Republicans and Democrats are butting heads as they try to negotiate a solution the debt ceiling deadline coming up in early August. This political brawl is, of course, a reflection of the need to deal with the national debt and get the finances of the federal government in order.

The Simple Problem

The fact the United States has run up against the debt ceiling is a reflection of the problems with our overall debt situation. The problem involves simple math. The government is spending far more than it takes in. The government is taking in roughly 2.7 trillion dollars this year, but has a deficit of 1.5 trillion. This effectively means that another 1.5 trillion is being added to the overall debt this year and this will occur for the foreseeable future.

Three Areas Problematic

This is one area where it is easy to tell whether our elected representatives are serious about dealing with the problem or not. This is because there are three programs that are the problem. If we terminated every other government program, these three would still cost us much more than we bring in as tax revenue each year. The three programs are Social Security, Medicare and the military. Unless our elected representatives are willing to address the tough issues with these three programs, any other steps they take are useless.

Playing With Fire

The simple fact is Republicans and Democrats are playing with fire in the debt ceiling negotiations. The Republicans are refusing to go along with any solution that involves raising taxes. The Democrats are refusing to go along with any solution that doesn't combine spending cuts with tax increases. Somebody is going to have to blink, but it appears more and more like neither side is willing to.

So, what would be the impact of no deal? The immediate answer might surprise you. The government would start suspending payments to pensions and would direct the money to pay the treasury notes coming due. There would be no default per se, but this is only a temporary solution that would last for perhaps six months before the debt had to be dealt with in earnest.

This doesn't mean problems would not happen. They would in a big way. The monitoring agencies have already indicated they will heavily downgrade the credit rating of the United States. This would result in a huge increase in interest rates on government debt, which would leak into the commercial market. This would mean the interest rate on all adjustable rate loans for cars, homes, credit cards and the like would go up, way up. We are talking about increases in the range of two to five points. Such an increase would bankrupt most of America so it behooves the politicians in Washington, D.C., to come up with a solution.

Article Source: http://www.articlesbase.com/organizational-articles/republicans-and-democrats-playing-with-fire-on-national-debt-5001650.html

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How to Balance the Federal Budget & Eliminate Our National Debt Within  4 Years

                                                Without Raising Taxes!

It is estimated that the top 1% of the US population, or 3,105,000 people, have an average

income of $1.1 million dollars a year. (Source: Department of Sociology, UC Santa Cruz,

January, 2011)

If we multiply $1.1 million ( $1,100,000 ) by 3,105,000, we come out with $3.4 trillion.

An adjusted tax rate of 25% will yield $1.7 trillion in revenues within 2 years and $3.4 trillion within the next 4 years, from just the wealthiest 1% of the US population.

Our national debt is now around $1.4 trillion. This will give us a surplus of $2 trillion over the four year period.

Our projected budget deficits for 2011 and 2012 will total $2.58 trillion, leaving us with a shortfall of $.58 trillion ( or, $580 billion ).

We're now talking billions, not trillions, which makes the numbers a lot more manageable. However, we are still faced with a deficit. To eliminate that deficit, we can either decrease spending or increase revenues.

Recently, the focus has been on spending cuts; but, wherever we look, we run the risk of cutting essential services. There has even been talk of drawing upon the Social Security Fund. However, this fund belongs to a separate trust and should not be considered a part of the federal budget.

How can we safely increase federal revenues? President Obama believes this can only be done through massive tax rate increases for those in the upper tax brackets, but history shows higher taxes lead to lower revenues. According to Dr. Daniel Mitchell of the Heritage Foundation:

"When tax rates are reduced, the economy's growth rate improves and living standards increase. Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues".

Dr. Mitchell proves his point through a review of historical cuts in the 20s, 60s and 80s.

The Tax Cuts of the 1920s

Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

The Kennedy Tax Cuts

President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

The Reagan Tax Cuts

President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

Why do lower taxes lead to increased revenues? In short, more money is set aside by taxpayers at the upper income levels for savings and investment, which generates more taxable income. When rates are increased, these same taxpayers place more of their income in tax shelters, such as securities and foundations.

Thus, any attempt to increase revenues and eliminate debt through massive tax hikes would not be a wise course of action.

A better approach would be to increase revenues, without a tax rate increase. This can be done by addressing the Trade Deficit. The Trade Deficit can be offset by increasing our sales around the world, or increasing tariffs on imported goods.

From 2007 to 2010, our trade deficit with China, alone, was $1.26 trillion, nearly enough to pay off our entire national debt! Since our budgetary deficit can be offset through tax revenues, we can wipe out our national debt by eliminating the trade deficit between the U.S. and China; and, by increasing our export volume, this can be done within the next 4 years!

Article Source: http://www.articlesbase.com/politics-articles/how-to-balance-the-federal-budget-eliminate-our-national-debt-within-4-years-5016172.html

Erin Kent Magee is a Veteran with 10 years of prior federal service.  He has worked for the Department of the Navy and Department of the Army; and, in 2010, he retired from the IRS.

On April 5th, he filed his Statement of Candidacy with the Federal Election Commission as the 1st Republican Presidential Candidate from the State of Florida.

He is bullish on America, and believes our current economic woes will be overcome through an increased volume of trade and private investment in emerging industries.