The Economics of a Sound Fiscal Cliff Solution

‎10 DAYS TO FISCAL CLIFF-No deal is better than a bad deal.  Here is what a good deal looks like with a straight line trajectory to 2020>Reduce Federal spending from current 24% of GDP down to 18% of GDP by 2020 which is more the norm in the US outside of a world war.  This means the Federal budget must decline by roughly 25% (6%/24%) which equates to .25 x $3.9 trillion current budget=$975 billion over 8 years.  This means the spending must be reduced by $975 billion/8 years = $122 billion additional each year to 2020.  To reach a balanced budget, that means $1.2 trillion deficit -$975 billion spending cuts = $225 billion of new taxes over 8 years or a phase in of $28 billion of additional taxes each year. 

For those of you who excelled in math the above will all fit together.  The one thing that also needs to be part of the deal is a Balanced Budget Amendment so the Nation can get off its spending binge since there is no single person (ie Federal CEO) managing the budget unlike every major corporation in the world.  It's just been a free for all in DC the last 4 years.  RZ UVA Econ (3.9 GPA) '76 High Honors

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