The United States Corporation: Inside the Numbers, part 2

The United States Corporation: Inside the Numbers, part 2
by FranG

Evaluation

It is obvious to anybody with a brain that the departments listed above have failed the American people miserably. They are a huge physiological, psychological, and economic burden on the people. The names of the departments represent the finest tact in the art and science of doublespeak. It's time for a reassessment of priorities, America.

Annual Operating Income

Now that we have had a closer look at the major departments of the United States, let's turn our attention to the financing sources for these departments. The main sources of income for the United States is 1) individual income tax, 2) corporate income tax, and 3) excise taxes. Individual income tax is by far the driver for the conducting of official government business. It accounts for $1.9 trillion as of fiscal year end 2006, and 75% of total revenues. Corporate income tax is a distant second providing $350 billion, or 14% of operating income. Excise taxes account for only $74 billion of revenues. Overall income for 2006 was $2.4 trillion, which is less than the $2.9 trillion in costs; resulting in nearly $500 billion in deficit spending for the period.

About income taxes

As mentioned above, Title 26 of the United States Code deals with instructions for calculating and filing income taxes. But the code is not positive law, and thus not the law of the land. It is a form of private contract law and until it becomes public, it is not an official law of the land. As such, individuals are not required to do anything, but can voluntarily contract with, or donate to, anyone of their choosing; with the exception of treasonous criminals of the Constitution of course. As the explanation of the legality of income taxes is far beyond the scope of this article, I will just say that for most American born Citizens ("nationals" 2 i.e., persons born within one of the 50 states and a national to that state, not a "national of the United States"14 are not liable for the payment of income taxes, but do so voluntarily. For more on income taxes, please visit www.famguardian.org or www.voluntarytax.info. Below is the argument that helped me realize that I was reporting "net" income which I really did not have, in essence donating money which I solely owned free and clear of any liens.

"Our labor is our property, and so a tax on labor would be a tax on property and a "direct tax" within the meaning of the Constitution. The laborer does not receive labor from another source, he is the source. If you picked up a rock and sold it for $5 then you would have income of $5, as you had a cost of $0 for the rock. You can not separate the laborer from the labor. Labor is not something which the laborer picks up, it is of the laborer. The idea that a person has zero cost in the labor they sell is a flawed idea embraced by the IRS. For a person to have zero cost in the labor they sell, there has to be capital that can accrue and grow. There is no capital involved in selling ones own labor, as the labor is the capital." 15

The amount of tax income collected by the United States government increased by over 9% from the amount collected in 2005. This is a pretty significant jump. Corporate income taxes increased by almost 30%. The big rise in corporate income taxes implies that corporations are continuing to be profitable, and can thus donate more money to the government. The increase in individual taxes would more than likely be from the corporate CEOs, and other senior management, reaping the benefits of their companies' success, as well as from the profits paid out to investors as dividends. These rich elitists are very small in number and have major influence on the government and its policies via their tax contributions. As the chart below shows, there clearly is an aristocracy in the U.S. where the top 5% of individuals are making 33% of the income in this country, and paying 57% of the taxes. 16



As the median income per household for the year 2006 was $48,201 ($26,036 per individual) 17, the increase in income tax revenue is not likely from the average American, as illustrated in this chart showing the percent distribution of individuals per income group:



Although the increase in taxes most likely comes from the wealthier individuals in the country, the working middle class still adds a significant share to the amount of individual income taxes collected by the government. The wealth and taxes chart above detailing tax distribution by income level is somewhat misleading and creates the impression that the working class contributes very little to the tax revenues. The bottom third of Americans (two-thirds of the bottom 50% on the income distribution chart above) receive tax refunds via the Earned Income, and Child Tax credits, thus reducing the amount of taxes paid for the group as a whole. The upper-third, or individuals earning over $40,000 generally have positive tax contributions.

The question Americans have to ask themselves is are they contracting with the government to provide a service, and if so is that service worth the amount paid in exchange for it. Obviously the wealthy corporate interests in this country have benefited handsomely over the policies of the government and, as such, have every incentive to assure that government continues to operate as is. But have the majority of Americans benefited from these government services? Based on the analysis of the cost centers above, I would think the answer is no. If we reduced the top three "black holes of spending" mentioned above by 90%, this would free up $1.6 trillion dollars in costs. The size of these departments would be comparable to other government departments, and the American people would have much more wealth in their pockets. Wouldn't it be nice to have 15% of your income refunded to you? And on top of that, 7.65% (15.3% if self employed) of FICA taxes refunded as well? By voluntarily contributing to government in the form of income taxes, you are indirectly saying that you approve of the services that are being offered. They can engage in no activity without the resources to support it. The working class collectively does have a voice, as it provides a significant share of tax revenues.

The Balance Sheet (Assets and Liabilities)

Assets

The biggest asset the government has on the books is it's property, plant and equipment (this is mostly real estate). PPE is valued at $689 billion, constituting 46% of total assets. The PPE number consists of $362 billion in equipment attributed to the Department of Defense, accounting for half of its total, and just under 25% of total government assets. Yes you read correctly, our government has one-fourth of its assets in the form of military equipment. Real property (land and buildings) account for 10% of total assets. The other major assets are inventories, and loans receivable (including student and electric loans), together accounting for one-third of the government's assets. Total assets grew by 3.4% from 2005 to 2006 to $1.5 trillion.

You're probably wondering how it is that the biggest asset is military equipment? It's very odd to see this number dwarf the real property number as it does. Our military definitely has the most technologically advanced equipment on the market, but the number seems slightly high. In any event, I was wondering how the military accounts for its soldiers. Per the enlistment contract it is clear that soldiers fit the military definition of equipment. 18 In traditional terms they look more like indentured servants, or that of a vassal pledging military service to a feudal lord in exchange for room and board. It is sad that we own so much in the way of military, but as a country we have long term investments accounting for only 5% of total assets.


Liabilities

The liabilities owed by the government total $10.4 trillion. This represents 6 times the amount of assets on the books, and an increase of over 5% from the previous year's total liability amount. It is also 4 times the amount of revenue generated for the year. The biggest component of liability is debt securities held by the public. The amount held by the public at large is $4.9 trillion. Federal employee and veteran benefits are the other significant debt pieces, representing $4.7 trillion. These numbers are very significant as each individually dwarf the total assets of the United States government. With no investments on the books, these amounts are essentially not payable unless the government can find a another source of income. This of course does not include social security, Medicare, and other retirement benefits promised by the U.S. Include these amounts and you have a unfathomable amount of over $50 trillion. With increases in taxes or cuts to programs, the social security promises would be defaulted on easily. The social security debt has been growing at a rate of over 10% a year since 2002 per the GAO's unaudited numbers, and the growth gets exponentially bigger with each passing year. The debt to government employees and veterans would also get thrown to the wayside. The debt owed to foreigners could be managed somewhat, but eventually it's management would prove futile as well as giving away the government's financial outlook.

Economics: The Real Danger

As grim as the picture above appears, it's still incomplete as accounting has its limitations. Although the numbers are usually pretty accurate, accounting gives you a snap shot of an entity's financial picture at any given moment in time. It tells the present, but provides nothing as to why the present is the way it is, or where the present is headed. Accounting also assumes stable fixed variable inputs. For instance, the value of the numbers being reported on is for the most part to remain fixed into perpetuity.

Because of these limitations, an economic analysis needs to be done to provide relevant information to those inquiring. Economics is dynamic, while accounting is static. This is a plus to economics but the drawback is that it entails managing several inputs which are all intertwined, and the inputs are not stable. It's actually best when coupled with accounting data.

So speaking economically, if we look more closer at the national debt amount of $10.4 trillion, it looks less frightening when compared to the Gross Domestic Product (GDP) of the U.S. The GDP is simply the amount of goods and services produced by a country in a given period. The U.S. has by far the biggest GDP of any country (excluding the European Union which is about the equal to the U.S. GDP) at $13.2 trillion. Japan is second with GDP of $4.4 trillion. 19 All of the world's wealth is still in the good ol' US of A. But GDP is the nation's wealth, not the government's. However, when evaluating the credit of a nation, as opposed to looking at it's debt to asset ratio, creditor nations will focus on the debt to GDP ratio. This is done under the premise that the government can nationalize all of the assets in the country to make good on the debt. In other words, the government's debt becomes our debt. The debt of the U.S. is 65% of GDP. 20 This places it as the fifth highest among the top ten nations with the highest GDP (actually the true debt percentage is 72%, which would rank the U.S. third in highest GDP) as this source cites old data. If we only include the debt owed to foreigners and exclude the debt to federal employees, the amount is only 37% of GDP. The debt, in and of itself is manageable, assuming of course that the GDP value (stable value, not growth per se) is relatively constant. This stability depends mostly on the stability of the dollar.

It All Rides on the Dollar

As we all know, money is the life-blood of any economy. Its stability is actually more important than its worth. Just the right amount is needed, equally matching the GDP figure, or the amount of goods and services in the economy. Too much causes inflation, too little causes stagnation. Money's stability, among other things, is highly dependent on the exchange rate between currencies and the appreciation/depreciation against each over time. As of the time of this writing, of the top 10 countries with the highest GDP, the U.S. Dollar's value was on par with the Canadian dollar, 116 times the Japanese Yen, nearly 8 times the Chinese Yuan, almost twice the Brazilian Real, three quarters the value of the Euro, and half the value of the British Pound.

The above exchange rates represent the strength of the currencies, but the more important number is how stable have the currencies been against each other. Too much growth or decline is not good, but the decline is usually much more fatal as it leads to inflation. In the 6 year period from 2000 through 2006, the dollar appreciated against only one currency, the Brazilian Real by 18.4%. It has devalued by 4.9% against the Euro, 3.3% against the British Pound, and remained on par with the Japanese Yen, Chinese Yuan (the Chinese pegged their currency value to the dollar for political reasons), and the Canadian Dollar. 21 The appreciation against the Brazilian Real is due to the tremendous economic instability of the country by a fiscally irresponsible government. But it appears they have since weathered the storm. 22

As bad as the numbers above are, in respect to the European countries, 2007 has proved to be an absolute disaster for the dollar. It seems the War with Iraq, the housing market disaster, illegal immigration, and record deficit spending is starting to take its toll on the economy. In this year alone, with the exception of the Japanese Yen, the dollar has depreciated against every currency named above. It depreciated by 46% against the Brazilian Real. This is in large part to Brazil getting their act together as opposed to the dollar's poor performance. But against the Canadian Dollar, the dollar has declined by more than a third, by 13% against the Euro, 12% against the Chinese Yuan (this despite the Chinese partial pegging to the dollar), and 10% against the British Pound. These declines are massive and are reflective of an unstable economy.

To put the above in the context, an unstable economy incites inflation. But when inflation gets out of control, you have hyperinflation. Basically what happens is the prices rise as the economy tries to protect itself from the excess money supply. This in turns increases GDP, which is a good thing as far as the debt/GDP ratio is concerned, but in times of inflation, debtors gain and creditors lose. However, when inflation is too high to the point where you can't even keep up with it (i.e., going to the store for a loaf of bread and the price increases while you're in route to the store), the economy tanks. GDP shoots up like a rocket, then rapidly collapses. The GDP number decreases because consumption stops as merchants fair better by holding on to their real assets, investing stops for the same reason: because internal commerce has stopped. Imports are at a halt as countries can't rely on their currency, and exports are stifled too because internal trade has stopped. The situation can be compared to a river dam breaking, thus flooding the area, and then subsequently the entire river drying up. This is the situation we find ourselves in today. Our moronic President had this to say recently:

"I think I got a B in Econ 101. I got an A however in keeping taxes low, and being fiscally responsible with the people's money."

Whatever the President is doing, it sure isn't great economics. It looks more to me like he got a "B" in the Evil CON 101 and an "A" as in Actor for creating the illusion that he's keeping taxes low. Inflation is a hidden tax and it is definitely fiscally irresponsible. America's hope rests in getting that clown and the rest of his crew out of government, and electing someone who actually has respect for the American People's money. That man is Ron Paul, one who would stabilize our economy and bring it back to its glory days.

Source of financial information: Fiscal Year 2006 Financial Report of the United States Government

1 Wikipedia: United States Public Debt
2 8 USC Sec 1101(a)(21)
3 U.S. Department of Defense
4 Global Issues: World Military Spending
5 U.S. Department of Health and Human Services
6 Dr. Mercola: Modern Health Care System is the Leading Cause of Death
7 North American Association for the Study of Obesity (NAASO): The Obesity Society
8 U.S. Social Security Administration
9 Working Life via the Labor Research Association
10 48 USC Sec 1320b-7 Sec(d)
11 Wikipedia: Social Security Administration
12 Department of Veteran Affairs
13 Wikipedia: United States Department of Veterans Affairs
14 8 USC Sec 1101(a)(22)
15 Voluntary Tax: Why Today's Income Taxes as Applied are Illegal!
16 Wikipedia: Taxation in the United States-Tax Distribution
17 Wikipedia: Household income in the United States
18 Department of Defense: Military Equipment Valuation & Accountability
19 Wikipedia: List of countries by GDP (nominal)
20 Wikipedia: List of countries by public debt
21 Wikipedia: Table of historical exchange rates
22 Time: BRAZIL Toward Stability



copyright FranG 2007