Image from thrivent.com
Remember back when we cared whether the military was spending too much on toilet seats? or how we were all disgusted by earmarks? or expensive museums in small towns that never had any visitors? or scientific studies proving fruit flies like more fruit?
It was fun while it lasted.
Thanks to shifting demographics and poorly designed entitlement programs, discretionary spending doesn’t matter. It doesn’t matter how much we cut spending on bridges or roads or museums or research; Medicare spending will eclipse the limits of our tax system in a few decades, and it will cause huge problems before then.
What do I mean by the “limits of our tax system”? It’s simple, tax receipts as a percent of GDP vary between about 14% to an upward limit of about 20%:
And if you’ll note, tax receipts tend to vary with the economy, not with changes to tax rates. (And that may be a future post: tax rates don’t matter.)
What’s all this mean? it means our government will be completely insolvent without either changing the structure of our entitlement programs (by instituting means-testing) or turning our tax system into an invasive and confiscatory leviathan that destroys our international competitiveness and slows down our GDP growth (think VAT tax, but with stormtroopers).
So congratulations, we can all stop talking about wasteful spending. It’s not 1997 anymore.
Filed under: Economics