Is Spending My Problem?

For this entry, I am going to provide a purely anecdotal example of what I have both observed and experienced since the summer of 2009.  For some people (many people?), this example may hold true and be closer to reality than it is to fiction.  Please bear with me as I ponder what is a point of contention in Washington, D.C., and that is the issue of spending and revenue.

Let’s say, for example, that in the summer of 2009, you were working in a job that you really loved, with people you enjoyed seeing daily, and for a company that you felt a “connection” with.  You lived within your means, meaning you had an affordable mortgage (you didn’t give in to the temptation that came with inflated home values associated with the now-burst housing bubble), no car payments, no credit card debt.  You did not spend money on needless items.  You were living comfortably.

In July 2009, according to the Bureau of Labor Statistics, the price for a gallon of milk averaged $2.992.  (source)  Not too bad.

Fast forward to present day.  You still really love your job, enjoy the people you work with, and still have that “connection” to your company, but over the past almost four years, you have not gotten a raise because the economic downturn impacted the ability of your company to give you a raise.  But, you have maintained your same salary, which when compared to being unemployed and making no salary, is a pretty sweet deal.  Nothing else has changed in your life; you still have your affordable mortgage, no car payment, and still no credit card debt.

Along with other items, however, the average cost for a gallon of milk has risen, to $3.48 last month. (source)

Because the price of one of your household staples has gone up, along with pretty much everything else at the grocery store, your checking account does not seem as healthy as it did in July 2009.

Given this scenario, which statement is more truthful about you?  That you have a spending problem, or that you have a revenue problem?

The answer, to me at least, is that you have a revenue problem.  It is almost inevitable that the price of goods is going to rise, which has been the case since July 2009.  Your problem in this scenario is not that you have increased your spending, it is that your income (revenue) has been stagnant.  Could you adjust what you purchase to reduce your overall grocery bill?  Of course you could.  But there is also a floor at which you need to spend in order to be able to adequately provide nourishment for your body, so it is untenable to think that you could reduce your bill to zero.  Wouldn’t your situation improve greater if you were to increase your income (revenue)?  Yes it would!

That is where the members of Congress, on both sides, become blind to the facts.  To ignore the spending problem that Congress does have (it’s unrealistic to blame any President for actual spending since Congress controls the proverbial checkbook) would be a futile effort.  Spending does have to come down, and I doubt that any reasonable person would be able to say otherwise while keeping a straight face.  But here is something else that is true: revenue also has to increase, if for no other reason than to keep up with an increase to the cost of goods purchased.  What is the primary source of revenue for the federal government?  If you said “taxes,” you are correct.  For anybody to bury their head in the sand and think that tax revenue can be reduced and spending cuts the only way out of the country’s budgetary issues is a disservice to those people who voted them into office.  That would be along the same lines as taking the scenario above and you telling your company that they can cut your pay by 25%, and you would be just fine with that.  You wouldn’t.

For Congress to truly make serious strides to get its budgetary house in order, both sides are going to have to be reasonable.  Democrats are going to have to be serious about cutting spending, and Republicans are going to have to be serious about increasing tax revenues.  The mandatory spending cuts implemented by the sequester are just a start, as is the slight tax increase to those in the upper-income brackets that occurred earlier this year.  More has to be done on both ends.  Until both sides come to the table in good faith, we, voting public, will be stuck wading through more of the same BS and political posturing.

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A Start

$170,494,328,298

The number above is a staggering number.  Over $170 billion.  According to IRS figures from 2010, that is the shortfall that is created by exempting amounts over $110,000 in income to Social Security tax.  In 2010, the adjusted gross income of all tax filers was over $8 trillion.  Not a bad haul for our citizens.  Using the chart linked to above, and because the figures are not divided into above or below the exemption threshold, I lowered the threshold a little.  Using $100,000 as the exempt income for paying Social Security tax, I was able to deduce that over $4 trillion ($4,059,388,769,000 or so) was not subject to any Social Security tax at all.

Multiplying that $4 trillion number by the current 4.2% Social Security tax rate is how I arrived at the number at the top of this post.

Now, I don’t know about you, but I am little tired of hearing about the potential solvency of Social Security.  Because of the way tax laws are written, $170 billion was not put in to the fund in 2010 alone.  What if all income was subject to Social Security tax?  Would we still have to hear about more being paid out than is being contributed?  I doubt it.

As it stands now, if I made $110,000 this year, I would pay exactly the same amount in Social Security tax as Alex Rodriguez.  Rodriguez made, in salary alone from the Yankees, about $29 million (source).  Whether or not a baseball player deserves to be paid that much is for another day, but he has to be commended for maximizing what a team would pay him; you and I would do the same thing and go to work for the highest bidder if we could.  His salary is a result of the way that baseball works.  However, Rodriguez paid $4,620 in Social Security tax on his salary from the Yankees; had the tax been applied to his entire salary, he would have paid $1,218,000.

When you see or read that Plans A and B have already failed when it comes to the “fiscal cliff,” ask yourself why Congress does not search for easy solutions like applying Social Security taxes to all incomes.  I know that nobody really wants to pay more taxes, but to leave a vast resource untapped is like conceding defeat before the contest even begins, and that is essentially what happens with the application of Social Security tax in relation to income.

Now, I have to admit that what I have written is not exactly original to me.  I had not even thought about it myself until I was talking to my dad the other day and he brought it up.  The reason it will not work is because it is basic common sense, and that has been lacking in Congress for a long time.

Resolving the financial mess our country is in is going to take a disciplined and reasoned approach.  Simply adjusting tax rates will not be enough, just like reducing spending will not be enough.  An examination has to be done of the entire federal budge and how funds are allocated and spent.  How much is spent on duplication of procedures and processes?  How much is spent overpaying for things like a hammer or stapler?  If you were to take your approach to household budgeting (assuming you do a budget and keep up with your finances with a check register, etc.) and apply it to the federal budget, what would that look like?  If you are short on money each month, would you benefit from a raise at work?  Or by watching what you spend on ancillary items?  Or would you utilize a combination of the two to achieve better financial security?  I have utilized the combination method, and it has worked better than either of the two individual approaches by leaps and bounds.

 

Much To My Surprise

Just for kicks, and partially driven by what seems to be a constant skewering of my opinions on several sites (especially when I dare to ask a question regarding abortion.  People think I misunderstand things that are said.), I posted this as my Facebook status this afternoon:

“Thinking about just asking all of my friends on here how I should vote.  Everyone has their opinion and seems to be more than happy to tell me I am an idiot for having mine.”

Like I said, I did it more or less just for fun, and to see what kind of comments it would generate.  I figured there would be an influx of people who would be more than happy to tell me (not suggest) to vote one way or the other.  My honest guess was that there would be a lot of people telling me to vote for Mitt Romney, at least judging by the posts of my Facebook friends (it seems the Obama supporters I know refrain from being “in your face” with who they support while Romney folks seem to be more than happy to belittle Obama and his supporters).

Much to my surprise, as of this writing, no commenter has outright said to vote for either Romney or President Obama.  A few suggested that I do my research, which I do.  I probably am more informed (patting myself on the back a little) than a good portion of the electorate, so research was not the issue.  One friend gave me his opinion, which I already knew from a prolonged and productive discussion earlier in the month.  One friend sent me a text to ask who pissed me off (nobody, by the way), while another sent me why she was voting the way that she was.

I engaged each commenter respectfully, because that is how they approached my status.  I appreciate that, across the board, they seem to be informed voters and are steadfast in their selection.  I very much respect that they did not get into bashing either candidate.  The comments and texts that I received were a surprise given what I see from some people on Facebook and the abuse I have taken on some sites when I have presented certain material.

The conclusion that seemed to be the most agreeable, but sadly the most unworkable, would be to vote every single one of them out of office and start over.  Let’s be honest here, regardless of party affiliation, no politician really knows or remembers what it is like to be you or me.  They are not “in touch” with the issues that we face every day, and certainly would rather pander to a small segment of people than to someone like me.  No politician, with the possible exception of Vice President Biden, really wants to know what I really think about things.  I honestly think Mr. Biden would be interesting to talk to, and would be someone who I could be open with.  I get that it is unrealistic to think that any politician can be effective while reaching out to a common person like me, but it is not out of the realm of possibility for them to at least make an effort.  And I am not talking about some 2 minute encounter that is more for the cameras than for solutions.  I am talking about a politician getting up the guts to sit down with me and have a real conversation.  I’ll buy any of them lunch or they can come over to my house for dinner if they want.  Sadly, my money is safe.

As I wrote to end my previous entry, please feel free to comment.  If you comment, be smart and be civil.  If you want to demean me or another commenter on here, don’t waste your time commenting in the first place; start your own blog and spew your hate there.

Finding What We Are Searching For?

I was reading during my lunch today, and came across a quote from former Secretary of State Henry Kissinger that stuck with me and got me to thinking.  I got to thinking, do we ever find what we are searching for, and do we even know?

Here is the quote:

“To Americans, usually tragedy is wanting something very badly and not getting it.  Many people have had to learn in their private lives, and nations have had to learn in their historical experience, that perhaps the worst form of tragedy is wanting something badly, getting it, and finding it empty.”

Maybe we need to redefine what we are searching for.

$2 Billion Loss, $15.5 Million Gain?

JPMorgan Chase took a $2 billion loss on a risky investment strategy last week.  As news of the loss got out, CEO Jamie Dimon “fell on the sword” and took responsibility.  But that was not the end of it.

This week, Chase’s Chief Investment Officer “retired” in the wake of the loss.  As CIO, you would be correct in thinking that Ina Drew should bare the brunt of the blame.  That is, after all, her area of responsibility.

That being said, Ms. Drew was allowed to “retire” instead of being fired.  And in doing so, she will receive a $15.5 million retirement package.  Must be nice.  You are deemed responsible for your company losing $2 billion and are rewarded with $15.5 million.  Not a bad deal.  Yes, Drew’s reputation is shot, and will probably not working in the banking industry again.  But she has quite the account balance, and I think she will be just fine.

If it were a mid-level employee or a branch-level employee that were responsible for that loss, do you think they would have been offered a comfortable package?  Not in a million years.  Let a branch employee take a $1,000 loss, and you can almost be sure they are going to be out of a job and collecting $240 a week in unemployment.

$1,000 loss bad, $2 billion loss not so bad.  

Expensive

The current state of our political climate has helped to increase the cost to taxpayers.  I’m referring here to presidential candidates receiving Secret Service protection.

As primary contests become more heated, candidates are getting protection earlier and earlier in the process.  Three current potential nominees are now receiving protection.  Mitt Romney, Rick Santorum, and, as of today, Newt Gingrich are all being protected by the Secret Service.

Honestly, I don’t see any issue with Romney or Santorum having a detail since they are the two most likely candidates to secure the GOP nomination.  My issue is Gingrich having a detail.  He is in a distant third, with no real shot at the nomination.

The cost to taxpayers per day, based off of information I found from 2008 is $45,000 per day per candidate.  So taxpayers are paying that much for a protection detail for someone with no shot at even being the nominee for his party.

That makes no sense, and hardly aligns with less government spending.

Fools and Their Money Are Quick To Part

Everyday, I drive past Starbucks.  And everyday, I shake my head at the number of cars waiting in line.  Today, I almost shook my head hard enough to cause a concussion.

This morning, the line must have been 20 cars long.  I cannot think of a single thing that would cause me to wait in a line 20 cars deep.  Is there some sort of addictive drug in the coffee there that makes people lose their common sense?  The same people that wait 20 deep there are the ones that complain loudly when they have to wait 30 seconds to checkout at the grocery store.

As someone who does not drink coffee, maybe I don’t understand the allure of Starbucks.  It must be a status thing because the coffee there is a little pricey.  Personally, I could care less about status when it comes to brands.  I will drink Sam’s cola, and eat generic cereal.  It is amazing to me how quickly someone will part with their money for a cup of coffee.  I bet if I watched that store for a week, I would see mostly the same cars every day.  They will pay their $7 for a cup of coffee, and blindly part with $35 in a week.

If this is you, try to do without for just a week.  I remember the time we reviewed our family budget and found we were spending over $50 a weekend eating out.  We quickly eliminated that type of spending; yes we still eat out sometimes, but not to the tune of $50 or more a weekend.