Discuss Question 7
7. FISCAL WISDOM: Effectively addressing our structural federal deficits will require both reductions in future projected spending AND increased revenues (compared to the historical average) as a percent of the economy.
ANSWER: True – A combination of both spending reductions and revenue increases above the historical average will be required to effectively address our structural deficits. Increasing revenues alone is unrealistic. The recent historical average of federal revenue collected as a percentage of the economy is about 18.4%. In order to increase revenue enough to account for projected increases in spending, taxes would have to rise to levels that would be unattainable both politically and economically. For example, according to the Congressional Budget Office federal spending is projected to be about 37% of the economy in 2040. Meeting that level of spending solely through tax increases would require doubling the amount of federal revenue as a percentage of the economy, compared to historical averages. On the other hand, to achieve fiscal balance through reducing spending alone would require cuts to government programs that are politically unrealistic. For example, if only spending cuts are used to balance the budget, and revenues were kept at their historical level of 18.4%, according the Congressional Budget Office by 2024 there would only be enough revenue to pay for Social Security, mandatory federal health programs (e.g. Medicare and Medicaid) and interest on the debt. All other spending would have to be eliminated, which includes such programs as Defense, Foreign Policy, Justice, Transportation, Education, and Homeland Security.
Revenues average 18% of GDP regardless of tax rates. Raising revenue above that mark is not a realistic goal. Reducing spending to 19-20% of GDP with GDP growth >3% will reduce the debt to GDP ratio.
Entitlements must be reformed such that they do not exceed 10% of GDP. Defense should be constrained to 3.5% of GDP. All other discretionary spending 1.5% of GDP. Interest [hopefully] doesn’t rise above 3% of GDP – not likely. That equals 18%.
What’s the goal? Manage the debt or eventually pay it off?
I also mis-read the question. However, as was also said, when cuts are mentioned they only mean a reduction is the rate of increase. This isn’t what the population had to do. The tax payers cut their spending. I could agree to increase revenues once actual spending is reduce. If this doesn’t work then look to increase revenues.
Your question and “correct” answer imply that we are under the impression that we simply need tax increases. I agree with the FIRST part more than the second – i.e., we NEED TO CUT SPENDING! If our rules and regulations were reorganized, lessened, standardized, etc., the increased business revenue would produce and increase in tax revenues, WITHOUT it being an increase as a percent of GDP.
Additional theft from the american people is not the answer. Cut the government. Taxes are theft and I reject your liberal notion that increased theft and bigger government will fix government. End the Federal Reserve, end fiat currency, elliminate departments of the present national government, and cut the military spending and unconstitutional wars. More legal plunder, HELL NO.
Correct answer: Large immediate budget cuts ALONE will solve our problems handily without tax increases. Their “objective answer” is actually the current Liberal party platform – that we should keep taxes at confiscatory levels.
Large cuts in the budget will help our problems, but which cuts. First off, Social Security is NOT an entitlement program, it is paid for with a tax (much like what is deducted from your check for a 401K and what your employer pays); so the answer to Social Security is get Washington’s fingers out of it. Making a fair tax system, flat rate, no deductions would generate an enormous amount of income and get the government out of one’s personal life a little. Might also want to stop the legislature’s continued salary and cost of living, even if they only serve 4 years; and the pentagon could certainly do with a reduction; also we could quit sending billions to Israel and several other nations just because. I’m not so sure an across the board tax increase on the working class will solve anything.