It’s the revenue, stupid!

Amongst all the talk about cutting the Federal Budget, here is an innovative concept – how about we start from the revenue end and ask not what we want, but what can we afford with that much revenue? It is the way households and companies operate (if they are not dysfunctional). Perhaps it is the way the Federal government ought to operate as well.

As I have pointed out before, revenue is the key. If one wants more government programs, one needs more revenue. There are only two sustainable ways to get more revenue – tax more or increase the size of the economy. Taxing more sounds great, but it reduces the competitiveness of the American economy and hence in the long run reduces revenue.

The economy is now global. Many, perhaps most, large American firms make more of their profit abroad than they do here at home. They have no compunction about relocating their operations elsewhere if the business environment is better there. Nor should they – they are not in business to provide American jobs (despite what some politicians think), but to earn profits for their shareholders and survive in a highly competitive marketplace. If we want more businesses to start or remain or relocate to America, we need to make the business environment, including the tax and regulatory environment, more attractive here then elsewhere. It’s not rocket science!

So here is the magic number - $2.217 trillion. That is what the Federal government took in last year. We can spend about that much without adding to the debt, and if we spent less we could begin to pay off some of the $14 trillion in Federal debt. The Federal government actually spent about $4.472 trillion, and we had to borrow the difference – almost 40% of the budget.

I propose that rather that have hysterical debates about what to cut and how terrible the consequences will be for this or that group, we start the other way around, list in priority order what we are willing to pay the Federal government to do for us (and this includes entitlement programs like Social Security and Medicare), and end the list when we run out the $2.217 trillion of revenue.

And if the list ends earlier than we would like (as is likely to be the case), then we discuss what steps the government might take to help expand the economy and increase the revenues, so that we can afford more items on the list. Effective support of improved education and innovation would be a start (but “effective” is the key word here – not just more Washington bureaucracy). Improving the business tax and regulatory environment might also be reasonable things to do to attract and keep more business in our economy rather than in someone else’s, and hence increase Federal revenues.

Again, it’s the revenue, stupid!.

(PS – for those too young to recognize the allusion to “it’s the economy, stupid”, that phrase was a highly successful campaign slogan used during Bill Clinton's successful 1992 presidential campaign against George H. W. Bush.)