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The Elephant under the Microscope
July 15th 2011 -

With the introduction of legislation that would strip the excise tax on the indoor tanning industry from last year’s landmark health care law, there is renewed hope for a repeal of this job-killing and economy-depressing tax within the industry. Ironically, it’s not the anti-tanning advocates who will be the main obstacle to repealing this tax but rather the budget hawks and the principle figures in the federal debt ceiling debate. The tan tax will be just one small factor in a much larger national debate which will define our economic policy well into the next generation.

To begin with, let’s just take a look at the shear scope of the issue. There is a difference between the terms ‘deficit’ and ‘debt’. The term you commonly hear in the news is about the deficit but you’ll rarely hear much about the actual debt. The deficit is the imbalance between how much the government takes in versus how much it spends. If you associate the government operating budget to the average household budget, it is speeding straight towards a brick wall. The 2011 fiscal budget was pegged at $3.8 Trillion dollars yet government receipts are only projected to be $2.5 Trillion dollars… that’s more than a 30% deficit! If your household routinely spends 50% more than it earns and you continue to pile that deficit into revolving credit like credit cards and loans, you would quickly max out your available credit and be forced to make severe cuts in your spending habits in order to even survive the next month, never mind the fact that the interest on that compiled debt will be a huge drain on your budget before you even tackle the task of paying down the outstanding debt.

The debate currently gripping our capitol is not even addressing the $14.3 TRILLION dollars in outstanding debt because unlike your personal finances the government sets it own credit limit. The debate is simply over the fiscal responsibility of extending the government’s own credit limit without ever addressing the issue of unbridled spending or drawing a line in the sand and demanding budget cuts enough that a truly balanced budget would halt the continued deficit spending habit. Neither side of the debate has even introduced a proposal that tackles the ever-growing outstanding debt but rather simply ways to meet upcoming immediate obligations and effectively postpone the debt reduction issue for some time in the future.

The numbers are so large that they are what economists call ‘mego-numbers’, a humorous acronym which stands for ‘my eyes glazed over’. The origin of this term is attributed to futurist Herman Kahn and it is used to describe numbers that are too large for the human mind to truly comprehend in scope. Talking about a federal budget and a debt that ranges in the trillions of dollars is like talking about the endless expanse of the universe – we understand the concept and we can perform the math required but to really grasp what a trillion dollars represents is simply beyond the scope of realistic perception. It overfills our field of vision and spills into the periphery until we can no longer conceive it as a whole.

And so it is with the proposition of repealing the tan tax. It represents millions of dollars in federal receipts and yet it is not one tenth of one percent of the $75 Billion dollars in total receipts that the government collects just within the budgetary line item of excise tax receipts. Therefore, to you and me as lowly taxpayers we think to ourselves, “It’s such an insignificant amount in contrast to the size of the problem what difference will it make?” while budget analysts think, “We need to hold onto every source of revenue if there is any hope of balancing the budget” and legislators debating the debt ceiling issue think, “We can’t be bothered with a few million dollars when the size of the bigger issue is in the trillions of dollars.” It’s the mego-number principle at work… we can all agree that this single line item is peanuts in comparison to the bigger issue but the bigger issue is simply too big for anyone to truly get their head around. Even cost-benefit analyses which can demonstrate that the excise taxes received are actually offset but the loss of income tax receipts from small business closures and the increase in spending for unemployment benefits to those displaced by the closures can become nothing more than an irritating reminder of just how large the overlying issue has become.

That’s not to say that the language permitting the repeal of the tan tax couldn’t be amended to some larger piece of legislation and get passed without so much as a mention from the floor, but budget talks are all that is going on in Washington at the moment and when budgets are being scrutinized then no amount is too small to be subject to examination. Therefore the tan tax becomes a flea on the back of the elephant and while Congress and the White House are looking under the microscope in vain for the elephant it’s actually more likely that they will find many insignificant fleas and take issue with them, while missing the elephant entirely.

In spite of this seemingly insurmountable challenge, the time for action is the present for two important reasons. First, the longer the tax remains in affect the more entrenched it becomes in the overall fabric of the federal budget and therefore the harder it is to eliminate in the future. Second, until there is a truly balanced budget, the issue of continuous debt limit increases and the requirement for ever-increasing federal tax receipts in order to pay the interest on the national debt will make any reduction or elimination of taxes harder. And the simple math is that government spending must be reduced by more than 30% or tax receipts in total must increase at least 50% over the current levels just to meet the current budget. Even at that we will pass our $14 Trillion dollar debt accumulation onto future generations who will be saddled with the interest payments and the problem of how to pay for our fiscal mismanagement.

If you want to get involved in repealing the tan tax, please follow the linkbelow to the special page setup by the ITA which will put you in contact with your local representatives. Tell them that you support legislation to repeal the tan tax.


Sources: Washington Post, Wall Street Journal

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