Policy Market Blog

Common misunderstandings

Martin Kennedy - Thursday, September 13, 2018
  1. Defense Spending has exploded over time.

Actually, defense spending is about 17% of federal outlays (3.5% of GDP).  That is low by modern historical standards (post onset of WW2). 

Defense is about half of discretionary spending.  In the 1960s, it was about 65% of discretionary spending. 

2. We can eliminate deficits without touching Social Security or Medicare. 

Good luck with that.  Again, about two thirds of federal spending is mandatory, not discretionary.  By virtue of the demographic realities, that portion is increasing each year.    

Side note:  It is interesting to consider how postures might change with respect to immigration if people feared not being able to collect Social Security.  

3. We can increase revenue, maybe with a return to a highly progressive tax regime.    

Doubtful, first that either party could increase tax rates substantially.  Second, higher rates don’t translate to higher revenues.  No need for a great debate about where the Laffer Curve bends, tax revenue as a percentage of GDP has rarely, and barely, risen above 20% since WW2. 

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