“There is nothing certain in life but death and taxes.” This is my paraphrase of Benjamin Franklin’s famous quote to Jean-Baptiste Leroy in 1789. Imagine the tax rates imposed by the King of England in the days of the colonies and those assessed by our nation, The United States of America, to fund its services today. Our government budget continues to swell with the costs of programs administered by the U.S. Government to serve our citizens and their needs caused by an international pandemic.
A review of the President’s Budget for Fiscal Year 2021 is typically analyzed by those of us in the financial planning profession to determine where priorities will lie for the administration and Congress. Our government is bigger than any corporation I can think of in sheer number of employees or economic impact on the world. Now, this article is not judging the government’s function or disfunction. The purpose of this article is to provide you an understanding of the enormity of our government and comparison of the type of budgeting to that of a typical family.
One of the primary areas addressed by this budget is the outlook or vision of the administration. Like our government, we individuals should have a written plan for the future. Unlike our government, we are not allowed to print money to fund our own operations. (Well, we can’t print money legally.) You and I must work within the means we generate through our efforts or investments to provide for our housing, food, healthcare and other necessities of life. What has happened to many Americans is a microcosm of what is happening in our government services – borrowing to continue operations in the manner we wish versus that we can afford.
As of September, 2019, the average family in America owed credit card debt in the amount of $6,849 (according to a December 2, 2019 article by Erin El Issa published in Nerdwallet). The cause of most credit card debt is a lack of budgeting and controlled spending. Too often we seek immediate gratification instead of saving for a particular object. By disciplining yourself to only seek debt for the necessities in life such as a home or automobile, you may avoid a tremendous amount of hardship for your family’s cash flow burden.
The U.S. Government currently owes a debt balance, and it changes by the second, of more than $24,000,000,000,000. How do we pay for a debt this large? First, we must think about revenues. Currently, the U.S. Marginal Income Tax Rates for individuals consists of rates ranging from 10% to 37%. Our system of taxation is known as a progressive tax system – the more you earn in taxable income the higher your marginal tax rate. Sounds simple, right?
Based on a recent report, in 2018 the U.S. Government relied on individual income taxes as the primary source of tax revenue. Our citizens contributed 40.72% of the total revenue needed to support services! Let’s take a quiz. If the costs of government functions and services are rising, what is the most obvious form of taxation that will eventually need to rise to pay for the services in a balanced budget? You guessed correctly if you said “personal income taxes”.
The goal of each family should be to plan for their future, care for the members of the family and serve their fellow man. Our country is the greatest on the planet. We could help sustain our greatness for all mankind by exercising a few simple disciplines in our spending and plan for the future. Another of my favorite quotes attributed to Benjamin Franklin will guide us to a better future – “A penny saved is a penny earned.”
Monday is a holiday when we recognize those who served our country – our servicemen and servicewomen of the armed forces. Those celebrated this Memorial Day made the ultimate sacrifice for our freedoms and liberties we now enjoy in the United States of America. To these celebrated heroes I simply, reverently and respectfully, say, “Thank you”.