Monday, August 10, 2009

Now What?

The New York Times reports that the first group of extended unemployment recipients are due to exhaust their benefits in the next few months. Lo and behold, the same hurdles that existed previously still remain - no job, looming home foreclosure, destitution.

I'm not saying that the unemployed shouldn't receive financial assistance. I'm saying that the strategy of sweetening the incentive to NOT work was doomed from the start. The government has thrown billions of dollars at a symptom and failed to treat the cause. Mr. President, these people need jobs, plain and simple - not handouts. 

Government cannot create jobs directly as you are attempting to do. Reason being - its source of revenue comes from taxes on income, which is generated through employment. Every government worker's salary is paid from the taxes received from non-government workers.

For simplicity's sake, let's say that each worker, public or private sector, earns $50,000/year and is taxed at a 10% rate ($5,000/year for taxes). It takes taxes from 10 workers to pay the salary of one public worker. This is a 10-to-1 ratio in for our purposes. Current anti-business and big government policies are altering this ratio in an unsustainable manner. There are now fewer workers and more public employees. Is the ratio now 9-to-2 or 8-to-2? Everybody can't work for the government or there simply won't be any more money coming in to fund the operation. If you have to employ and tax 10 government workers in order to pay for one, that means you then have to employ and tax 100 workers to pay for the 10 whose taxes pay for the one, and so on. The math will simply never work in government's favor. Without private sector taxes to subsidize the public sector, it will always boil down to net tax revenues being equal to or less than the taxes paid by that "one" person, the last one in the chain. 

Grow the private sector and you will solve all of the financial problems of the nation.

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