The Great Unwind Continues

As the fiscal cliff seems to have grabbed our attention of late, many have not noticed the post-election slowing of the economy. Several of our clients, involved in industrial supply or construction, have commented on the sudden vacuum they feel in new business. Some have used words like “crickets” to describe how quiet things have gotten. Quiet is not the sound of money. Several of these businesses are leading indicators, not laggards like automobile sales. Cars are bought by those who already feel confident about their jobs. The job that provided that income might have been bid six months ago and finished and paid the month before the worker walks into the dealership. So be careful in taking this week’s Wall Street Journal article on hopping car sales to portend great things for the future.

As we see the great unwind happening on the other side of the Atlantic, we get a glimpse of our future. Margaret Thatcher famously spoke these words twenty-five years ago, “The problem with Socialism is that sooner or later you run out of other people’s money”. If you divide the US population into the paying group and non-paying group, the responsibility for the nation’s debt falls squarely on the shoulders of the one-half who actually pay income taxes. Surely all people who consume pay taxes. They pay sales tax, registration taxes, etc. But those are state taxes, and they don’t address the Federal deficit. The Congressional Budget Office reports that in 2007, the top 1% of taxpayers paid 28.1% of all Federal tax receipts (naysayers can click the link here: http://www.cbo.gov/publication/42870). Politicians seem to find comfort in dividing the deficit by the entire population. Surely we all see the fallacy in that. In July 2011, the US Census Bureau reported that the US population was 311,591,917 people. The IRS says that 53% of the population pays income taxes. So that’s roughly 165 million taxpayers. The top 1% of taxpayers would be about 1.65 million people. But those few wealthy people don’t owe the entire deficit; they only owe 28.1% of it. So that’s about $4.77 Trillion, or $2.9 million each. Since that number is larger than that group’s average net worth, it seems Margaret Thatcher was correct.

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