Imagine a society with no income tax. I’ve been ruminating this and gathering data for a while, and then BINGO, there it was—an analysis of the current state of our economy laid out in a May 26, 2010 USA Today article by Dennis Cauchon, “Private Pay Shrinks to Historic Low as Gov’t Payouts Rise.” The facts in this article remind me of Judge Bork’s book, Slouching Towards Gomorrah. As a nation, we’re slowly forgetting how to go out every day and kill what we eat.

societies bound by overreaching governments eventually collapseThank God, my first sales job was straight commission. It taught me the value of independence and how hard it can be to break free from the trappings of chronic dependency.

As history has proven, societies bound by overreaching governments eventually collapse. Eliminating or severely reducing income tax stimulates growth. I want to show you how.

According to Cauchon and a USA Today analysis of government data, “paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year.” Meanwhile, the first quarter of 2010 marked a record high for government payouts through programs like Social Security, unemployment insurance, and food stamps.

How does a nation sustain this topsy-turvy economic policy? More importantly, how can a nation survive when there are more eaters than earners? The Iron Lady said it best when she said, “sooner or later you run out of other people’s money to spend.” If we don’t put a tourniquet on the fiscal bloodletting, we will end up like Greece.

The grim state of the US economy is a reflection of the decades-long trend toward government dependency, and the recession and the federal stimulus program have hastened it.

Without drawing a conclusion, Cauchon sites economic scholars with diametrically opposing schools of thought. Paul Van de Water, economist at the Center on Budget and Policy Priorities, claims the shift in income proves that the feds’ stimulus efforts are working. He also claims that private wages will rebound as the economy recovers. Van de Water is clearly drinking utopian-flavored Kool Aid.

In his article, Cauchon also sites Hoover Institute economist David Henderson, who says the shift from private wages to government benefits saps the economy of dynamism. Henderson said, “People are paid for being rather than for producing.”

Working with figures from the Congressional Budget Office, let’s do the math.

Estimated receipts, or money collected from federal taxes, for fiscal year 2010 are $2.4 trillion. That’s a decrease of 11% from 2009, or roughly $260 billion. Here’s how the 2010 income breaks out:

• $1 trillion from individual income taxes (Now don’t forget, less than 50% of the country pays income tax.)
• $940 billion from Social Security and other payroll taxes
• $222 billion from corporate income taxes
• $77 billion from excise taxes
• $23 billion from customs duties
• $20 billion from estate and gift taxes
• $22 billion from deposits of earnings
• $16 billion from other receipts

Total spending, or expenditures, is almost $3.6 trillion. That’s a deficit of $1.2 trillion this year, bringing the total national debt to $14 trillion.

Mandatory government spending alone accounts for almost $2.2 trillion, and it’s up sharply in 2010. Social Security spending is up 5% to $695 billion. At $453 billion, the Medicare budget has increased to almost 7%. Medicaid is up 12% to $290 billion. Spending for potential disaster costs are up 275% at $11 billion (and this figure was attained prior to the BP fiasco in the Gulf). The budget for other “non-discretionary” spending is down 15% but still accounts for $571 billion. The interest on the debt for these “mandatory” line items is up 18% to $164 billion.

If we spent nothing more than the mandatory $2.2 trillion while taking in $2.4 trillion, we’d have about $200 billion left for discretionary spending. But our discretionary spending is roughly $1.4 trillion dollars, which is taken up by these departments: Defense, Health and Human Services, Transportation, Veterans Affairs, State Department and International Programs, Housing and Urban Development, Education, Homeland Security, Energy, Agriculture, Justice, NASA (which is about the smallest), Commerce, Labor, Treasury, Interior, EPA, Social Security Administration, National Science Foundation, Corps of Engineers, National Infrastructure Bank, Corporation for National and Community Service, Small Business Administration, and other agencies.

If we really want to stimulate this economy, we should cut the income tax in half or eliminate it entirely. The latter, however, might cause epidemic heart failure among congressmen.

Government income is dependent solely upon the taxes it collects from private individuals and corporations. So, wouldn’t it make sense to encourage employment in the private sector, where prosperity is created? What do government jobs produce?

Cutting the federal income tax in half would put an additional $500 billion into the economy—tangible stimuli without more bureaucracy to manage it. In order to truly be effective, however, both discretionary spending and entitlement programs that fall under mandatory spending must be curtailed.

We’ve created a monster over the years that we can no longer feed. The feds would do well to take a page or two from New Jersey Governor Chris Christie’s playbook.