There is a very useful point being made here. Instead of centering our “tax/spend” graph on zero, let’s — for the purposes of argument — center it on the rate of GDP growth.
Then, let’s rotate this graph so that we are looking along the axis of GDP growth.
Government spending can increase more or less than the GDP. Taxation can increase more or less than the GDP. If spending increases less than the GDP while taxation increases more, we’ll have gradually decreasing deficits….but government will be an increasing drag upon the economy. If spending increases more than the GDP while taxation increases less, we’ll have deficits rapidly growing out of control. If both spending and taxes grow faster than the GDP, we’ll be well on the road to centrally-planned Statism.
Only if GDP growth outpaces both government spending and taxes can we prosper in the long term; and only if GDP growth builds taxes more than spending will we end up financially solvent.
