It’s The Economy, Stupid . . .

By James Schaefer.

House Budget Chairman Tom Price just released his draft for the new federal budget (WSJ, Opinion: The GOP’s Budget Test, March 18, 2015).  It sets a blueprint for the federal budget in the coming fiscal year, and will reduce federal spending by $5.5 trillion over the coming decade.  If followed, it will put the federal budget at 18.2% of the U.S. economy by 2024.

Why is this number important?  Because over the past 75 years, tax revenue to the federal government has averaged 18.2% of GDP.

In fact, only twice in those 75 years has tax revenue exceeded 20% of GDP: once briefly towards the end of WWII, and again briefly at the end of the dot-com boom.  Federal spending is currently at 20.3% of GDP, and on the present trend it will reach 22.3% of GDP within a decade.

The shortfall, of course, has to be borrowed — all of it: from the Chinese, from taxpayers, from our children.  If that money is returned instead to households and businesses, it will be spent — on consumption, on debt pay-down, on retirement savings, on investing — that will help fuel economic growth.

Most Americans over the age of 30 remember Bill Clinton’s election campaign mantra, “It’s the economy, stupid!”  You can’t have a “good economy” without economic growth.  Growth requires investment by businesses, taking risks that cause their owners to lose sleep at night.

Recently our current president said:

“If your business model rests on taking advantage, bilking hardworking Americans out of their retirement money, then you shouldn’t be in business.”
Yes.  And let’s also read that sentence out loud, with the word “government” substituted for “business” at the beginning and end.  It’s always a bad thing when the powerful prey on the powerless, and sometimes the harm is felt by hundreds of millions of people.

 

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