Fiscal sanity in DC starts with raising taxes 40% or cutting spending 30%: study

Suffice it to say, the likelihood of the U.S. government balancing the federal budget anytime soon is slim, to say the least — and this is not because of sleazy lawmakers roaming the halls of Congress.

A recent study by the University of Pennsylvania’s Wharton School suggested that in order to bring the budget in line, the federal government would either have to cut spending by a whopping 30 percent or increase taxes by 40 percent.

The more achievable option may be cutting spending, except that Congress would never dare cut off the largess in place that helps assure their next reelection — at the same time, Elon Musk proved with the acquisition of Twitter that there’s always plenty of fat to cut, firing well over half the staff at the social media platform without impacting day-to-day operations.

With the budget deficit nearing $1.4 trillion in 2022, according to data from the Office of Management and Budget, and the national debt over $31 trillion, there is a massive void to fill. Ironically, the federal government is bringing in more revenue via taxes today than ever. In 2022 the federal government collected $4.90 trillion in tax revenues, according to the Treasury Department, but spent $1.38 trillion more than it collected.

“Just like all individuals and businesses, the federal government is subject to a budget constraint: it must fund all expenditures, current and future, from its tax and non-tax receipts over time,” the Wharton analysis said. “By construction, the fiscal imbalance must be zero for a fiscal policy to be sustainable without future changes.”

Of course, there’s the option today’s politicians like to pursue, which is to kick the can down the road and let future generations — likely their grandchildren — endure the pain of belt-tightening that will have to come eventually.

“Over the next 75 years, the fiscal imbalance is equal to about 7 percent of the present value of all future GDP,” the study found. “To achieve fiscal balance, the federal government could permanently decrease all sources of federal spending—including Social Security, Medicare, Medicaid, and all other spending—by 30 percent. Or the federal government could permanently increase all sources of federal tax revenue—including payroll taxes, individual taxes, excise taxes, and all business taxes—by 39% percent. Or the federal government could do a combination of both.”

The economists said the imbalance only worsens over the permanent time horizon, growing to 8.2 percent of the present value of all future GDP — which is about 33 percent of all future expenditures or 46 percent of all future tax receipts.

The chart below shows that combining current debts with the present value of projected future shortfalls over the next 75 years results in an imbalance of $93.8 trillion.

Penn Wharton, University of Pennsylvania


Both Democrats and Republicans are to blame for the ever-expanding budget of the federal government, though both parties play the game of politics to disguise their responsibility.

President Biden boasted back in October that the deficit has come down on his watch, but he doesn’t mention the record spending taking place the past few years due to the Covid-19  pandemic.

“On my watch, things have been different. The deficit has come down both years that I’ve been in office,” Biden claimed. “And I just signed legislation that’s going to reduce it even more in the decades to come. Now Republicans in Congress are doubling down on their commitment to explode the deficit again. Just this week, Republican leaders said if they get their way, they’re going to extend the Trump tax cuts, which are due to expire in a couple years.”

Tom Tillison


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