Summary
We support:
- A long-term target for federal government spending and revenues of approximately 20% of GDP, recognizing that demographic pressures may require temporarily higher levels
- Policies that restore long-term fiscal balance through a combination of spending discipline and efficient revenue generation
- A tax system that is progressive, economically efficient, and aligned with broader policy objectives
We believe:
- Rising national debt, if left unchecked, will eventually limit economic growth and the government’s ability to fund essential programs
- The most effective tax system broadens the base, minimizes distortions, and aligns incentives with socially beneficial outcomes
- New sources of revenue should focus on taxing activities that impose costs on society rather than discouraging productive economic behavior
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Background
Why Debt Levels Matter
Moderate levels of national debt are manageable. However, as debt grows relative to a country’s ability to generate income—commonly measured by Gross Domestic Product (GDP)—investors may begin to question the government’s ability to repay.
This can lead to higher interest rates, which increase borrowing costs and further expand deficits. If left unchecked, this dynamic can become self-reinforcing, reducing the government’s ability to fund essential services or respond to economic crises.
In extreme cases, countries have responded to unsustainable debt levels by defaulting on their obligations or by financing deficits through excessive money creation, leading to high inflation.
Rising debt levels can also crowd out private investment and slow economic growth, making the problem more difficult to resolve over time.
The Policy Challenge
Addressing long-term fiscal imbalance ultimately requires some combination of:
- Reducing government spending
- Increasing government revenues
Both options involve trade-offs, which makes early action particularly important. Gradual adjustments made over time are far less disruptive than abrupt changes made in response to a crisis.
Spending and Revenue in Context
Federal revenues have historically averaged roughly 17–19% of GDP, while federal spending has averaged closer to 20%, rising significantly during economic downturns.
Long-term projections suggest that spending on major entitlement programs—particularly Social Security, Medicare, and Medicaid—will increase as a share of GDP due to demographic trends and rising healthcare costs.
Absent policy changes, these programs will account for a growing share of federal spending.
Our Approach
Targeting Spending and Revenue
We support a long-term target of approximately 20% of GDP for federal spending and revenues.
We recognize that this target will be difficult to achieve in the near term due to demographic pressures. However, over time, we believe that controlling the growth of entitlement spending and improving economic efficiency can move the system toward this range.
This does not preclude the introduction of new programs, but any such programs should be funded through a combination of economic growth, reductions in other spending, or revenue increases that minimize negative economic effects.
Principles of Tax Policy
We believe the tax system should:
- Remain progressive
- Minimize distortions to work, savings, and investment
- Be as simple and transparent as possible
- Reduce opportunities for special-interest influence
Broadening the Tax Base
We support simplifying the tax code by reducing or eliminating many exemptions, deductions, and credits.
This would:
- Lower compliance costs
- Improve fairness
- Reduce incentives for political lobbying
Potential areas for reform include:
- Mortgage interest deductions
- Certain charitable deductions (particularly where they may be subject to abuse)
Alternative Minimum Tax (AMT)
We support eliminating the Alternative Minimum Tax.
A simpler tax system with fewer exemptions and deductions would make the AMT unnecessary, as high-income individuals would naturally pay appropriate levels of tax under the standard system.
Estate Tax
We support retaining the estate tax as a tool to limit excessive intergenerational concentration of wealth.
At the same time, we recognize the importance of maintaining reasonable exemption levels and reducing opportunities for avoidance.
We support measures to limit abuse, such as:
- Restricting deductions for contributions to privately controlled charitable entities or trusts beyond reasonable thresholds
New Sources of Revenue
We believe that additional revenue should come from sources that are economically efficient and aligned with broader social goals.
Externality-Based Taxes
We support taxes on activities that impose costs on society, including:
- Pollution
- Greenhouse gas emissions
- Tobacco and alcohol consumption
For example, we support a carbon tax, paired with a corresponding tariff on carbon content, as a significant potential source of revenue and a tool for addressing environmental concerns.
Financial System Risk (“Too Big to Fail”)
We support a tax on large financial institutions that reflects the systemic risks they impose.
This tax could:
- Increase with firm size
- Decrease with higher levels of capital reserves
Institutions could reduce or eliminate the tax by reducing their scale or risk exposure.
This approach aligns incentives more effectively than direct regulatory intervention alone.
User Fees
We support the expanded use of user fees for government services, where appropriate.
Examples include:
- Highway tolls
- National park fees
- Fees for regulatory review processes
User fees align costs with beneficiaries and can improve the efficiency of public services, provided they are set at levels that reflect actual costs.
Fairness and Distribution
We believe a well-designed tax system should balance fairness, efficiency, and shared responsibility.
The proposed approach shifts some of the tax burden away from income and toward activities that impose broader social costs. This can improve economic efficiency while maintaining overall progressivity.
We also believe that it is important for most citizens to bear at least some share of the cost of government, directly or indirectly. When individuals are largely insulated from the cost of government services, there is a natural tendency to prefer more of those services. Conversely, when a relatively small group bears a disproportionate share of the cost, there is a tendency to prefer less. A system in which the burden is more broadly shared is more likely to produce a sustainable consensus on the appropriate size and role of government.
Progressivity and Income Support
If additional progressivity is desired, the most efficient approach is through direct income support rather than through increasingly complex tax structures.
For this reason, we would support mechanisms such as a Guaranteed Basic Income (GBI) as a more transparent and efficient way to achieve redistribution, consistent with our broader policy framework.
Conclusion
We support a fiscal framework that:
- Maintains long-term sustainability
- Promotes economic growth
- Aligns incentives with socially beneficial outcomes
Achieving these goals will require both spending discipline and a more efficient and transparent tax system.
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