NewsChief - Popcorn Populism vs. Economic Reality

Op-Ed

By Representative Dennis Ross

The Super Committee failed and the blame game begins. The popcorn populists continue the "millionaires and billionaires" drumbeat while the Secretary of Defense sounds the alarm on massive defense cuts while the President threatens to veto anything that prevents the very same cuts.
So let's look at the facts

But be prepared. What you read, might surprise you.

According to the Office of Management and Budget, since the advent of the income tax, as a percentage of our national income (GDP), revenues to the federal government exceeded 20% only three times - 1944, 1945 and 2000. (Note, the all-time high is 20.9%) In fact, since 1930, revenues, as a percentage of GDP, averaged 16%. Even if you take out pre-WWII numbers, the average only climbs to 17.25%. That means today, with GDP at $15 trillion, the amount of money Uncle Sam will collect in taxes should be about $2.4 trillion. True to history, this year we will take in about $2.3 trillion in tax revenues. A reality remarkably consistent with the last 80 years of data.

The consistency in the data must mean tax rates were stable over those 80 years, right? Wrong. The data shows that whether the tax rate on the top income earners is 92% (1952) or 28% (1988), or anything in between, the amount of revenue Uncle Sam takes in, as a percentage of our GDP, is shockingly consistent at around 16 -- 18%. It may seem counterintuitive in today's sugar high economic environment where the quick fix seems to always be "tax the other guy," but the numbers don't lie.

Unfortunately, the consistency is only on the revenue side. Over the same time period, federal spending, as a percentage of GDP, averaged 19.25%, and has rise as high as 25% (2009). You and I know that if, over 80 years, we spend 2% - 9% more per year than we took in, we'd be in trouble. Shockingly, that basic truth is wholly incomprehensible to many in Washington DC. Inconceivably, the President's budgets, through 2016, spend about 23% of GDP per year.

These numbers are unbiased, they are consistent and they are real - whether I like them or not. Like the canary in the coal mine they tell us something all too clear. You can't tax your way to balanced budgets and those who tell you that we can are not only lying to you, they are selling your children's future to China.

So what do we do?

First, we accept the correlation between revenues and economic growth and use tax policy as a tool to encourage growth rather than punish success. You want revenues to remain high (18 -20% of GDP)? Grow the economy. 20% of $15 trillion is a lot more money than 14% of $15 trillion.

Second, we have to live in the real world. Social Security, Defense and Medicare/Medicaid are eating up enormous portions of our federal budget, and rightfully so. But Washington DC was not intended to be, nor should it be, all things to all people. The sooner we accept that we put men on the moon before the Department of Education and learned to fly before the NLRB grounded the Dreamliner, the better off American will be.

Third, we must freeze spending at 2000 levels (the last time the budget was balanced), and start paying off our debt. Since that year, no Department of the federal government has grown at or below inflation. We could use the $400 billion a year we spend on interest to repay the $2.5 trillion we owe Social Security or rebuild a crumbling highway, rail, port and air infrastructure

Fourth, we eliminate all the loopholes and subsidies in the tax code and lower rates and broaden the tax base. Everyone, and I mean everyone, pays something and is personally invested in fiscal sanity. We eliminate taxes on real investment (long term capital gains) and treat short term capital gains like ordinary income -- meaning Mr. Buffett and "hedge fund managers" will finally pay their fair share.

The reforms broadly outlined above will raise taxes on some and lower taxes on others. I am prepared to accept that reality. If it costs me a seat in Congress, so be it, I do what I think is right. My friends on the other side of the aisle, however, need to accept that the federal pie is finite and it is fixed. Sometimes the responsible answer to a demand for action or money is to say no.

I know some wish this reality wasn't so. Such is life. I wish my beloved Auburn Tigers won the National Championship every year. But alas, like revenues exceeding 20% of GDP, that only happens once every fifty years.

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