The time seemed appropriate to actually look at
the receipts and outlays as a percent of the Gross Domestic Product (GDP) over the past 70 years and do comparisons.
Average 70 years Receipts = 17.9% GDP
Average 70 years Outlays = 21.1% GDP
Peak receipts = 20.9% in 1944 (2000 = 20.6%)
Peak outlays = 43.6% in 1943 and 44. (2009 = 25.2%)
For the last three years, the average receipts have been 15.1% which is 2.8% below average levels. Average outlays from 1980 to 2000 were 22% while receipts were 19.4% and peaked in 2000 at 20.1% GDP.
Action #1: Receipts > Outlays
Politicians first need to concede that outlays should be less than receipts; that is, receipts need to be greater than outlays. If there is a difference of plus 0.5% between receipts and outlays then we can start taking care of the national debt.
Action #2: Raise Receipts to Historical Levels
Now, we can see from the 15.1% GDP receipts number that receipts are too low for a balanced approach. Raise receipts to the 2000 level until outlays are below 18%.
Action #3: Lower Outlays Below Historical Levels
We can also see that outlays are consistently far above the receipts. We can lower outlays but to get to below receipts we are looking at very austere measures - over 6% of the budget would need to be cut. This would shock the system.
Proposal
Raise the tax rates such that receipts are 20% GDP. In turn, decrease outlays to 19.5% GDP first year, 19% second year, 18.5% until reaching 18%. This brings both receipts and outlays into historical averages and gives consumers and businesses confidence that we have a long term plan to handle the national debt.
How is this done? We start with the framework above. Next, we stop baseline budgets. Once these are done then we can move to actual changes in percentages of GDP for both receipts and outlays.
