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Sunday, July 10, 2011

The Budget: First Things First

The budget debate just seems to get sillier and sillier; unfortunately, it is anything but a game. We citizens are numbed by the rancor, the daunting size of the numbers (how many zeros in a trillion?), and jargon that is meant to confuse.

The opposing factions have at once called Wisconsin’s Representative Paul Ryan’s budget too specific and President Obama’s too general. Both miss the point. America needs someone to talk about first principals. For me, the first question to answer is this:

What is the proportion of our GDP that should be spent, in turn, by government and by its citizens? We need to have general societal consensus on this before anything else happens.

What we currently give to government to spend on our behalf is not an easy question to answer because we have federal, state, municipal and local governments all spending money. But the Organization of Economic Cooperation and Development (“OECD”) estimates that the average five year US tax burden (2004 – 2008) has been about 27% of GDP; the federal portion by far the largest at about 20%. Is this too high, too low or just right?  The OECD average for its 34 members for the same period is 35%. America is the 5th lowest, ahead of Mexico, Chile, Turkey and Korea. The highest was Denmark, at 49%. With these facts in hand, I think most Americans who were sitting around a table would think we need not lower the government’s allocation, some might say we could increase it some amount moving us closer to the OECD average.

Honing in on historical federal budget data, the CBO estimates that our forty year average federal spending (1971 – 2010) was about 21% of GDP. For argument sake, let’s assume there is general agreement around 21%. Our GDP forecast for 2012 is approximately $15.8 Trillion, so we citizens would agree with the federal government spending approximately $3.3 Trillion.

Our government then needs to collect this money from us through tax receipts. These collections would be most efficient if they were simple, transparent and very broadly based, and most fair if they were progressive. We don’t in fact have this kind of system, but more on this later.

This doesn’t answer the question as to what to spend this money on, but at least we might agree on the big number. It’s a good start.

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