Some scoff at the idea that the US government could balance the budget without rolling back “the Bush tax cuts.” But not so fast: even IF all 9 major categories of cuts were re-instated (estimated 300 billion dollars worth), that would be a small fraction of the current annual deficit (over 1 trillion dollars), and also less than the interest currently being paid on the national debt.

Assume there are only three ways to recover: 1. Increase income (taxes), 2. inflation and, 3. reducing spending.

The three largest categories of spending are (in order) 1. Department of Health and Human Services, 2. Defense, 3. the aforementioned Treasury

Even aside from the risk of capital flight, tax revenue is a limited finite resource. Inflation is currently being tried, and is risky to the stability of the economy. That leaves reigning in spending. It really is the only way. Reduce entitlements, and reduce involvement in expensive foreign wars.

Let me elaborate a little on the Estate Tax. Imagine a small sleepy rural town, filled mostly with retirees. “Mostly” in this case is a sort of euphemism, since it could never really be more than 50% since retirees are mainly consumers, therefore need to be surrounded by a younger “staff” to produce goods and services. Now lets simplify as a town of 100 people, say 50 retirees and 50 “young” people. The retirees have on average $2 million a piece in the local banks, while the younger set’s average net worth is negative $100,000 (mostly due to home mortgages.) Now assume that the estate tax is re-instated (it was temporarily repealed in 2010) and now big chunks of money are taxed away out of this small community every time a retiree dies, eventually causing the local banks to be over-leveraged. People talk about WalMart sucking the money out of a town–its nothing like the Federal Government via taxation. Now in the case of my hypothetical community, one could argue that new retirees will move in to replace the dying ones. True, but this doesn’t leave much room for the community capital base to grow, especially since a decimated inheritance is more likely to be split up among [out of state] heirs. Especially if Grampa’s cabin has to be sold to pay the taxes. But if it wasn’t taxed, it might be more likely that one of his heirs would move into it and stay in the community.