Question

If the federal debt is $500 billion per year, and the overall economy is $17.5 trillion per year, what percent must the economy grow to overcome the budget deficit if the tax rate is 33%? What if we decide to start paying down the $18 trillion federal debt at 4% per year over 20 years in addition to overcoming the current deficit? How much must the economy expand to address the debt (dollars and %)?

Answer 1

Faderal tax ratio=33%

Economy=17.5 trillion$

So additional differential economy (A)*33%=0.5 trillion.

A*0.33=0.5

A=0.5/0.33=1.5 trillion$.

So the economy is increased to 17.5+1.5

=19 trillion$.

For additional debt recovery of 4% of 18 trillion $

=18*4%=72trillion$

=720 billion.

So the total tax need to be increased by 500B$+720B$=1220B$.

Now, the tax would be increased by 1.220T$

the economy should be increased by= A*0.33=1.220

A=1.220/0.33=3.697

=3.697/17.5=21.12%.

Hence, the economy need to increase by 3.697trillion$ and 21.12%.