America’s Fiscal Armageddon And How To Avoid It, Part 3

Washington has descended so deep into chronic fiscal profligacy—nay, wanton recklessness—that there is only one route back to fiscal sanity. To wit, new political leaders not under the pall of UniParty madness must seriously target a balanced budget a few years down the road, determine the maximum tolerable, sustainable and equitable revenue burden on national income to get there, and then cut, squeeze, crimp and reform the budget until the spending foot fits the sustainable revenue shoe.

We have suggested that the only four years of balanced budgets in the last half century—-1998, 1999, 2000, 2001—are as good a place to start as any. On a 50-year chart those four years certainly stand out—both for the fiscal anomaly of 48-straight months of black ink, but also for the superior economic performance, as previously noted in Part 2.

50-Year Fiscal Pivot Point, 1998-2001

During that period Federal revenues averaged about 19.5% of GDP, while the macroeconomic performance was the best in the last 50 years. That is, 1998-2001 saw a better combination of strong real GDP growth, low inflation, robust productivity gains and rising real family incomes than any period between 1973 and 2023.

Per Annum Change, 1998-2001:

• Real GDP: +3.6%.

• CPI: +2.3%.

• Labor productivity: +3.3%.

• Real Median Family Income: +1.3%.

So under the plan we would recommend to RFK, Washington would tax no more than what the US economy absorbed during the best years of the last half-century. Yet via tax base broadening and flattening our 19.5% of GDP revenue target would still generate an additional $4.4 trillion of Federal revenue over the next 10-years, as will be detailed in Part 4.

As it happened, the Federal tax take during these four years at 19.5% was on the high side of the fifty-year trend displayed in the chart below. The latter averaged about 17.0% of GDP, meaning that the only four years of fiscal balance during that period extracted a 15% higher share of national income than has been the case since 1970.

That is to say, balancing the budget at 19.5% of GDP would not constitute some kind of relapse into rightwing antediluvian retrogression. To the contrary, it would actually put more in Uncle Sam’s coffers relative to national income than in every single year since 1970 outside of the 1998-2001 fiscal pivot. And that ought to be enough!