It’s The Economy, Stupid . . .
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.”
By James Schaefer.