Saturday, March 12, 2011

Federal government’s fiscal year 2010-2011 spending explodes into even larger deficits!

A reminder from my February 15, 2011 post:

“First, let’s clarify a few things in relation to the federal budget.

1) The President proposes the federal budget.

2) Congress writes and passes the federal budget.

3) At the present time, the fiscal year begins on October 1 of the current year and continues until September 30 of the next year.

4) President Bush’s first proposed budget was for fiscal year October 1, 2001-September 30, 2002.

5) President Obama’s first proposed budget was for fiscal year October 1, 2009-September 30, 2010.

6) Once a President takes office in January after his election the previous November, he may propose changes to the current budget. However, it is Congress which must approve those proposed changes.


Furthermore, The present fiscal year budget—2010-2011—should have been passed before last October 1st and therefore before the November election of 2010. At that time, the Democrats controlled both the House of Representatives and the Senate by large margins and therefore should have been able to pass a budget. The budget was the responsibility of the Democrats. The Democrats failed in their responsibility to pass a budget. Also, the House of Representatives has passed a proposed budget. The yearly budget is presently in the hands of the Senate having been passed in the House! The House of Representatives is currently controlled by the Republicans! The Senate is currently controlled by the Democrats but not by the margin they previously held! The 2011-2012 budget is suppose to be passed before October 1 of this year! Why are we still dealing with the 2010-2011 budget?

From the Peoria Journal Star, March 11, 2011, page A8, we have the following headline: “February federal budget deficit sets record.” From the article:

“Washington, D.C.—The government ran the largest-ever budget deficit for a single month in February. The shortfall kept this year’s annual deficit on pace to end as the biggest in U.S. history. The widening deficit reflects the impact of the tax-cut package President Barack (Hussein—my addition) Obama and congressional Republicans brokered in December.”

“February’s deficit of $222.5 billion eclipsed last February’s previous record by nearly $2 billion. (That means the increase from February of 2010 to February of 2011 was approximately .9%!—my addition) The full-year deficit would exceed 2009’s record deficit of $1.41 trillion. ($1.5 trillion total deficit for the 2010-2011 budget according to the article. This budget, of course, has NOT yet been passed!—my addition)

And it would mark the third straight year of $1trillion-plus deficits.”

First, do the people who write these stories have any economic knowledge? “The widening deficit reflects the impact of the tax-cut package … brokered in December.” How do they know this to be true? There was a tax cut. However, the major accomplishment of the brokered deal was a CONTINUATION of the Bush tax cuts of the early 2000’s. That continuation is NOT a tax cut! Therefore, the continuation COULD NOT increase the deficit in and of itself.

Secondly, if the tax cut in December was responsible for the increased deficit in February, was there a tax cut just before the 2nd largest monthly deficit in history—the February 2010 deficit of about $220.5 billion! The difference between the February 2010 deficit and the February 2011 deficit is .9%. Is that really a significant difference between the two February deficits?

Thirdly, if the tax cut in December was responsible for the increased deficit in February, why was the monthly deficit in January—immediately after the December tax cut—the SMALLEST monthly deficit in the five months of the current fiscal year, according to the bar chart included with the story? Does that make sense? Did we really go from the smallest monthly deficit of the current fiscal year immediately into the largest monthly deficit in history as reflected by a tax cut when both monthly deficits occurred AFTER the tax cut?

Is there a reasonable explanation for this February spike other than the December “tax cut?” How about this? Most taxpayers pay too much to the federal government over the course of the year in federal income tax withholdings. I counsel my clients to either break even or owe money. But, most don’t. They use the system as a forced savings account. As one client told me, “My tax refund is my splurge money!” Some large tax companies even “loan” (rip-off) their clients their tax refund so that the clients receive the money quicker.

However, I do tell my clients, if they are going to get a refund, to file early and file often. (Okay! I don’t tell them to file often. But they should file as early as possible.) I also tell my clients, who owe money, to file on April 15th or the latest date possible which would be April 18th this year. Could it be that both spikes in February are the result of people receiving tax refunds from the federal government and not the result of any tax cuts? That is, increased federal spending by the federal government in February occurred as the government returned money collected originally as income by the federal government but now that money is returned to its rightful owners as a government expense? Don’t these people understand our economy?

Furthermore, The federal government is no longer just returning money withheld from the taxpayer. Now, the government is also giving money to many taxpayers as a means of wealth redistribution. For example, a taxpayer who has three children under a certain age is given $3000 in a child tax credit. Taxpayers may receive an earned income credit. And most filers receive a “making work pay” credit among numerous credits available to selected individuals.

Using one of my own clients as an example, they are a married couple with three dependent children.

This is the way their 2010 tax return was filed:

Adjusted gross income: $35, 849
Itemized deductions: $16,348
Exemptions: $18,250
Taxable income: $1,251
Tax: $126

Two of their three children are eligible for the child tax credit. Therefore:

Child tax credit: $126
Tax owed: $0.00

Federal income tax withheld: $703
Making work pay credit: $800
Earned income credit (3 children): $1585
Additional child tax credit: $1874

Total refund: $4962
Total of refund that was based upon credits and not money withheld: $4259
Total credits received: $4385
(includes the $126 in a credit previously used to reduce the tax liability to zero)

Think that was good? Last year they had a bad year income wise. They owed zero taxes and received $6,834 in cash from the above three credits. There are numerous other credits available to select individuals. The three mentioned are three of the most common and the most used. Close to 50% of all filers last year paid NO federal income tax and many of them received “free” money (free to them not free to the other taxpayers who don’t benefit from these programs) from the federal government through various credits.

The federal government has helped select people buy automobiles, homes, rental houses, and various other things through the federal tax system. The tax system is no longer used to just collect money to operate government. It is used to redistribute wealth. I would venture a guess that most Februaries in recent years have shown large deficits between incoming and outgoing money in comparison to other months of the fiscal year.

The article had a bar graph of the monthly deficits from February 2010 through February 2011. Naturally, the deficit varied from month to month. However, every month had a deficit. Remember, the federal budget for this current fiscal year has not yet been passed by Congress. We are, nevertheless, still spending money and spending MORE money than we are taking in in revenue. Remember also that on my February 26th post, it was pointed out that the federal government borrowed 40% of every dollar spent in fiscal year 2008-2009. 40%!!!

As I pointed out in a previous post, if the Republicans are successful in cutting the proposed budget with a projected deficit of $1.5 trillion by $61 billion, that cut would be less than 2% of the deficit! LESS THAN 2%! And the Democrats are calling these proposed cuts “mean spirited?” Are they serious? We need to cut hundreds of billions of dollars from the current budget and hundreds of billion dollars more, if not the full $1.65 billion projected deficit, in the proposed budget for fiscal year 2011-2012.

The government CAN NOT spend us into economic solvency!!! If it could, the government should give every legal, adult American citizen $100,000 each to spend as he/she wishes. No, wait. The federal government HAS NO MONEY!!!

Just another obvious example of why it is time to TAKE BACK the NATION!!!