No risk of layoffs here

Doug Horn

Those who serve their country by filling an elected office escape many of the worries traditional workers face daily. If you ignore the elections members of the House or Senate periodically face, the compensation of those in the Congress is not too shabby. A rank and file member of Congress presently earns $174,000 per year. Leadership of both houses, majority and minority leaders, earn approximately $20,000 more per year; a far cry from the six dollars per diem members were paid prior to 1855. Beginning that year, members began receiving their first consistent annual salary, $3,000 per year.

Not sure if a raise is in the offering this year? For members of Congress, there is no such concern. In 1989, Congress passed an amendment allowing for automatic annual raises. The lawmakers must specifically vote to reject the raise to avoid the annual increase. In 1990, their annual salary was $98,400; and by 2003, it had grown to $154,700 with additional adjustments in more recent years bringing their current salary to the amount of $174,000.

In addition to exceptional salaries, the benefits are extraordinary as well. For those who serve at least five years, they are entitled to a pension based upon the number of years served and the average of the last three years of their salary. However, the pension cannot be more than 80 percent of their final salary. While a portion of the member’s salary is paid into the pension plan, it is also funded by our tax dollars.

The office of the President has also undergone an adjustment in its salary. In 2001, the salary was raised to $400,000 in addition to a $50,000 annual expense account; this was an increase from $200,000.

This is not to say those who serve are not deserving of the salaries they receive. I am not sure I would take their place regardless of the salary. But, this is merely the tip of the iceberg. The size of our government is growing significantly, and its impact on our economy is both positive and negative. Like any group, its spending does generate jobs and economic activity; but unlike industry, the source of revenue to pay for the tens of millions in salary dollars, millions more in benefits, office space, utilities, and other support activities are tax dollars. This is the levy assessed annually by our government on industry and citizens where “nothing” is given in exchange for the tax dollars collected.

Of course “nothing” is an exaggeration, since the government provides or supplements the funding for our military, schools, social security, health industry, payments on the U.S. debt, and many more programs. However, there is a lack of choice by those paying the tax dollars of exactly how they will be spent.

History has shown when taxes go up the growth of our economy slows. While not all tax increases cause the economy to slow, there is an impact when taxes collectively place higher and higher burdens on those producing the income. There can be a point where the effort to produce additional income is more than offset by the levy of taxes, thus a diminishing return can and often does impact our economy.

At the present, estimates for the federal budget deficits for the next three years are $1.56 trillion dollars, $1.27 trillion in 2011, and $700 billion in 2012 per a summary provided by the Wall Street Journal. If these projections remain true, it will force the U.S. Government to carry even more debt, which in turn increases the expenses.

Investors must remain nimble in order to respond and allocate their resources based upon the impact of the growth of the government’s share of our economic spending. The impact of future tax rate changes and policy changes will likely impact the economy as we continue to scratch our way back to economic growth. Some of the questions may be: Will government spending come back under control? How high and what areas will change in the tax code? What will the November elections have on future policies?

My crystal ball is a little cloudy these days, how is yours working?

For assistance with insurance, estate planning, and managing investments, contacts me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, online seminars, and calculators, as well as a host of other free tools.

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