The State of the Union is bleak (but there is still hope)

Here are my favorite charts of the Federal budget situation. Things continue to deteriorate, and they have reached levels that were never before thought possible. In the post-war period, tax collections have never been weaker as a percent of GDP. Similarly, spending has never been higher. As a result the deficit now exceeds 11% of GDP.

If there is anything good about this situation, it is this: all a smart politician needs to do is to hold these charts up to the TV cameras, much as Ross Perot did in his heyday, and show the public that we are on an unsustainable course, and that we need a major rethink about how government should be managing our economy. It shouldn't be hard for anyone to explain that it is the height of fiscal irresponsibility to proceed with a massive expansion and restructuring of our healthcare system (underwritten by taxpayers), at a time when government spending is already out of control. Moreover, embarking on a major cap-and-trade-driven increase in energy prices (in the name of saving the planet, even though this is the coolest year in the last decade) that would almost certainly weaken the economy, should at the very least be delayed several years until we can approach the problem from a position of strength and greater understanding. And of course, it would be imperative to assure the country that tax rates are not going to go up.

It is time to focus on what is left of the toothless stimulus package (to put a nice spin on it), with the objective of making those funds actually stimulate the economy instead of creating make-work projects, growing the size of government bureaucracies, and transferring trillions of dollars from top income earners to low income earners. We need to use that money to increase the incentives to work and invest, and that can happen only if we cut marginal income tax rates, corporate income tax rates, and the tax rate on capital. We need some major reductions in government spending and income redistribution efforts, and some major emphasis on helping the private sector pull us out of this mess.