strategize. This is how the have-nots and the refusers-to engage-in- productive-workers gain power. Why engage in a productive enterprise when the government will take care of your every need. Free time means more time to watch television, procreate, dump the kids at free school facilities with free food, surf the web, keep up with your 500 closest friends on Facebook and Twitter, and share pictures of your cherished taco, enchilada, beans, and rice lunch plate.

 This process is speeding which is causing average working folks not to be able to keep up. The ultimate end can be found in Venezuela where the annual inflation rate totaled 1.4 million for 2018. That represents 3,900% per day or 162% per hour of eroded purchasing power, based upon a 24-hour day. Imagine waking up each day and discovering the purchasing power of each dollar was eroded by 100% every hour. An item cost 800% more than in the morning. Barter or criminal activity would be among the options to stay alive

The above characteristic strategy is going on to some level at all over the world including China, Russia, Australia, European Union, Japan, South America, Canada, and others.  Japan’s Abe, has even been crazy enough to create fiat money out of nothing, otherwise known as future debt, then invest those proceeds in their own stock market to the level of 80% ownership of the entire market.

A renewed demand for increased entitlements by the masses is currently being freshly brewed. A political party who makes an overtone of fiscal responsibility will be boiled in the pot.

Dan Harkey

Business and Private Money Finance Consultant

Cell 949 533 8315

dan@danharkey.com

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