A Balanced Approach to Balancing the Budget

The Obama administration and their minions in Congress argue for a “balanced approach” to balance the budget. This is code for increasing tax rates on the rich as one supposedly attempts to balance the budget. Why is this unreasonable? Why won’t this work?

In the last 60 years, top tax rates have ranged from 91% to 28%. The list of these top rates is as follows: 91%, 77%, 70%, 50%, 38.5%, 28%, 31%, 39.6%, and 35%. During these 60 years, revenue has not exceeded 20% of GDP for any sustained period regardless of the top tax rates. I conclude that tinkering with the top rate will not in the future do what it has not done in the past. That is, we cannot expect revenues of more than 20% of GDP. In fact, we cannot even expect 20%. What we can expect is that revenues will be between 15% and 20% of GDP.

On the other hand, expenditures are at 25% of GDP and rising. As a result, expenditures must be cut to balance the budget. How big of a cut is needed? It is huge. We must cut about 28% of the federal budget.

As a technical matter, a “balanced approach” to balancing the budget will not work.