This is the issue for the United States folks.

If we don't fix it then there is no solution for inflation and the destruction of consumer capability from a standpoint of families, sustainability and prosperity.

Thermodynamics applies to all things.  The laws of thermodynamics can be learned by taking a class, but you can sum them up as three sentences if you're not interested in the finer points.  They are:

• You can't "win"; that is, getting more out than you put in is a physical impossibility.
• You can't break even; that is, no matter what you do you will will always have loss in your endeavors.
• You can't avoid playing the game; that is, refusing to participate simple means everything rots around you!

Last year's MTS is being used for this and the key item is net interest expense, which as of last September was $659 billion.  This amount is rapidly accelerating and that acceleration is almost-all due to the fact that Treasury never pays down debt and as older Treasuries mature they are forced to pay higher rates than when they were last issued.  The explosion of said net interest payments is clear; this fiscal year through April said payments were $514 billion and yet we're only 7/12ths of the way through the year.  Thus far on a "run rate" basis that expense is expanding at a 34% rate compared with last year.

We obviously cannot continue to do that as the government will be unable to find anything else if they don't cut it out, and with some $27.5 trillion of that debt held by the public (persons, corporations and other entities, that is, not held by other federal government agencies) at a 5% interest rate, which is somewhat lower than the current short-term rate, the cost per year to maintain that is $1.37 trillion or 22% of all federal spending from last year which was $6.134 trillion.

In other words the Federal Government is currently running its accounting at roughly the same sort of financial damage you would take as a household if everything you bought was run through a credit card, you carried the full balance every month of your spending and you were like most people and had a 22% interest rate.

If you've ever gotten in trouble with a credit card you know how fast and how bad that gets when nearly a quarter of everything you allegedly "pay" does nothing but make a banker richer.  However, you are in that position due solely to your actions, not as a consequence of some random event of chance.

We will eventually come back to "income" (taxes, for the government) but that is clearly not where we can immediately focus because the bottom line is this: Last fiscal year the government took in $4.439 trillion but spent $6.134; in other words it spent 38% more than it taxed -- that is, $1.6 trillion more than it collected in taxes.

The entirety of personal income taxes was only $2.176 trillion.  In order to stop the inflationary impact of this you'd have to raise tax revenue by at least that amount which in personal income taxes would mean a 36% increase.  Since the top 1% of earners paid 45.8% of income taxes and the top 50% paid effectively all of them (97.7%) it is not mathematically possible to "tax the rich" (the top 1% of earners) and balance the budget; even if you raised the top marginal rate to 100% you'd be short and they'd stop working if they got to keep nothing and thus your plan would fold back and catastrophically fail.

If you wanted to do so without further taxing the bottom 50% of earners you'd have to increase income taxes by 40% on everyone who is in the top half.  This would wildly screw everyone in the middle class to the point that many would be bankrupted.  Yes, the "rich" could afford it and might continue to produce and earn as they did before but the middle class would collapse and thus your scheme would fail.

So obviously we must find $1.6 trillion or more in spending cuts and we must understand that doing so will produce at least a temporary decrease in GDP because what the government spends winds up in someone's pocket and if you stop that spending they will not have it.  The direct GDP impact would be -6.3%, more or less, but since every dollar gets circulated the short-term and immediate impact would likely be roughly double that amount and the government cannot try to compensate for it with more hand-outs or we're right back where we started.

In other words we must absorb it in the short term.

So where do we have enough funds spent to make the difference plus the impact to GDP (which will damage tax receipts in the short term)?

Again, from the MTS we have the following large outlays (enough to be material):

Defense: $776 billion
Health and Human Services: $1,708 billion
Interest (you can't not pay all of that): $879 billion (plus another $228 billion in "other" than direct interest)
Veterans Programs: $301 billion
Social Security: $1,416 billion

That's it; that is $5.3 trillion of the total and everything else is less than $800 billion.

But attacking Social Security is stupid.  It took in $1,200 billion last year in tax receipts and of course if you attack it you won't take in the taxes.  It is only responsible for $216 billion of the deficit on a cash operating basis; that isn't where the problem lies.  In fact that operating deficit of about 18% could be closed completely with a 1% increase in the FICA tax and a modest but immediate lift in the annual income cap upon which it is levied.  It is therefore utterly stupid to argue for any sort of radical change to the program as that's not where the problem is but we should make both of those changes in the FICA tax right now because that not only resolves the problem it also takes Social Security off the table as a political football since it is self-funding.

The only other program that has a direct offsetting tax is Health and Human Services, most of which is in CMS, Centers for Medicare and Medicaid.  Only $358 billion was collected last year against a spend in that department of $1,708 billion.  There is no way you could possibly increase the tax rate to compensate for this and Medicare's tax already has no income cap; you'd have to increase the rate to FIVE TIMES the current amount to close the gap and that tax, like Social Security, is from the first dollar earned and is already also assessed on investment income as well for those who have large investment income amounts.

As such there are two, and only two places you can solve the problem: Defense and Health and Human Services (CMS.)

This is not a subject for debate.  It is cold, hard mathematical fact and there is nothing you can do about it.

So how do you go after this?

• I already formulated a way to radically cut CMS spending -- by as much as 80% -- and at the same time resolve the health cost problem for everyone in America.  Much of this requires no Congressional action as the laws in question are already on the books but deliberately not enforced.  Specifically, 15 USC Chapter 1 carries criminal penalties and forbids basically all of the price-setting structures now in use -- including cross-border differences in drug and supply cost.  They're illegal at a felony criminal level and that law has been on the books for more than a century yet the Executive refuses to enforce said laws.  So while enacting that plan would certainly require Congress stopping the price-fixing can be done instantly by throwing some people in prison.
  
  
• We can demand that zero federal funding by provided to anyone here illegally in the United States irrespective of what program it falls under.  This would include EMTALA which directly implicates CMS spending, for example, by driving up cost as it shifts it to taxpayers.  While doing this would require Congressional action the Executive can, in a single day, cause the same effect without Congressional action and irrespective of Congressional opinion by enforcing against every single entity 8 USC §1324 that mandates felony criminal prison time (5 or 10 years as a base penalty, and more under certain circumstances) for each and every person who harbors, assists, or employs an illegal alien.  This law has been on the books for more than fifty years and yet once again the Executive refuses to enforce it.
  
  
• We can trim defense.  The NATO target is 2% of GDP.  For us that would be about $500 billion, a reduction of $276 billion or 36%!  While that may well be unrealistic in the immediate or even intermediate term it is clear that we can demand that those alleged "allies" of the United States foot their own bills on a ratable basis and, if they refuse, withdraw our funding and support from their national defense.  I get that we believe there is a "peace dividend" both material and ephemeral from our projection of power but the fact remains that we can and should demand direct payment from the other beneficiaries of same and, if they refuse (which they obviously can) then we must undertake the public debate as to whether we wish to spend 13% of our federal budget on defending other people who are ingrates and refuse to pony up the cost of that alleged benefit themselves.  At some point the answer to that question is "no" and it is high time we have that conversation and make that decision as a body politic.

There are many other areas (such as forcing our government at all levels to analyze for and defend the parasitic elements of any legislation or regulation) that can be put into effect but that both requires time and legislation -- and at present it appears we are short on time and have an unwilling legislature in all respects.  Therefore this falls to the Executive or the people and the boundaries of existing law.

Fortunately said existing law does exist and is sufficient to resolve 80% of the problem.  No, it won't be a complete fix, but that is never reasonable to expect in any political context.  However, that 80% is both achievable and reasonable.

The economic impact of doing this will, in the short term, be quite severe.  Firing 80% of the people currently working in Health Care will disrupt a lot of people lives and asset prices, including home prices.  But doing this will also wildly improve the competitiveness of America .vs. other nations on the global stage and cause business to come here rather than overseas as said costs decrease.  In addition by reducing the parasitic loss in economic activity (of which a huge percentage is in fact in this sector -- go look at the cost of health insurance for employers!) we will place a huge amount of downward pressure on prices and release much of the funds currently paid to said firms back to the employee, both of which will wildly improve consumer purchasing power in both gross and real terms.

With the Federal Government running a surplus, not a deficit, rates will come down to a moderate degree.  That will both help the Federal Budget and consumers.  No, it won't re-ignite the real estate pricing bubble and you should expect house prices to collapse by 50% or more, which incidentally is not crazy as on a national level that only gets you back to around 2017-2019!

However, restoring the capacity for family formation among those who are productive, which this will go a long way toward resolving -- and no, its not the entire answer -- will be of great net benefit as well.

This is the way -- and, on the clear budgetary and spending data it is also the only way that we avoid a "foldback" style collapse within the next few -- single-digit -- years.