Facing Reality on the Deficit, Why the Problem Won't Be Solved

http://taxprof.typepad.com/taxprof_blog/2010/11/wsj-hausers-law.html

The above link demonstrates a very interesting reality:  no matter what the Federal Government has done in terms of taxes, they get right around 19% or so of GDP.  That's really quite amazing when you think about it, considering the extremely high marginal rates that persisted throughout much of this period.  What it tells us is that the economic and political systems have strong negative feedback effects that draw tax revenues powerfully to around this level.  It means that any expectation of solving the deficit problem long term by raising taxes is extremely unlikely to get much traction.

So if we can't reasonably expect to get more tax revenue as a fraction of GDP, we can cut spending right?

Here's the deal there:  yes, you can cut all kinds of stuff, like, for instance, our subsidization of both sides in the Arab-Israeli conflict, various agricultural subsidies, the NEA, etc, and you probably should, if only to demonstrate that you're serious about living within your means.  But these things are small fry.
The elephants in the room are defense, medicare/medicaid, and Social Security.  If you actually wanted a balanced budget next year---and make no mistake, unless you plan to balance the budget next year, you'll never balance it (most plans backload the pain until a much later election cycle and the cuts mandated never actually seem to happen)---you would have to savage these three areas so badly you couldn't get elected dogcatcher.

Should you decide to elect Romney, as it is looking like he's going to be the nominee, it is quite likely that he will reduce the deficit, a little bit.  But it'll still be a VERY positive deficit and the debt/GDP will continue to grow and grow.  Should the fed have to raise interest rates, you'll start to feel that more and more.  Should you keep Obama he'll probably keep the deficit right about where it is at, so you'll simply spiral a bit more quickly in your debt/GDP rise.  Neither Ryan nor Paul's plan will solve the problem either, and they're both politically DOA anyway. 

Simply put, nobody will do the right thing because nobody has the incentive to do the right thing and every incentive to harshly criticise even woefully inadequate half-measures.  But for the fact that we're the world's reserve currency, the matter would have already come to a head.  How long will it take for it to come to a head?  It is very hard to say, but I would watch the ongoing processes in the so-called PIIGS nations very closely.  I'd also consider diversifying my portfolio to include such things as gold, silver, lead, and brass.  Judging by the markets and news stories, lots of Americans seem to be doing this anyway.