St. Paul Pioneer Press columnist and real-world economist Edward Lotterman writes about the complicated realities inherent in paying taxes and financing government.
Some on the left and right fantasize that the cleanup job is a snap. The left fantasizes that taxes pose no disincentives to economic activity. Boost taxes on corporations and the wealthiest few percent of people. Everything will be hunky dory.
The right has two dreams. First, that most government spending is frivolous waste that could be eliminated without slowing output or harming anyone but parasitic politicians and bureaucrats. Second, if we cut tax rates enough, the economy will grow enormously. Tax revenues will rise, eliminating any deficit.
Reality is more complicated. Consider government revenues from all sources except "social insurance and retirement receipts" - mostly FICA taxes. Take all government spending except for Social Security and Medicare. We spend roughly $1.8 trillion and raise $1.5 trillion. Borrowing funds 20 percent of spending.
Go one step further. Subtract federal interest payments and defense outlays. The remaining discretionary outlays total about $1 trillion. It is hard to close a $300 billion gap with cuts in that amount.