Federal Revenue
Every now and again, some of the politicians or talking heads on the networks talk about the Federal Revenues and it just goes over our heads because we don’t understand millions, billions, and trillions. At the level of the common man, we understand thousands. A new car is usually in the $20,000 range and a house is in the $ 200,000 range. We understand these amounts and we know about how much we can pay on these items. Cars finance in the 3 to 5 year range and houses in the 20 to 30 year range. We expect to pay these off before we reach retirement. Some of us will make over a million dollars in salary in our lifetime and some may make as much as two million dollars, but we rarely will have more than a few thousand dollars at any one time.
The federal government deals in billions and trillions, but they do not have any plan to try to limit their spending to their income and they have no idea about ever paying off their debt. Most of the members of Congress and the Presidents have very little knowledge about economics and just follow what their leaders promote. Their leaders also do not understand economics at this level.
We have federal debt, Treasury Department debt, sate government debt, and local government debt. At the end of 2018 all of these will total a little over $24 trillion dollars. If the total debt was assigned to each person in the United States, we would all owe a little over $74,000 each. If I had this debt assigned to me I would expect to try to pay it off over a twenty year period. That might set the target for the country’s debt. We should try to reduce it to zero over a twenty year period, although it can be done in ten years.
It is not possible to reduce the operating cost of the federal government enough to balance the budget. Our federal government is operating with about a two or three percent deficit. Operating the total governments in Washington, each state, county and city is about three percent of our total government tax revenue. Interest on the debts is six percent. The only path to balance the budget is to increase revenues.
My son and I operated a printing business for twelve years. In one of these years, we operated at a five percent loss. To the average person, this would mean that you either cut your costs by five percent or increase your prices by five percent. If you try to cut your costs by reducing the number of employees, you will not be able to produce as much product. If you increase your prices by five percent, your total sales will be reduced and your loss will increase because customers will go to your competitors. There are fixed costs like materials involved, but most of the other costs are variable based on your total sales. My response was to reduce our prices by ten percent. The next month, our total sales had a substantial increase and we were again profitable. Reducing tax rates causes a similar result. It causes an increase in the movement of money and increases the amount of taxes that the government collects.
Sometimes retail prices are misguided and higher prices results in lower profits. The one that stands out to me is the price of a glass of iced tea in our restaurants. The cost of the tea and the washing and serving of the glasses is in the range of ten cents. The restaurants are charging $2.20 per serving. Only about 25 percent of the customers will pay that price. The other 75 percent drink ice water at no charge. If the price was $1 per serving, the percentages would probably reverse. With 100 customers, the present price generates $55 in sales. The price of $1.00 with 75 percent purchasing the tea, the sales of the tea would be $75, which would generate $20 extra profit. McDonalds recently began selling their drinks for $1 per serving.
The total amount of printed money in the United States is just over $ 1.6 trillion dollars. Every dollar goes through about 10.7 hands in a year’s time. This gives us our Gross National Product of $17.4 trillion. The total federal taxes collected through this movement of money is $3.34 trillion dollars. Every time a dollar changes hands, federal taxes of $. 195 is the result of the movement. A five percent increase in the Gross National Product would mean an $ 875 billion increase. This would be a $170.6 billion increase in tax revenue. The deficit in 2007 before President Obama was $161 billion. The expected deficit in 2018 is just over two percent. A four year period of a half of a percent increase in the GNP will balance the budget.
If you take the national debt and divide it by the annual tax revenue, you will see that if the total revenue were dedicated to the debt, it would take 6.14 years to clear the debt. This of course cannot be done, but it does create a personal comparison to some of us. If an individual making $40,000 per year had debt of 6.14 times his income, he would owe $ 245,600. This amount of debt would be a little excessive to most of us, but it is the situation of many individuals. For our government, our debt seems very high but it still is an amount that we can overcome over a ten year period.
A retail business uses a ratio of the value of the inventory to the total sales for the year as a measure of how well they are doing. If sales are four or five times the value of their inventory, they are turning their inventory four or five times a year. They are doing well. Our federal government should judge themselves by the times they turn the cash in circulation. Presently, we turn the money about 10.7 times. We need to get this up to about 12 times per year and our economy will be doing well. Our budget will be balanced. President Trump understands this.