Borrowing from Paul

Next month, the Joint Select Committee on Deficit Reduction, a 12-member subset of Congress that Congress created to make the hard fiscal choices Congress itself has failed to make, is expected to propose $1.2 trillion in cuts from projected spending during the next decade. This week, Rep. Ron Paul, R-Texas, who is seeking the Republican presidential nomination, unveiled a plan to cut nearly that much in 2013 alone, followed by similar cuts in the next two years, yielding a balanced budget by 2015.

The contrast between the so-called supercommittee’s goal and Paul’s plan shows how pathetic official Washington’s gestures of fiscal responsibility are, even in these supposedly straitened times. Paul’s detailed numbers refute the myth that the budget cannot be balanced without raising taxes while challenging his opponents — none of whom has offered anything nearly as specific — to put up or shut up.

Paul’s plan not only extends the tax cuts enacted under the Bush administration, it reduces the corporate tax rate from 35 percent to 15 percent while abolishing taxes on inheritances, capital gains and personal savings. It nevertheless manages to eliminate the budget deficit within three years, largely by reducing military spending, capping most programs at 2006 spending levels, converting Medicaid and other welfare programs into block grants and eliminating five Cabinet-level departments: Commerce, Education, Energy, Housing and Urban Development, and Interior.

As USA Today noted, Paul is “a longtime critic of federal spending not authorized by the Constitution” — a description that applies to sadly few members of Congress, all of whom take an oath to respect the limits imposed on the federal government by the document that created it. Yet Paul’s plan would not return the country to the 1990s, let alone the 19th century. It calls for total outlays of $2.9 trillion in 2015, which is about as much as the federal government spent as recently as 2003, adjusted for inflation.

You may not agree with Paul’s priorities, but at least he has laid them out for everyone to see. Meanwhile, the vast majority of his fellow legislators continue to pretend there is no need to prioritize at all.

Consider military spending. Counting savings from ending the wars in Iraq and Afghanistan, Paul calls for $832 billion in cuts over four years, which would leave the Pentagon’s base budget in 2016 about 2 percent lower than it is now. Defense Secretary Leon Panetta, backed by both Republicans and Democrats, insists cuts of that magnitude would be “catastrophic.” Gen. Martin E. Dempsey, chairman of the Joint Chiefs of Staff, warns that “indiscriminate cuts” would cause “potentially irrevocable wounds to our national security.” Howard McKeon, R-Calif., chairman of the House Armed Services Committee, complains that “too many appear to believe that we can maintain a solid defense that is driven by budget choices, not strategic ones.”

Indiscriminate cuts may be undesirable, but so is indiscriminate spending, which is what we have now, with the United States accounting for more than two-fifths of the world’s military outlays. Budget choices (SET ITAL) should (END ITAL) drive strategic choices, since we can no longer afford to squander defense dollars on projects that have little or nothing to do with defense, whether it’s launching optional wars across the globe or protecting rich allies that are perfectly capable of protecting themselves.

Paul’s proposed abolition of various departments, agencies and programs likewise should stimulate debate about the federal government’s priorities. Aside from carrying out the decennial “enumeration” mandated by Article I, Section 2, does the Commerce Department do anything that is constitutionally authorized, let alone essential? What about HUD? Why should education be a federal responsibility at all, let alone one that requires an entire department? Is transportation security properly handled by the federal government or, as Paul argues, by the property owners whose interests are at stake?

These are the sort of questions presidential candidates would try to answer if they were truly determined to get our fiscal house in order.




Jacob Sullum is a senior editor at Reason magazine. To find out more about Jacob Sullum and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at

  • Christopher Manion

    If we cut the budget by ten percent per year, it would take about twenty years of such cuts to get back to the budget of “Big Government” that Ronald Reagan ran against in 1980.

    That was at the height of the Cold War. Certainly the size of government then is adequate for today’s society.

    As they say on the street, “why pay more?”

  • Todd

    I am not sure that people are arguing that you can’t balance the budget without tax increases, but that if you balance the budget without tax increases, you will have to slash and burn social services that provide support to people who are truly in need.

  • Cord Hamrick

    Re: Tax increases versus entitlement cuts:

    It certainly seems fair to use a mix of tax increases and spending cuts…and would be the expected normal product of the democratic, deliberative process in our republic, too.

    This, however, assumes that there are revenue increases to be had by enacting tax increases.

    The Difference Between Rates and Revenue

    However, that assumption seems to be a bad one, judging by what I’ve read about GDP and the government’s ability to “harvest” some portion of GDP as tax revenue.

    Over the last century or so, the U.S. government has had wildly different tax rates on businesses and individuals at various times. Folks here can likely recall the change from, what was it, 75% or 80% top rates on individual income prior to Reagan’s cuts, down to 28%, I think?

    Yet surprisingly, in all those 100 years, if you average the % of GDP we were ever able to extract from the economy in the form of Federal revenue, it always hovered around 17-19%. No matter how we taxed people, at whatever rates, that was the revenue, as a percentage of GDP.

    I say it “averaged” 17-19%. Sometimes it jumped up to 22% or 24% for brief periods; but it always fell back. In recessions it always sank lower: 14% or the 16% we’re currently experiencing in this recession. But it always bobbed back up again when the economy recovered.

    Thus a 10-year moving average, which smooths out the peaks and the troughs, gives us the 17-19% figures.

    I think this gives us serious reason to think that we probably cannot extract more than 20% of GDP in Federal taxes for any protracted period of time (10 years or longer). People’s behaviors always change in such a way as to return to equilibrium. We certainly aren’t going to extract 25% over any but a brief period. And 30% is outrageous fantasy.

    Entitlement Explosion (Measured Against GDP)

    Ah, but therein lies the problem: Because of the promises we’ve made in entitlement programs to persons whose life-spans are longer than expected, the projected outlays for Social Security and Medicare over the next 40 years or so show them rising to 30%+ of GDP, by themselves.

    That’s by themselves, people. Not including paying your congressmen, and building highways, and having an armed forces not funded by bake sales. Just the entitlement programs, 30%+ of GDP.

    So here’s the kicker: We have to cut those. If we want them to only take up half of Federal spending (a not unreasonable proportion, historically), we need to cut them, by a lot, somehow.

    Sure, you can raise taxes a little. But it won’t raise revenue much. Consider how taxes slow down an economic recovery. Consider that our current position in a recession is the reason why we’re only getting 16% of GDP into Federal coffers instead of the usual 17-19%. Do we really want to further delay the recovery?

    A VERY Optimistic Thought Experiment

    And let’s suppose, for the sake of argument, that somehow, in contravention of all observable regularities in the “laws” of economics over the last 100 years, we were able to raise taxes in the middle of a recession (something even Barack Obama’s said in his campaign speeches was a foolish thing to do) without delaying a recovery.

    And let’s suppose (lucky us) that this inexplicably non-delayed recovery were to happen right away.

    And let’s suppose that our revenue as a % of GDP were to helpfully bounce right back up to 19%.


    But we still have to cut our projected entitlement spending over the next 40 years by at least a third, don’t we?

    Well, let’s make the thought-experiment even more optimistic: Let’s say that the projected spending growth turns out to be lower than expected: Only 25% of GDP instead of 30% or more.

    And let’s further suppose that our revenues as a % of GDP are unusually high: 20% instead of 19%.

    Great, what luck we’re having! Now there’s only a 5% difference between the % of GDP we can bring in as revenue, and the amount we’re spending on entitlements!

    But, when you think about it for a second…that’s still really bad, isn’t it?

    We still need to cut entitlement spending by 5% of GDP, which is to say, by 1/5th of what it’s grown to (25%). That means entitlements, considered within themselves, are taking a 20% cut!

    And that’s assuming that we’re willing to have the entire Federal budget consist of nothing but entitlement spending. No armed forces, no Federal law enforcement, no judiciary…anyone want to sign up for that?

    What I’m getting at is this: Entitlement cuts will have to be deep. It is not a matter of whether it will affect the needy. It is more a matter of whether they will be better off with these cuts, or with an economic and perhaps governmental collapse, with all the attendant Weimar-style inflation, depression, and societal breakdown.

    Because there is no way to get the kinds of revenue, measured as a % of GDP, that a not-deeply cut entitlement system would require. It can’t be done…or at least, it hasn’t, ever before, over the last hundred years.

    I don’t think people have grasped this.

    Sure we can fiddle with the top bracket of taxes, if we’re not afraid it’ll keep the recession around longer and doom all our other numbers to be worse than projected.

    Sure we can hope for an early end to the recession and unusually high revenue as a % of GDP. We can have Pollyanna-ish expectations of the kind I outlined in my silly thought experiment, and hope everything unexpectedly goes our way.

    But unless a sort of economic miracle occurs — and I’m not saying God can’t do that sort of thing, but I don’t see that it’s really His style — we will not have a solvent national government if the reductions in entitlements aren’t something like five times greater, measured in %-age points, than the %-age increases in taxes. Like this: 2% annual increase on all income tax brackets; 10% decrease in Social Security and Medicare annual pay-outs. That’s the kind of thing that moves us in the direction of saving the system.

    My point is that anyone who thinks you can go 1%-for-1% doesn’t understand the numbers and how bad things are. They don’t understand where the problem is (that it isn’t all or even mostly on the revenue side) and they don’t understand that single-digit changes are like bailing the Titanic with a thimble.

  • Anonymous Seminarian

    Is it too soon to hope Crisis Magazine will officially support Ron Paul for President?

    • Martial Artist

      Alas, the answer may well be in the affirmative. But that doesn’t stop us from voting for him.

      Pax et bonum,
      Keith Töpfer

  • Martial Artist

    In response to Mr. Sullum’s question about the Department of Commerce (“Aside from carrying out the decennial “enumeration” mandated by Article I, Section 2, does the Commerce Department do anything that is constitutionally authorized, let alone essential?“), there are at least two other functions embedded within Commerce which are obligations of the Federal government, required by international treaties.

    Within the National Oceanic and Atmospheric Administration (NOAA) are found the Office of Coast Survey (OCS) and the National Weather Service (NWS). These have the following responsibilities, both of which involve substantial financial liability by the Federal Government:

    NWS: Provides fundamental weather forecasting services for the U.S. and its territories. This includes maintaining U.S. weather observations stations and the computer numerical weather models which all private forecasters use to provide local weather and (the international obligation) flight weather forecasts for all flights completely, or originating, within U. S. territory. The liability arises because no commercial flight may take off without officially approved weather forecasts (origin, en route, and destination). Would we want, and could we afford the insurance for, forecasts provided by contractors—recall that the U.S. government would remain liable for damages resulting from bad forecasts.

    OCS Responsible for acquiring the bathymetric and navigational hazard information used in the production of nautical charts for all territorial navigable oceanic waters of the U.S. and its territories, and for producing the nautical charts. Again, the nation would retain liability for errors on the charts even if the work were done under contract.

    I won’t argue the case that all data acquisition and production must be done by government employees, but enough of the latter must be involved to maintain the enginerering and technical knowledge required to keep abreast of constantly evolving technology and ensuring that the charts adequately depict all hazards significant to navigation in order to ensure that the authorized charts are fit for purpose. I would suggest that this would still involve a government organization roughly comparable in size to the current structure just to maintain enough practical knowledge to ensure contractor performance, and a budget to pay the contractors.

    The good news is that OCS has been around since 1807 (NWS is much more recent) and there is no need to keep the rest of Commerce around just to house those two organizations plus Census.

    Pax et bonum,
    Keith Töpfer