Fed­eral Rev­enue

Calhoun Times - - OBITUARIES - Ken Her­ron

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.

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