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March 17, 2011

The 1 Percent Solution

 

If the solution to your family’s financial problems were to cut spending by only 1 percent, could you do it?

Of course you could. In fact, many people reading this TaxByte have already reduced their family spending by more than 1 percent in the last year or two to deal with the economic downturn. You found things to do without, and no doubt some of those changes were painful. The kids complained and you missed those evenings out. But you did what you had to do.

Our country’s financial problems are enormous. Before the year is out, our national debt will reach $15 trillion, or about 100 percent of GDP. Medicare and Social Security are both going bankrupt, and everyone except the Obama administration is finally admitting that Obamacare is going to cost money rather than save it.

But what if I told you that we could balance our budget by 2015, without any tax increases, by only cutting federal spending by 1 percent per year?

Jason Fichtner at the Mercatus Center has mapped it all out for us. According to Fichtner, even if spending were to increase at a restrained level between 1 and 2 percent, the budget would still be in balance by 2020.

The problem is that we are addicted to federal spending that grows every year beyond any rationale. Spending grows faster than inflation, population growth and GDP growth.

So spending restraint really is the key. As we pointed out in our last TaxByte, tax hikes to increase revenues are doomed to fail, because federal revenue as a percent of GDP has always hung just under 19 percent, regardless of changes in tax policy. So even if more revenue were the solution, it’s just not possible.

We have a spending problem, not a revenue problem.

I’m not suggesting that cutting spending by 1 percent would be easy. But if it’s impossible in the face of a looming financial disaster, we really are in trouble.

Seriously . . . we can’t cut spending by 1 percent? If your family could do it; so can the government.

 


 

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