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State and Local Government / Budget and Spending

Good News: I Solved the Federal Budget Deficit!

By Christine Harbin on Nov 17, 2010

I will not be old enough to be elected president until 2019. However, in light of the fact that I just solved the federal budget deficit, perhaps the United States would be willing to make an exception.

The New York Times has an interactive web tool in which end users can employ different strategies (i.e., raise taxes, cut expenditures) to solve the federal deficit. Although this particular experiment focuses on the federal level (e.g., military spending, Social Security), it highlights some deficit-reducing strategies that policymakers in Missouri could use.

For example, the state government can eliminate loopholes and special exemptions, which are pervasive in Missouri’s status quo. Loopholes concentrate benefits on a select few, and they disperse the costs on those who remain in the tax base. Although this would increase taxes on the groups that currently enjoy an exemption, it will reduce the rate that the rest of the tax base experiences. Furthermore, the policy would result in increased revenue. According to the web tool, the federal corporate tax rate would fall from 35 percent to 28 percent. Individual federal tax rates would fall within all brackets.

Of additional note, it is possible to close the federal budget gap by cutting expenditures and without raising tax rates at all using the web tool.

Although I am confident that the reforms I selected would be good for the economy, they would be difficult to put into practice. It’s a consequence of public choice theory. Special interest groups have a significant incentive to petition the government to enact policies that favor them. Additionally, elected officials want to remain in office, so they have an incentive to focus on short-sighted pet projects that benefit a select number of their constituents rather than the general welfare.

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Christine Harbin

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