What if We Really Wanted to Balance the Federal Budget?

Many economists and politicians alike have proclaimed that the United States must increase its revenues and reduce its expenditures in order to get its fiscal house in order and balance the budget.

So-called "deficit hawks," whose numbers in recent years have dwindled so much that they could be added to the Endangered Species List, have repeatedly sounded the alarm about the unsustainability of the ocean of red ink cascading out of Washington, D.C.

Indeed, the Brookings Institution reports that the deficits over the first 11 months of fiscal year 2023 beginning October 2022 and ending August 2023 was $1.5 billion, an increase of $600 billion from the previous fiscal year.

More ominously, the deficit as a share of the nation’s gross domestic product, increased from about 3.8% in the first 11 months of 2022 to 5.7% of its gross domestic product this year.

Decades of profligate spending has seen the national debt rise from $1 trillion in October 1981 to its current morbidly obese tally of $33.1 trillion today.

So the national debt has increased 33-fold in a little more than 42 years — the result of a deadly combination of open-ended entitlement programs, ever-expanding government involvement in almost every sector of the economy, and ill-advised, decades-long foreign military adventures in such tourist paradises as Afghanistan and Iraq.

But this ceaseless financial profligacy has also been aided and abetted by the U.S. dollar’s status as the global reserve currency.

The Bank of International Settlements estimates that the United States dollar is involved in almost 95% of foreign exchange transactions and accounts for nearly 85% of transactions in spot, forward and swap markets.

Moreover, half of all global trade and three-fourths of Asia-Pacific trade is carried out using U.S. dollars.

The dollar’s importance to global trade has given the U.S. Congress and its sidekicks at the Federal Reserve a license to print as much money as they want because the dollar continues to be the primary monetary lubricant of the international trading system —despite efforts by rivals such as Russia and China and other members of the BRIC social club to reduce the global dependence on the dollar.

But what if our leaders suddenly decided on a lark to put politics aside and straighten out the nation’s financial affairs?

What are some of the steps they might take to balance the budget?

First, the government could increase taxes.

This could take the form of a national sales tax on most goods and services which would be collected at the point of sale and would be remitted to the federal coffers.

The Tax Foundation reports that more than 170 countries have some sort of sales or consumption tax (also known as a value added tax) that range from 25% in Denmark to less than 1% in oil-rich Kuwait.

According to the International Monetary Fund (IMF), more taxes usually means less income available for spending or investment and there is certainly evidence to suggest that countries with lower tax burdens have, all things being equal, higher rates of growth.

A national sales tax would be a tax on consumption (as opposed to increased income taxes) and might be more politically palatable to an electorate that only favors taxes that will be paid by someone else.

Second, the government could start reducing its expenditures by a fixed percentage each year to bring them eventually in line with its revenues.

These would have to be actual reductions and not simply reductions in the planned increase in spending which is what passes for a "spending cut" in Washington, D.C. these days.

Unfortunately, this approach would necessitate sustained fiscal belt-tightening over a long period of time and require a consensus as to the desirability of spending cuts between both political parties that unfortunately does not exist at the current time.

Third, the government could open its borders and welcome millions of new immigrants to the United States in the hopes that they would start new businesses and increase the nation’s birth rate and, ultimately, the number of workers that will be needed by the nation’s businesses.

The Biden administration has apparently decided that borders are little more than a quaint relic of the past and allowed more than five million migrants to cross illegally into the United States.

Any concerns that these border crossers might also include terrorists and criminals do not seem to trouble senior administration officials with personal security details.

There also seems to be little thought given to how such a massive influx of migrants could overwhelm the social infrastructure of the country, as many fair-weather "sanctuary cities," like New York and Chicago, are finding out.

Unlimited immigration also lets the federal government off the hook for decades of poor policymaking that have gutted much of the industrial base of the United States and impaired the career prospects of tens of millions of Americans so that they cannot afford to have children and grow the American population themselves.

Any serious effort to reduce the deficit will probably cause a short-term decline in our living standards because it will necessitate drastically reducing the money supply.

But the country has been living on borrowed funds for the past 40 years and simply cannot continue tacking on an extra one to two trillion dollars per year merely because we can get away with it in the short term.

At some point, there will simply be too many trillions of dollars floating around the world creating a massive unsustainable interest burden that will ultimately swamp our federal budget.

Jefferson Hane Weaver is a transactional lawyer residing in Florida. He received his undergraduate degree in Economics and Political Science from the University of North Carolina and his J.D. and Ph.D. in International Relations from Columbia University. Dr. Weaver is the author of numerous books on varied compelling subjects. Read more of his reports — Here.