How to Balance the Budget Without Raising Taxes

The 19 Percent Solution

A value-added tax, a soda tax, a gas tax, banning earmarks, freezing a portion of federal spending at "pre-stimulus" levels - there’s no shortage of ideas being thrown out to fix the country’s disastrous balance sheet, which threatens not just near-term economic recovery but the possibility of long-term growth. Like last week's report from the president's Commission on Fiscal Responsibility and Reform, most of the current plans to fix the country's finances rely more on increases in revenues than on cuts in spending. In part due to its heavy reliance on revenue hikes, the commission, charged with balancing the budget by 2020, failed to win enough votes of its own members to present its recommendations to Congress.

Which raises the question: Can America really reduce its debt and deficit without raising taxes to job-killing rates or cutting essential services to developing-world levels? The answer is not simply yes, it's that we have to.

Raising government revenue - taxes - substantially is not only bad policy, it has proven difficult and ultimately unsustainable for any length of time in the past 60 years. Since 1950, annual government revenue, as a percentage of Gross Domestic Product (GDP), has averaged just below 18 percent despite every attempt to jack it up or tamp it down. Our post-World War II experience shows that if the government is going to live within its means, it can't spend much more than 18 percent of GDP. Period.

Which is one reason to be happy that the debt commission's recommendations won't be presented to Congress anytime soon. The report assumes revenue equal to 21 percent of GDP and struggles to get spending to "below 22% and eventually to 21%" of GDP. That’s a recipe for disaster that would guarantee deficits and red ink.

Similarly, former Sens. Bill Bradley, John Danforth, and Gary Hart, working with the Committee for a Responsible Budget, have offered up a plan to balance the budget by 2020 that relies on revenue hitting 20.8 percent of GDP, a level that hasn't been achieved once in the past 60 years. Republicans have not advanced any realistic near-term plans. Rep. Paul Ryan's (R-Wisc.) Roadmap to the American Future does not balance the budget until 2063. The pre-election GOP’s Pledge to America is worthless since it fails to provide specifics (and to the extent it does, it is no good).

The current situation is a bipartisan disaster that requires immediate action. Since Bill Clinton left the White House in 2001, total federal spending has increased by a massive 60 percent in inflation-adjusted 2010 dollars. In fiscal year 2010, which ended September 30, the federal government spent $3.6 trillion, or 25 percent of Gross Domestic Product. That’s the most spending, in terms of percentage of GDP, since 1946. Likewise, last year’s $1.5 trillion deficit, as a percentage of GDP, was the largest deficit since 1945.

Most economists talk about a debt-to-GDP ratio of 60 percent as a trigger point that makes investors very nervous about a country's ability to pay its obligations. The debt to GDP ratio was 63 percent this year and the Congressional Budget Office (CBO) projects it will be 87 percent in 2020. Just three years ago, it was 36.5 percent. Not good signs. 

So, what would it take to bring federal spending into line with plausible levels of revenue?

The CBO, the non-partisan agency charged with estimating the effects of legislation on government costs, has produced a long-term budget outlook in which Bush-era tax rates remain unchanged. Their conclusion is that over the next decade, "government revenues would remain at about 19 percent of GDP, near their historical averages." That's actually a bit higher than the historical average, but is within the bounds of reason.

A balanced budget in 2020 based on 19 percent of GDP would mean $1.3 trillion in cuts over the next decade, or about $129 billion annually out of ever-increasing budgets averaging around $4.1 trillion. Note that these are not even absolute cuts, but trims from expected increases in spending.

To get a more concrete sense of what getting to 19 percent means, here is a table of projected major budget expenditures in total dollars, followed by the amount that needs to be cut each year from the expected budget to get an annual 3.6 percent decrease across the board.

Looking at the chart below, the question becomes: Could you, say, find $129 billion dollars of cuts in a 2016 budget that squeezes through the door at $4.3 trillion?

Congress hasn’t even begun real work on the 2011 budget, even though the fiscal year started in October (the government is currently being funded by short-term continuing resolutions; the next one expires on December 18). If they want to get serious about staving off the uncertainty, tax increases, and unrestrained spending that are sure recovery killers, they could put us on a path to a balanced budget right now.

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  • ||

    It's a shame Nick and Veronique seem to waste their talents on these articles when they are simply preaching to the choir. Seeing as those in positions of power (read: Democrats and Republicans) lack the ability to realize their failed overtaxation and oversubsidization are what have pushed us over the edge fiscally. They cannot understand that they are the problem and not the solution.

    Once we get to a point where people are willing to allow American free enterprise and innovation unfettered by government "assistance" and/or regulation to occur, we will be to a period of prosperity. Once we realized our central planning schemes and Fed banking structure serve to stifle prosperity for those it claims to assist, we will be on the road to recovery. Once banks can again look people in the eye and tell them they cannot afford a new house, we will be financially stable.

    As usual, the writers at Reason state the obvious in their typical no-nonsense manner. Too bad we're the only ones who are listening.

  • Greer||

    I thought sort of the same thing.

    Reading this, it just makes me feel that we are fucked. They will never, ever do what is sensical. The Dems will talk about the need to tax the wealthies 2% and the Reps will talk about cutting spending, as long as it's not defense or anything else that would imperil their election.

  • Red Rocks Rockin||

    Reading this, it just makes me feel that we are fucked.

    Seeing the actual figures really drives it home, doesn't it? The simple math combined with the political character of this nation is why I think the only thing that is ultimately possible is a collapse/default and re-scaling to smaller, more sustainable models.

    It's going to be very, very traumatic for Americans (and Europeans) to come to grips with the unwinding of the 100-year social safety net, but ultimately they won't have much choice. The math doesn't give a shit how much they'll be inconvenienced.

  • Doktor Kapitalism||

    I can completely see a government collapse within the next few decades. When I talk about it, people don't take me seriously, but eventually the government isn't going to get anymore loans or bonds. Governments can get loans from other nations with lower credit scores than individuals can from banks, but no one will give a loan to a black hole.

  • Bucky||

    yeah, but why the "F" would i want to move to Greece. have you seen the way they "party" recently. that's nuthin'but a bunch o' slack-jawed foolishness.

  • Cyto||

    Don't worry about moving to Greece -- if we keep spending at this rate, we'll make our own Greece here!

  • Realist||

    Total poverty program spending in 2009 was $591 billion.

  • ||

    Barry Goldwater
    "The more you pay poor people, the more poor people you get"
    Poverty should not be a career choice.

  • ||

    But, but, but - he was an extremist!!

  • Doktor Kapitalism||

    You're kidding, right? Libertarians are by definition economic extremists.

  • ||

    I'm all for balancing the budget without tax hikes, but the math behind this argument is total weaksauce.

    When somebody makes the claim that it's nearly-impossible to raise government revenues above 20 percent of GDP, the obvious first question is: Why?

    Part of the answer is simply this: Government spending on Keynesian make-work jobs is counted as part of GDP, so when government gets bigger, GDP goes up.

    Some socialist could easily take the numbers from this report to argue that taxes can never be too high, because no matter what you do you're only spending 20% of GDP, so why not soak the rich with confiscatory taxes to fund a government-run utopia?

  • E P Unum||

    Government spending on Keynesian make-work jobs is counted as part of GDP, so when government gets bigger, GDP goes up.

    These "make-work" jobs bring real money to real people, so if the tax rate is held constant the nation as a whole is better off because more revenue is collected from working people. Raising taxes on everyone increases the Government's ability to finance such jobs, further increasing the benefit.

    If everyone worked for the government, we'd soon be out of debt.

  • sevo||

    "If everyone worked for the government, we'd soon be out of debt."
    The economic perpetual-motion machine!

  • Hooha||

    I think he's serious. Clearly he doesn't realize it's not "real money" being paid to these "real people", but instead real value from contributing members of society that has been plundered by the government, then fed off of by the cogs in the beaurocracy before the scraps are 'redistributed' to "real people" employed to do jobs that nobody needed done badly enough to pay for voluntarily.

    A P Unum, imagine if you will; a crook steals a dollar from a man who grows food. The crook keeps a quarter for himself (for his trouble, of course), and gives the rest to an artist so he'll paint a picture, thereby employing him. What wealth was created? But what if the farmer had used that dollar to buy a new plow blade, thereby increasing his productivity and allowing him to farm an extra half-acre next year? Worse still, what if the farmer can't plow at all now, because he NEEDED that new blade? Now he's out a job. And so is the artist, once he's done with his painting. Uh oh, now your masterful plan has cost a job instead of created one, thereby robbing our little 'economy' here of value it would otherwise have had (whatever the farmer would have produced next year). Hmm, a conundrum. What's the solution? Steal more dollars!!

    but... what happens when we're out of farmers and their dollars?

    Or maybe you think the artist could simply buy some food from the farmer with his 75 cents? Lets say that happens, and the farmer spends the 75 cents, and it's just enough to keep him in business. He produces another dollars' worth of food next year. The crook swipes this one, too, and repeats the process. Now you have the farmer feeding everyone and getting nothing in return. Oh, and the crook has lots of shitty art.

    Congradulations, you've invented communism, now with twice as much bullshit to hide the communism!

    Just so you know how this nailbiter ends, all the farmers either become artists, or move somewhere with fewer crooks. Then, when there are no more dollars to redistribute, the whole system collapses.

  • Troll||

    P Unum's just doin it for the lulz.

  • ||

    What is so sad, is that it entirely plausible that someone would say that. Like Hooha, I really didn't know whether it was a joke or not, because some people actually think that way.

  • Richard Stands||

    Poe's Law:

    "Without a winking smiley or other blatant display of humor, it is impossible to create a parody of Fundamentalism that someone won't mistake for the real thing."

  • Ron||

    Your example is a clear description of the folly and should be run in every paper especially since you use a farmer and an artist as examples which is what many of the left consider to be the Utopian ideal.

  • ||

    Everyone does work for the government, till April each year.

  • ||

    Americans for Tax Reform put the date this year at August 19. That's 63% of the year. That's 43% of GDP in government spending, plus 20% of GDP in the cost of regulation.

  • Douglas Fletcher||

    You're a funny guy. Funny ha-ha.

  • Realist||

    "These "make-work" jobs bring real money to real people...". But the work, productivity isn't real.

  • Red Rocks Rockin||

    Some socialist could easily take the numbers from this report to argue that taxes can never be too high, because no matter what you do you're only spending 20% of GDP, so why not soak the rich with confiscatory taxes to fund a government-run utopia?

    For the very reason that you point out--no matter how high tax rates are, the government has never brought in more than 20% of GDP. You're ultimately going to rely on exponential deficit spending because people will inevitably do whatever they can to avoid paying those higher rates. Ultimately, the government would be saddled with a dropping rate of return after the initial sugar shot and would have to go right back to deficit spending, and within the span of around 10-20 years. Not to mention that, historically speaking, it's never worked out too well for governments that make confiscating most of the wealthy's income part of its long-term national policy. When they can justify doing it to one segment of the population, they inevitably justify doing it to everyone, and that's how revolutions get started.

    As the article points out, these deficit-reducing proposals are all banking on something that's never happened in this country's history--revenues greater than 20% of GDP, not just for a year or two, but for several years on end, with no recessionary events. That just isn't going to happen--the math doesn't lie.

  • Chad||

    "For the very reason that you point out--no matter how high tax rates are, the government has never brought in more than 20% of GDP"

    Psssttt...I got a secret for ya...


    Why don't you look at what happens there, and see how well your 20% figure holds up? It absolutely amazes me how blind libertarians are willing to be, if the facts lie in contradiction to their argument.

  • Red Rocks Rockin||

    Psst, I got a fact for you--


    Why don't you focus on the topic at hand, rather than your red herrings? It amazes me how blind progressives are willing to be, if the facts lie in contradiction to their philosophies.

  • Chad||

    So, your brilliant argument can be summed up as "It can't happen here because it hasn't happened here, despite the fact that it has occured many times elsewhere".

    How pathetic.

  • Red Rocks Rockin||

    Or were you implying how well countries in Africa are doing economically?

  • ||

    Some socialist could easily take the numbers from this report to argue that taxes can never be too high, because no matter what you do you're only spending 20% of GDP, so why not soak the rich with confiscatory taxes to fund a government-run utopia?

    The problem is, it's been tried and tried again with the same result: economic collapse. When the same data are used for your benchmark and different steps are taken, why would you not expect the results to be realistic? The fact that the GDP numbers are artificially inflated by the nannyists doesn't mean that anyone using the same data sets mst be disregarded as well. It simply means they took the data and did the wrong thing with it in practice. Therefore, their theories were obviously fucked from the word jump.

    Nick and Veronique's theory hasn't been implement en masse, but each time our government has used them even incrementally, they have proven to give the desired results.

    Weaksauce? Perhaps to someone who assumes all economic forecasters manipulate data to fit their political philosophies. It is pretty obvious Nick and Veronique aren't doing that here. If they were, we would be (logically) discussing wholesale closure of government departments and massively cutting others. Sorry, but the dogmatic ramblings of team red and team blue seem to have jaded you a bit too much. Pity.

  • ||

    Some socialist could easily take the numbers from this report to argue that taxes can never be too high, because no matter what you do you're only spending 20% of GDP, so why not soak the rich with confiscatory taxes to fund a government-run utopia?

    I think you have the argument backwards. If the slice of pie is always going to be a set proportion of the whole, then any rational policy would focus on increasing the size of the pie.

    The 19% rule doesn't show that tax rates have no effect on GDP, only that they don't have any effect on the portion of GDP collected by the govt. The obvious argument against soaking the rich with confiscatory taxes is that it will destroy the pie. So, yes, the govt. will still collect 19% - but 19% of nothing.

    As far as I can see, this argument doesn't provide any ammunition to socialists. In fact, one could use this data to argue that we might as well lower the average tax rate to < 1%, but I'm guessing that there is some lower boundary beyond which govt. revenue as a percentage of GDP begins to drop precipitously.

  • IceTrey||

    There's lies, damn lies and statistics.

  • O The Bama||

    Let me be clear. The failed policies of the previous eight years cannot stand. The poorest cannot bear the burden any longer of a tax system that disenfranchises them and leaves them on at the curb on the highway to our future. From now on, we will all be participating and covered in one of the greatest systems for the redistribution of wealth the world has ever known. No longer, will the wealthiest of our land stand alone under the mistakes of the past. But, now, they can reach down and say "No longer will you be owned by your Welfare Masters, by the way ... pull up your zipper."

  • Barney The Frank||

    You talking to me???

  • ||

    In tongues.

  • ||

    Holy shit, when you miss the point, you REALLY miss the point.

    I'm NOT saying that their numbers show that socialism works. I'm saying that their numbers fail to show anything useful, because it's based on an extremely faulty analysis of the numbers, one which could lead to all kinds of farcical conclusions.

  • Chad||

    "The problem is, it's been tried and tried again with the same result: economic collapse"

    Plenty of nations collect much more than 20% of GDP as taxes...and their economies are just fine.

    Willful ignorance is not becoming.

  • Red Rocks Rockin||

    Are you referring to Europe, whose One Continental Monetary System is about to be devoured by a pack of PIIGS?

  • ||

    You need to look at the bright side and be less negative. The riots in the street provide free entertainment for the citizenry and secure jobs for the police.

  • Lester||

    Name one.

  • Mike||

    Canada by quite a large margin. Denmark and Germany by quite a bit larger margins. All these countries currently have lower unemployment rates than the U.S., but I'd guess for the effect of tax on unemployment you'd want to look at the long term stats and factor out the financial crisis. Or would you? I'm unclear how much of the U.S.'s real strength over the years has been based on doing real productive work and how much on illusion. Certainly, the jobs I've had since moving here give credence to the idea that you're supposedly superior companies and managers are largely illusionary. These places were mostly snowing their customers and making profits on fictions. But that's anecdotal. I guess you guys are probably pretty good overall normally, or were at some time.

  • ||

    Historically, Germany's unemployment rates have been considerably higher than the U.S.

    The question is why is it changing now. Could it be we have been adapting Europian type socialism, while countries like Germany are adapting more U.S. like economic systems?

    Also, you have to take into account that the U.S. has been providing national security for most of Europe since WWII, thus freeing up a lot of their GDP for socialist spending. And even with that, they have gotten themselves into trouble.

    Finally, what works for a small, rather heterogenious country will not work for a country as diverse as the U.S. That is the very reason our founding fathers place most governmental power at the State level, so they could create government systems that work for smaller populations.

  • Mike||

    I figured your high unemployment is directly related to the fallout from the financial crisis, that there is some kind of stasis from the combination of people with money to spend that would promote demand saving it out of fear and people with money to spend to invest likewise being fearful while also noting the lack of demand.

    Why Germany has lower unemployment now, I don't know. I do fuzzily remember reading something about them liberalizing (in the classical sense) and that having good outcomes. But nevertheless the % GDP diverted to government remains vastly higher there. So what is the model you're suggesting? It is the delta that matters? You can start from whatever point but if the direction you're moving is more liberal (again, in the classical sense) then the effect on employment will be positive. Doesn't strike me as very plausible.

  • sevo||

    One other observation on the chart above:
    The top marginal income tax rate in the early '50s (including 1950) was something over 90%, and the revenue rate shows no response to that. Regardless of the formal rate, people just flat manage to duck the tax-man one way or the other.
    So claims that we had rising prosperity when the marginal rate was high fails; the revenue didn't change, so that prosperity could only be in spite of the rate.

  • IceTrey||

    Back in the day the rich politicians made sure there were tons of tax loopholes for their rich friends and donors to jump through.

  • sevo||

    And there's no reason to think it would change.

  • Mike E||

    It is amazing that we are still stuck on balancing the budget. Wait until we have to figure out how to pay back all the debt the government has already racked up.

  • R-Train||

    As Dennis Miller recommends, just say, "Fuck You, we're not paying."

  • ||

    Isn't that what France said for the Marhsall Plan dough they owed?

  • ||

    Easy. Inflation. $1trillion doesn't look as daunting when a loaf of bread costs $250.

  • Matrix||

    Yup. Punish those who did the right thing by saving, and help those who did the wrong thing and amassed more debt than they could pay off. Think of inflation as another bailout to bad decision and irresponsible practices and a roadblock for those who were responsible.

  • Spiny Norman||

    I don't see any mention of our exciting new health care clusterfuck. Does $129 billion in cuts balance the budget even with Obamacare? I am skeptical.

  • Douglas Fletcher||

    Sure is depressing to see that cast of knuckleheads standing in front of a portrait of Geo. Washington.

  • Chony to the Max||

    *"Uh! Uh! Uh!" (Runs around looking pained and panicked after reading the article).

    *(Immediately picks up a New York Times article saying the only way out of debt is to raise taxes.) "Ahhhhhhhh! Relief."

  • Greer||

    Out of total ignorance, I ask a question. Why do so many debates and theories of economics look at the post war years? It seems like there is always a story about "the biggest... since WWII", "the smallest... since WWII". I'd like to see this graph back into the 1800s. I can accept that the economic stats of the 1830s may not be as relevant today as is the 1950s, but the laws of economics doesn't change, so what would these things be in pre-WWII days? I could see the 1930s being skewed with the times.

    I don't really understand economics at all, so I ask.

  • ||

    The US didn't have an income tax until Hoover and didn't come out of the Great Depression until the war, Also the US wasn't really much of a global industrial power prior to WWII, so numbers from the gaslight days are of limited analytical value when it comes to tax policy.

    Unless you're proposing radical reforms which roll back the "New Deal" entirely, in which case you want to take a closer look at what an 1890s bank recovery looks like. But since nobody (in power) is seriously talking about getting rid of either the Income Tax or the Federal Reserve, the FDR years through today will have to do.

  • Troll||

    Tara smart. You single?

  • ||


    First non-war related income tax came into being under Wilson in 1913. If memory serves, it only affected people earning $100K and up. Rates were 1% @ $100K, 2% @ 200K to a max of 5%. FDR wanted to tax higher incomes at higher rates to re-distribute earnings ala Karl Marx. Since FDR, taxes have not been to fund government, but to re-distribute wealth. FDR said if you earned more, you should pay more in taxes. Just like Karl.

  • Tony||

    If you start the graph at 1950, you can safely ignore the depression era, then go on to conclude anything you want about the current budget picture.

  • Red Rocks Rockin||

    Perhaps the chart here will be more enlightening, Tony.

    Try refuting that, you little twerp.

  • Greer||

    This sort of answers my question above. Prior to 1950 the percentage was half or less than it has been going forward.

    What the hell happened in 1942-1944 to make the percentage rise from 7.6% to over 20%.Wow.

  • Fatty Bolger||

    1942-44? Can't imagine.

  • Red Rocks Rockin||

    This one even has a chart with data culled from the BEA, going back to 1929.

    Seriously, Tony, it shouldn't be this hard to own you. I might as well put a dog collar on you and feed you Kal-Kan.

  • ||

    No, no, Gaines Burgers....

  • Bucky||

    beggin' strips...

  • hank williams||

    The Fair Tax could be a first step in defeating federal tyranny

    Read, comment, follow, and share. Start a movement. Join a revolution:


  • Realist||

    The problem is not what kind of tax we have, but how much we are taxed. As long as losers vote they will nominate and elect those that take from the productive and give to the losers!

  • ||

    I disagree somewhat as to the "kind of tax". I think Everyone should pay some tax.

    From that standpoint, I like the idea of a flat tax with no deductions: It would eliminate a crapload of tax cheating, and we could wipe out wasteful spending on a HUGE number of IRS employees (public) and fees for tax preparers (private) that would result in a true economic stimulus.

  • Realist||

    A flat tax is not a bad idea. But set at what rate? And the law has to be that the tax rate can never be raised for any reason!!! Other wise it's a circle jerk.

  • Bucky||

    hows about 10% for the lefts giving to their God and 2% for everyone else?

  • Doktor Kapitalism||

    I think there should be manditory taxes for defense and police, and everything else voluntary. I can pay for medicare if I want it, if not, I don't.

  • Dello||

    I'm not even sure how to ask the question, but I wonder how the Euro Socialist countries do in this regard. They are, I assume, spending more than they bring in, but how much DO they bring in, and has their rate changed since WW2?

  • J||

    The European countries are, by and large, cutting back.

    Obama has criticized them for doing so, as has Krugman, so they must be doing something right.

  • Troll||

    Andrew Sullivan says the Euro will be gone in 5 years. So they could be spending €50,000,000,000,000,000 for all that matters.

    Go boom!

  • Thomas Hart||

    You could start by making cuts that wipe out whole departments.

    1. TSA is worthless, and has not prevented a single terrorist action. 70,000 TSA employees is about 5 divisions in the Army. Draft TSA and put them over in Somalia, Afghanistan, Iraq doing the work of catching terrorists.

    2. Eliminate EPA.
    3. OSHA.
    4. Dept of Education
    5. Dept of Agriculture
    6. Dept. of Commerce, except for Census.
    7. Dept. of Labor
    8. FCC
    9. Dept. of Energy
    10. HUD
    11. Freddie, Fannie, Ginnie & Sallie.
    12. NEA, NEH

    Eliminating the Dept of Education alone is worth 90 billion per year.

    After that's done go to a flat tax. Make the tax lawyers and accountants find new jobs that actually contribute something.

  • Realist||

    All good ideas, but you forgot poverty programs. As I said in a recent post, total poverty spending in 2009 was $591 billion. This is just a pipe dream, because losers vote.

  • Thomas Hart||

    I didn't leave poverty programs intentionally. It's just that after the first few government agencies my brain runs out of excess storage capacity. I have to leave room for important things, like the plot of every Bogart picture ever made.

  • Jake||

    all of those and half of these departments sounds pretty good to me : )

    Homeland Security (this can go)

    The list goes on

  • ||

    The problem is, ok, cap spending at whatever figure said needed to run a nation of 320 million. Fine.

    All it takes is one lobby group, one activist politician or pressure from the people for this subsidy or that state perk to blow all the margins because you know politicians will do it for the votes.

    Sorta like how sports owners and leagues always say we can't over spend on salaries or we'll go broke only to see one owner (a Jerry Jones or Tom Hicks type) say "Fuck it, I'm giving this guy $252 million." With it the market is set.

  • ||

    Politicains are crack whores - their drugs are earmarks.

  • ||

    Politicians too...

  • Realist||

    Our bullshit government won't will just get worse. When everybody votes, everybody loses.

  • Barry O.||

    Change we can believe in!

  • Bucky||

    sh*t heel! Change is all you left me!

  • ||

    We need a picture of this "change we can believe in". I recommend the 37 cents left over after government devours 63 cents of every dollar of GDP - a quarter, a dime, and two pennies.

  • ||

    When somebody makes the claim that it's nearly-impossible to raise government revenues above 20 percent of GDP, the obvious first question is: Why?

    Because capital is mobile, and getting more so.

  • Realist||

    Here is a great example of compromise...or reaching across the aisle.
    "GOP, Democrats nearing deal on jobless benefits, temporary extension of Bush-era tax rates"

  • ||

    GOP, Democrats nearing deal on jobless benefits, temporary extension of Bush-era tax rates

    The predictable compromise: everyone agrees to pass out the goodies, no cuts are made.

    The deficit grows. Fiscapocalypse slouches nearer. Yet this is good news, spun as a sign that Our Congress is Working the Way It Should.

  • ||

    So, the question of the day is, "How long is the road down which Congress keeps kicking this can?"

  • Draco||

    Well, at least there was no mention of "our grandchildren" and how they're going to have to "pay back our debt" in this article. That's an improvement guys. And in truth, there are good suggestions here - as well as in the comments section - as to what we could (and should!) cut.

    But I just can't let the last line go, because it misses a fundamental point about fiat currency economies:

    ...then really nothing is possible and debt, deficits, and despair are here to stay

    As I've tried to explain here and on my blog, debt and deficits are here to stay in each and every fiat currency economy (all of the developed world) - they are the mechanisms by which money is created to support continued economic growth (we no longer dig gold out of the ground to do this, even though many libertarians seem to act as if we do).

    Despair is, of course, another story. There is plenty of that in the offing given what the current crop of statist clowns have on offer for the American people, first and foremost PPACA. But, if the despair is about debt and deficits per se, then it is as misplaced as despair about having to die one day. Yes, debt and deficits can be "too big" (and they currently are), but eliminating them entirely can only by done by throwing away fiat currency itself, or else curtailing growth - or indeed plunging the country into another Great Depression.

    What's here to stay is - at best - a targeted 2% inflation and increasing debt in proper proportion to our (hopefully!) growing economy.

    Growth is everything. Grow the pie, and all of the other problems disappear. Austerity is for morons - or Puritans.

  • Rrabbit||

    The numbers are all bogus. You have to add together all government activities, feds, states, cities, plus the Fannie Maes and Freddie Macs, and their tax revenue and debt. Looking at just the Feds is pretty much pointless.

  • ||

    Good article. So basically, any deficit reduction plan that does not have specific spending cuts that will bring spending to under 19% of GDP within a few years is BS. Since spending is now 25% of GDP, any plan will have to cut current fed spending 26% (1-19/25) to bring spending down to 19% of GDP.

    I think we should consider a constitutional amendment to restrict fed spending to 19% of GDP, with a provision thay any year where spending is above that, congress would be required to cut spending by at least 1% of GDP each year until it reaches 19%. This is much better than a balanced budget amendment, because it would restrict the real problem, out of control spending. Regular balanced budget amendments just encourage unsustainable tax hikes.

  • Fatty Bolger||

    You would also have to eliminate unfunded state mandates at the same time, otherwise the feds would just push the spending down to the state level.

  • ||

    At last. Mention of a constitutional amendment. We need 5 subjects covered:
    1. Restrict spending to a % of GDP - I recommend 10% plus defense.
    2. Restrict range of taxes which can be imposed - max and minimum (a minimum to do away with free rides - say 25% and 8%)
    3. Prohibit borrowing, except for declared war; or remove tax limit for declared war
    4. Limit federal regulations cost to 3% of GDP (now at least 9%)
    5. Prohibit loan and insurance guarantees - which put taxpayers on the hook for all sorts of disasters and unlimited costs.

    We cannot possibly trust congress to get all this stuff right, we've got to do it ourselves, directly, through the constitution. Article V of constitution: The states (2/3 of state legislatures) need to call a constitutional convention, write the amendments, and then ram them through the state legislatures (3/4 of state legislatures to ratify).

    I hope we can do it before the economic collapse.

  • Doktor Kapitalism||

    I like your idea. I've been thinking of an amendment along these lines: "Congress shall not spend more than its revenue in taxes, with the exception of war and disaster."

    By disaster I mean like superhurricane, Yellowstone supervolcano erupts, nuclear holocaust.

    I like your idea better, though.

  • Ranking America||

    Smoke and mirrors. The categories "other" and "non-defense discretionary" have a lot of overlap, which would double the cuts to already underfunded infrastructure and R&D spending.

  • ||

    Saw this linked over at fark.
    Started to read the comments there.
    Would not recommend.
    Where's Epi to make me laugh?
    Warty? got metal for me? shit. someone?
    Vanneman, even?

  • St. V||

    I would recommend it. There's one bitch claiming that hadn't complained about Bush-years spending... and then got owned.

  • ||

    To balance the budget you stop spending on the unnecessary. Close entitlement funds and committees, and shut down the offices that are not a threat to the welfare of the United States. Oh yeah, park Air Force One.

  • Bucky||

    park Michelle, Two.

  • ||

    What I find odd in the table is how close the cuts to National Defense are to the rest of the categories. I find it interesting because just about every social program's annual budget I've ever heard of is compared to how much the Pentagon spends in a day (5 Pentagon days, etc.).

    Why are the cuts to National Defense so shallow? Oh, because they have bigger guns than you and I do.

  • DesigNate||

    Also because defense is one of those things the federal government is actually supposed to do.

  • DesigNate||

    Also because defense is one of those things the federal government is actually supposed to do.

  • DesigNate||

    stupid double click

  • Lost in AZ||

    Uh, correct me if I'm wrong, but the little blue line on Nick and Veronique's nifty chart is south of 15%, and hasn't been anywhere near the long term average of 18% since GWB cut taxes. Why do they ignore their own data? We're below 15% of GDP in revenue, and that is a GDP that hasn't seen significant growth in three years.

    Come on guys, you're arguing for a return to 17-18% of GDP, which would represent something like a 20% increase from current taxation levels. I think you need to channel Reagan.

  • online shiroi neko||

    Couldn't agree more.

  • ||

    Most of those commenting feel that there isn't sufficient political will to accomplish even these minuscule goals. They're probably correct. But the budgets proposed simply don't cut spending enough, for it takes too long to get to parity. We're still accumulating mountains of debt for another 9 years!

  • ||

    Well I give you folks credit for being imaginative but unless ALL entitlements are SCRAPPED immediately all this is just wishing the boogey man away and accomplishing nothing...

  • ||

    What this shows is actually how very easy it can be ... given a consistent and committed administration. What this doesn't show is the effectual changes in the model as GDP and the economy moves. Let's admit to ourselves ... the crime is NOT with the politicians (did I just say that), but with the ignorant and pampered public they try to keep happy.

  • ||

    "Which raises the question: Can America really reduce its debt and deficit without raising taxes to job-killing rates or cutting essential services to developing-world levels? The answer is not simply yes, it's that we have to."

    ---Ahem, and why would that be?

  • Chris||

    Your numbers are way off. You need to get the real budget numbers and post them. You are mission a hell of a lot of money in defense spending & corp. welfare.

  • Elder||

    Some sensible ideas, if they get started now.

  • ||

    The problem with basing revenue and expenditure shares of GDP on past levels (i.e. not above 19%) is the graying of the population and the rising cost of health care for the elderly. If not for this demographic "time bomb," the article would make sense, but by not even mentioning this issue, the authors have done their readers a disservice.

  • ||

    Can you say Soylent Green? Problem solved and we can still dedicate our food supply to ethanol.

  • ||

    Revenue as a % of GDP was 19.9% in 1998, 19.8% in 1999 and 20.6% in 2000. It started going down in 2001 because Bush cut tax rates. There is no physical law that says that taxes cannot reach 21%, 22% or even 33% or higher, though I don't recommend any particular level. Other countries reach these levels regularly.

    The author puts up a false premise as fact and then builds his argument around it. Unfortunately, the foundation of the argument is false.

  • ||

    “The debt to GDP ratio was 63 percent this year and the Congressional Budget Office (CBO) projects it will be 87 percent in 2020. Just three years ago, it was 36.5 percent.”

    At http://www.usgovernmentspendin.....chart.html it says the debt to GDP ratio was 94.27 in 2010. Why the difference? Am I missing something? I have read this discrepancy before.

  • ||


  • JCA||

    Sorry, but the proposed cuts are somewhat idealistic. You're proposing a decrease of 37% in the total federal budget from the baseline 2010 amount by 2020 – your proposal pretty much requires the following cuts:
    Defense : 31%
    Medicaid : 31%
    Medicare : 45%
    Social Security : 36%
    This basically means that by 2020 you’re proposing that we roll the budget back to pre-2005 levels (not adjusted for inflation – you could probably tack on another $600bil by assuming inflation of 1.5%pa).

    To close the deficit by 2020 means that in the interim we’re going to have to continue borrowing money to fund the gap, which even at today’s low rates is going to increase the interest component of the budget until that gap is closed. With the retirement of the boomers, the demands on a lot of these programs is only going to increase over the next 10 years (and yet you’re proposing that we roll back the payouts to pre-2005 levels), therefore, that means we’d need to be willing to stiff it to those people in/just entering retirement to reduce the Medicare and Social Security component.

    The only conceivable way we realistically close the gap by the end of the next decade is with a combination of (realistic) spending cuts AND increased revenues (I'd like to see a proposal on this one).

    Apparently nobody is proposing that close to 50% of tax filers have to pay a dime of federal taxes (God forbid). Raising the rates on the top 5% (if even possible) will only cover a fraction of what we need (to the extent that it doesn’t slow the economy down further).

    My point is that we don’t get there through spending alone. We also need to expand the tax base, grow the economy and probably means test entitlements (in addition to restructuring them) to get out of this one… either that or just print money and inflate our way out of it (assuming that doesn’t inflate our costs/obligations as well).

    A good chunck of the deficit is due to the shitty economy and a consequently significant drop off in revenues (i.e. spending is only one piece of the pie).

  • The Dude||

    I am totally with Gillespie & De Rugy here - I love their 18% solution in principle, but I hate some of their arguments. Factually, I take humbrage with the statement that we can't increase revenue, no matter how hard we try. We haven't tried a VAT and we haven't tried European-style taxation in general. I don't want it, but we can't pretend that it couldn't happen. When you pretend things like that, people don't take you as seriously because they think you're being intellectually dishonest.

    The other issue I have is with keeping the gov at 18% of GDP. Why should it stay at that ratio? Why couldn't it go down as GDP increases? What would happen if GDP decreases? Will we make the necessary cuts? I understand the number will have to go up over time due to inflation...So why not start at an 18% baseline and then merely index it to inflation from there. We'd pay off the debt (eventually, assuming decent growth) and might even get to the point where we could offer US citizens a dividend when the government takes in more than it needs. Wishful thinking, I know, but since this is a site for ideas it is worth engaging in them fully.

  • John||

    A much better, much more detailed plan.

    This article ignores the fact that we have a 1 trillion dollar shortfall now....he wants to cut spending by 1.3 trillion over ten years? 1.3 trillion in one year would make us neutral on a year-to-year basis....and of course, we'd still have to pay interest on our debt.

  • Astoria Bob||

    The devil (and the savior) is in the details. Many comments (and the author) have pointed out that taxes, spending, and GDP are all related. So, though the overall equations relating these quantities don't change, how spending is cut, or how taxes remain the same percentage of GDP, can change drastically. The author gave some examples at the beginning of the article of ways proposed to change the taxing scheme, and each would have a different effect on different groups of people, though perhaps being revenue neutral. And instead of across-the-board spending cuts, as the author proposes, differential cuts would produce the same overall budget result, but would effect different people differently.

    While I agree that a more realistic spending scheme needs to happen, I'd argue that working only with the gross categories and numbers in the article is misleading, and when you parse the numbers further, the exercise becomes very difficult, but much more interesting.

    Let's hear what others have to say, but I'll leave with a couple comments. The categories in the article are arbitrary -- I'm sure many people would call much of the defense budget discretionary; not lump all other spending under "discretionary"; not break out Medicare and Medicaid (or put them together); and put different things in the "other" category. And finally, we should focus on taxes also. There are many reforms that would lower the overall tax rate, but be revenue neutral; and, tax things that we want less of, while not taxing things (like income) that we want more of.

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  • wubai||

    How about mbt kisumu sandals this one: there are X driving deaths a year- what % of driving deaths (or serious injuries) involve alcohol, or other intoxicating substances? kisumu 2 People are pretty darn good drivers when they are not impaired.

  • jiusuan||



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