What is the Fiscal Gap? with David McKnight

the power of zero

The basic gist of the fiscal gap is that the publicly stated national debt is $20 trillion which is more than enough to cripple our economy, but that’s not the whole picture.

The fiscal gap is the difference between everything that we’ve promised to pay over the next 70 years and what we can actually afford to pay.

According to Allan Arback and Larry Collicof, the real number is closer to $222 trillion. When you figure in all the numbers, the fiscal gap is growing an additional $6 trillion each year.

To get a true vision of the fiscal condition of our country, we need to express our national debt the same way that everybody else in the world is expressing it. If we were a private corporation, we would have to list every debt on the books, not just the debt that is actually owed.

There are two kinds of debt, intragovernmental debt and debt borrowed from the public. The more responsible thing to do would be to express what we promised back but can’t afford to deliver.

In the last week, the number has been revised to $239 trillion. This means that if nothing happens, there will come a day of reckoning. The government will have to raise taxes by 51% and cut spending 35%.

This makes the Power of Zero more relevant than ever. If you are thinking about putting money into a 401(k) in order to get a deduction at today’s historically low tax rates you should reconsider it.

Putting your money into a 401(k) is like going into a business relationship with the IRS and they get to vote each year to decide what percentage of the profits you get to keep.

Politicians love to make promises. When they are telling us the national debt is $22 trillion but the real number is $239 trillion, they are making promises they can’t actually deliver on.

If you are in a 10% or 12% tax bracket, even a 22% or 24% tax bracket, you should probably not be putting money into your IRA or 401(k), put it into a Roth 401(k) instead.

The bad news is it’s much worse than we thought, the good news is you’re now armed with the knowledge of what you can do about it.

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