There is a case to be made for going much further to return the federal government to what the Founders intended, to pare it once more back to its proper constitutional boundaries. This will go beyond trimming the fat; it will involve cutting the imperial colossus our federal government has become down to the bone and then paring away some of the bone to boot.

Let's talk about economics, taxation, and debt in this fourth installment.

The United States of America's fiscal situation is dire: We're broke. As broke as we are, we're going to get a whole lot broker in the next few decades. Why? Because our esteemed Congress insists on spending like drunken sailors with the major difference being (as President Reagan so pithily pointed out) that drunken sailors are spending their own money.

To bracket the problem, there are a few things that have to be clearly understood.

First: There is an upper limit to the tax revenues that the various levels of government can squeeze out of the economy; that limit, defined in Hauser's Law, is about 19.5 percent of GDP. That's too much, but there it is - historically that has been all the blood that can be squeezed from the stone, regardless of what tax rates are inflicted. "Soaking the rich" doesn't work; asking upper-income people to pay a little more of what some pol think is "their fair share" won't change this fundamental limit.

Second, the Laffer Curve is a real thing. It's a simple enough concept. Postulate a tax system with only one rate. If that tax rate is zero, obviously, tax revenues will be zero. If that tax rate is one hundred percent, revenues will also be zero, or so close as to make no difference; there will be no incentive for anyone, anywhere, to generate any economic activity. Somewhere in between those points is a tax rate that will maximize revenues. The problem: That rate might change in reaction to outside pressures, like global markets.

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Third, a nation's economy is not a pie that has to be divvied up into shares. It grows and shrinks. Wealth is not distributed, it is created and earned. And tax policy affects incentives - people alter their economic behavior when that behavior is exposed to taxation. The rich, we should note, are the most capable of taking measures to shield their wealth and income from taxation. The middle class? Not so much.

Our tax system as it exists today is an utter disaster. No one understands it; an entire industry of attorneys, accountants, lobbyists, and consultants has grown up around the necessity of interpreting and tweaking the tax code. It's an impossible tax. My wife has done our taxes through decades of self-employment and small business growth on both of our parts, and she can and does attest that if you talk to five different IRS advisors on a given issue, you're likely to get five different answers.

So, what should the tax system do?

- Raise only the revenue that is required for essential and constitutional government operations. 

- Tax consumption, not production. This, if it is done, should only be done at the retail level; value-added taxes (VAT) are destructively onerous.

- Honestly tax citizens. Corporations do not pay taxes; they collect them. Corporate taxes represent a back-door way to apply additional taxes to the citizenry.

- Eliminate double taxation. The best example of this is the capital-gains tax; this tax not only taxes the return on investments made with money that has (in most cases) already been taxed once, but it also reduces the incentive to put money to work.

Our tax system should be as simple as possible. If a normal citizen can't file his taxes on a penny postcard, the system is too complex.

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The other side of this coin, the defaced and damaged side, is spending and the debt that results in the Imperial Federal government's propensity for irresponsibly, recklessly spending far more than it takes in. In the last few years, Federal spending and debt have skyrocketed. From a Cato Institute report:

Federal spending is rising faster than tax revenues, generating a massive flow of red ink. Congress has not balanced the budget in more than two decades, and by 2023 it was spending almost $2 trillion more than it was raising in revenues. Overspending is pushing costs onto younger generations, undermining economic growth, and sowing the seeds of a financial crisis.

To tackle the problem, Congress should pursue wide­spread spending cuts in the $6.7 trillion federal budget. This study explores what spending to cut using data from the US Bureau of Economic Analysis (BEA). The government runs thousands of programs in hundreds of agencies, but the BEA data show that all spending is one of five types: transfers (benefit and subsidy payments), aid to the states, purchases, federal worker compensation, and interest on the debt.

The largest type of spending in 2023 was transfers ($3.19 trillion), followed by aid to the states ($1.15 trillion), interest ($0.95 trillion), purchases ($0.84 trillion), and worker compensation ($0.56 trillion). The first two types—transfers and aid to the states—are the redistribution part of the budget. Redistribution grew
from 46 percent of noninterest spending in 1970 to 76 percent in 2023.

Overall spending trends:

Since Congress last balanced the budget in 2001, revenues have grown at a robust annual average rate of 3.9 percent, which was higher than the average inflation rate since 2001, 2.5 percent. The problem is that spending has grown at a much faster pace, 5.5 percent annually, which has led to today’s large deficits.

Spending spiked more than $2 trillion between 2019 and 2021. It declined in 2022, but then rose in 2023 to a level almost $2 trillion higher than before the pandemic.

The Congressional Budget Office (CBO) projects that federal revenues will grow strongly over the coming decade at an annual average rate of 4.2 percent. However, without reforms, spending is expected to grow even faster and thus push deficits even higher.

Where the money goes:

Transfers to individuals and businesses account for 48 percent of federal spending. Some of the largest transfer programs are Social Security, Medicare, food stamps, and refundable tax credits. These programs do not add to gross domestic product (GDP) or national income but rather redistribute existing resources from taxpayers to program recipients.

Aid to the states accounts for 17 percent of spending. It is delivered through more than 1,300 programs that subsidize state and local government health care, highways, education, housing, transit, and other activities. Medicaid is the largest aid-to-state program. Like transfers, this part of the budget does not add to the nation’s GDP or income, but rather redistributes resources, in this case from taxpayers to state and local governments.

Purchases account for 13 percent of spending. This includes spending on everything the government buys or procures—from laptops to aircraft carriers. National defense accounts for 57 percent of purchases and nondefense for 43 percent.

Compensation (wages and benefits) for the 3.8 million federal defense and nondefense workers accounts for 8 percent of spending. Defense workers (uniformed and civilian) account for 56 percent of compensation and nondefense for 44 percent.

See the Cato Institute report for the complete (bleak) picture. The thumbnail? We need to cut spending. Now. That should - must - be the focus of the DOGE and President Trump. Not whittle around the edges, not merely reduce the rate of increase. We need to push the national government back to its proper constitutional limits. This is a task that requires not a scalpel but an axe - or a chainsaw.

The entire picture of tax and fiscal policy, such as it is, by our federal government, is an unmitigated multi-generational disaster; it is a foul-up of cosmic proportions, the overarching, transcendent issue of our time. Runaway government spending and debt are the single greatest threat to the republic today; greater than Islamic terrorism, greater than competition from Chinese manufacturing, greater than any environmental crisis. This crisis can only be addressed in one of two ways: we can inflate our way out of it, or we can grow our way out of it. We should be doing the latter but seem to be doing the former; the purchasing power of the American dollar is almost perfectly paralleling the decline of the Roman denarius during the decline of the Empire.

Things may well be past the point of no return. Neither party seems to have the political will to address the problem; one party seems to show some slight concern about low economic growth and the ridiculous tax system, while the other party intends to continue doubling down on bad policies. That's not a comforting thought.

Read: Part I, Part II, Part III

We have spent and borrowed away our grandchildren's future, and history will (rightly) damn us for it.