The second issue is the revenue estimate. I simply cannot think of any reasonable way to handle this Federally other than historic.
The problem with any estimate is that the person doing the estimating can juice the number. I've seen both parties do this. Republicans will claim that their tax cut will generate so much additional economic activity that it will increase revenue while Democrats will claim that their tax increase will have zero impact on the economy and zero impact on tax avoidance/evasion. Both of those are wrong but both will say it with a straight face so how do we get around that issue?
The only workable answer that I can come up with would be to use historic revenues with a growth factor. One problem is that it would end up being a complex formula that people wouldn't institutively understand. The reason is that their are LOTS of complications including:
- I wouldn't want to give the Feds a bunch of extra money in a boom year.
- I wouldn't want to spike the budget in a bust year.
To get around that I would base the revenue estimate on say ten years of actual history. That leads to yet another complication:
The economy grows at an average of about 3.2%. If you start out making $100 in year 1 and it grows by 3.2% you'll be making $132.78 in year 10. I said above that I'd want to avoid spiking the budget either way based on boom/bust so I'd average the 10 years which gets you $115.70 but that is $17.08 LESS than you made in year 10. So then you'd have to add enough to cover the growth from the midpoint of your 10 years and enough to cover the expected growth from year 10 to year 11. You'd need to add 14.8% to get from the 10-year average to the year-10 figure then another 3.2% to get from year-10 to the expected amount for year-11. That makes 18%.
Additionally, I don't actually think the Federal Budget needs to be balanced. In roughly the three decades after WWII the Federal Debt was "paid down" from over 100% of GDP to something like 30% of GDP. I put "paid down" in quotes because they didn't actually reduce the debt. The Federal Government actually ran small deficits most years but they grew their way out of the problem. Ie, think of it this way: Imagine that when you were in college with minimal income from low-wage PT employment you had $50k in CC Debt. Then, over the course of 15 years you added $500/mo to your debt.
$500/mo for 180 months (15 years) is $90k so 15 years after college your CC debt would now be $140k which is MORE than the $50K that you had during College. However, owing $140k in CC debt might be a LOT less of a problem in your mid-30s with a good job than owing $50k in your early 20s with only PT minimum wage employment.
Same concept here. So long as the economy is growing and it has been for 250 years, I think the Federal Government could run deficits of say 2% of GDP forever. Mathematically, so long as GDP growth was at least 2% the government could run deficits of 2% of GDP every year and the debt would never get worse.
Thus, I'd use the average revenue from the preceding 10 years plus 20%. However, we don't actually know that the 3.2% figure will be good forever (it almost certainly will not) so you'd have to actually make it a calculation based on historic data.
The biggest problem that this creates is that if you wanted additional spending (and just assume for the sake of argument that it is for something that is supported by nearly all of the population, including being willing to pay additional taxes for it) you couldn't just raise taxes and increase spending because spending would be limited based on history so you'd have to raise taxes YEARS in advance of your intended spending increase. Now I know that some of this audience will think that is a good thing and I don't altogether disagree ideologically but as a practical matter it isn't a very functional way to run a government.
