Tax Policy, Fairness, & the Economy - Part 6.

In previous reports, Cogport established a Foundation of information to understand current and proposed Tax Policy and the future of economic stability.

There is a lot of data to evaluate, but this issue is not exactly simple.  It requires some personal effort to be informed.  We try to present the basic background without overwhelming detail.

Now we turn to current policy, fairness, and fiscal management.

Here are the Basic Premises for this discussion:

·         U.S. Budget Deficits have grown to an unsustainable level.

·         The Goal should be a Balanced Budget.

·         If you want less of something, you Tax it.

·         If you want more of something, you don’t Tax it.

The Challenge is to find a Balance of Taxation needed to fund the Government and not discourage investment and economic growth.

Federal Spending

The two components of the Budget Deficit equation are Revenue and Spending.  Both need to be addressed to Balance the Budget.

Spending will be the factor we address first.

Here is a history of Balanced Budgets with amount of Spending as a Percent of National GDP:

1956 15.7%

1957 16.2%

1960 17.0%

1967 18.0%

1998 18.2%

1999 17.7%

That is it: Just 6 Balanced Budgets in the last 70 Years.

No wonder the U.S. has a national debt problem which continues to grow in severity:

In 2022, the Federal Government collected $ 4.9 Trillion.

In 2022, the Federal Government spent $ 6.3 Trillion.

The Budget Deficit was $ 1.4 Trillion.

Average Federal Spending since 1980 was 20.7% of GDP.

In 2016, Federal Spending was  21% of GDP.

From 2021-2023, average Federal Spending was 26.9% of GDP.

The significant increase in Spend over the last 3 Years led to a Federal Deficit of $1.7 Trillion in 2023 alone.

Cogport proposes that Spending follow a Tax baseline guideline of 18% of GDP which is the Median of those 3 Years that last had a Balanced Budget.  (Historical Data is telling us something).

Using a baseline of 18 % of GDP, a proposed Budget can be set:

Assume a 2024 GDP Forecast of $ 28 Trillion.

The Proposed Federal Budget for 2025 would be $ 5.1 Trillion (@ 18% of 2024 GDP).

That means a reduction of Spending from 2022 by $ 1.3 Trillion to Balance the Budget.

Nobody said this would be easy.  It will take time-phased reductions. 

The math says that we need to find $260 Billion in combined Savings or Revenue Increase per year over a 5 Year period.

Now we look at the other side of the Equation for Revenue.

Federal Revenue

Revenue comes from Income Tax Policy and other fees set by the Federal Government. 

To balance the Budget, the U.S. must establish a reasonable expectation of Revenue without discouraging investment and economic growth. 

High taxes are a disincentive to personal and business growth. (If you want less of something, Tax It.)

For Personal Income Taxes, the historic average of taxes paid is 13 – 14% of reported income.  Based on IRS data since 1980.

However, the burden of taxes has shifted more to high income individuals.

Examples:

In 2022, No Taxes were paid by 47% of Personal Filings with the IRS.

In 2022, the Top 7% of Incomes (over $ 200,000) paid 60% of all Personal Taxes.

In 2022, the Top 0.5% of Incomes (over $ 1,000,000) paid 16% of all Personal Taxes.

We still need to discuss the future of “Fairness” in the tax system: Do the "wealthy" pay enough?

Summary

The next Post will continue discussion on the Federal Revenue side of the equation.

Then will come Proposals for a Balanced Budget with Fairness for the future.

David Hollaender                       October 15, 2024

Cogport.com