Thursday, December 02, 2010

The 19% limit

Over at Reason, Nick Gillespie excoriates Fareed Zakaria's latest article and schools him on the limits of deficit cutting by raising taxes. Here's the graph:

It's a simple, plain, and nearly universally unacknowledged fact that the feds haven't been able to raise revenue much past the 19 percent of GDP bar for any period of time since World War II. Doesn't matter the the top marginal rate is, or the bottom, or nothing. The government is going to pull in just under 19 percent maximum. Some years it might be a bit higher and some a bit lower, but it ain't budging over the long haul (defined as the last 60 or so years). That is the limit of what we can spend if we want to have a balanced budget. Obama's own budget projections have the feds spending more than 22 percent of GDP each year over the next decade. You do the math.
Raising taxes will not constrain spending since it's been calculated that every new dollar in taxes leads to $1.17 in additional spending. We're now borrowing forty cents for every dollar spent by the federal government; lenders are not going to let cheap credit flow forever. Spending needs to get in the same ballpark as revenues.

Extra - Whoops! Did I say 40 cents? We're now borrowing 43 cents for every dollar spent. Don't try this at home, kids.

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