Elon’s ‘pie in the sky’ party idea lacks guts; Key to balanced budget is GDP growth 

Elon Musk has threatened to use a third political party called the American Party in order to cut government spending.

The new party’s creation stems from outrage Elon says is the result of the Trump administration’s insistence on a debt ceiling increase of $5 trillion in the recently passed Big Beautiful Budget.

And because the government’s already spending nearly $2 trillion on annual deficits, the new $5 trillion debt ceiling increase may have to be increased again by 2028.

That’s assuming the Congressional Budget Office (CBO) scoring on spending and taxes is correct, which is unlikely, as will be explained below.

This means the American Party will have to cut about $1.83 trillion annually out of the budget in the next two years to meet its goal.

And that begs the question: Where will this American Party find the budget cuts, and, most importantly, will it find the voters to support those cuts?

The two biggest victims in a budget purge would be Social Security and Medicaid, which many Americans view as sacrosanct, because they’ve paid taxes into those programs their entire working life.

Musk himself doesn’t want green energy subsidies that benefit his company, Tesla, to go under the knife, so where will the cuts come from to balance the budget?

The hard news that people don’t want to face, including Musk, is that there isn’t money right now to balance the budget if they want to save Social Security, Medicare and green energy subsidies.

Structural problems of federal budget

The U.S. federal budget has several well-known structural problems, including one that’s underappreciated. And taking an ax to federal spending won’t fix the underlying problem; it would likely make it worse.

Let’s talk about the well-known problems first.

Social Security, and its bunkmate, Medicare, have been broken from before the schemes even paid out benefits.

Consider this article from 1939 in Time Magazine called “Pie from the Sky” admitting that by 1970 Social Security would be paying out more than it was taking in annually. One day working people, they predicted, would be left holding the bag.

“Obviously the government cannot pay adequate pensions if it insists on ‘borrowing’ most of the old age taxes and spending them to support the government,” one economist noted even before the first Social Security benefit checks were mailed out. “The whole thing is a disguised tax levied upon the lowest income groups under the pretense of old age pension premiums. No government would dare support itself out of a payroll tax if it honestly proclaimed its purpose…”

The hard truth is Social Security was always designed as a Ponzi scheme to benefit the government, relying on false demographics requiring a birth rate to always exceed the number of pensioners.

The 1983 deal between President Ronald Reagan and then-Speaker of the House Tip O’Neill acknowledged the theft, admitting their “fix” for Social Security would only last a generation.

Now the time has passed, and the crisis for Social Security will get worse before it gets better.

That means, just as Time predicted in 1939, we’re all holding the bag for a scheme that was doomed to fail from the beginning.

Similarly, Medicaid was conceived using the same math as Social Security. It’s one of the prime reasons Obamacare was enacted. It enabled its liberal supporters to spread more of the healthcare costs to workers, in the same way they did with Social Security.

So, now you’re holding the bag for that, too.

Those two programs combine for about $2.3 trillion of federal spending annually. Let’s assume that those two programs are off-limits for Musk’s budget cuts.

To get to the goal of balancing the budget, three areas are left: defense, Medicaid or every other dollar of discretionary federal spending, including what the government spends on Musk’s other company, SpaceX.

Musk’s American Party needs to have the guts to tell us which two areas of the remaining three might be put on the chopping block.

The key: GDP growth rate

Fortunately, the other structural problem, the one that’s rarely talked about – and key to solving our budget problems – is something that Trump is laser focused on: gross domestic product (GDP) growth rate. Trump wants that growth number higher.

Average annual GDP growth has been about 1.9% since 2000, according to data supplied by the Bureau of Labor Statistics (BLS).

Prior to that, the BLS says from 1980 to 2000, GDP growth was in the mid-3% range.

Thanks to President John Kennedy’s supply side tax cuts, the 1960s saw GDP growth at 5%, with several quarters reaching as high as 8.5%.

You can forget all the CBO nonsense about the Trump corporate tax rates increasing the deficit. That’s an outright falsehood. The actual numbers don’t wash.

Corporate tax collections in 2023 were $489.620 billion. Corporate tax collections in 2016, before the Trump tax cuts reduced corporate taxes from 35% to 21%, were lower, at $311.863 billion

That’s an increase of 57% over the seven-year period after the tax cuts.

After adjusting for inflation, corporate tax growth outpaced GDP growth over the same period of time by 42%. If the CBO doom-and-gloom numbers were anywhere near correct, corporate tax collections outpacing GDP would’ve never happened.

In fact, corporate tax revenues for 2023 were projected at $491 billion by the CBO in 2016 prior to the Trump tax cuts even being contemplated.

That’s only $1.38 billion more annually than we are collecting today, not the trillion plus dollar deficit the CBO predicted. Four percent average annual GDP growth would accelerate tax collection, corporate and otherwise.

Solving our deficit problem doesn’t require taking an ax to federal spending, as enjoyable as it might feel to some people.

A 4% GDP growth rate would skyrocket federal tax revenues for income tax, corporate taxes, and, yes, even federal tariffs.

That’s how we solve the deficit problem in less than 20 years.

If Elon Musk and his American party have a better answer, we’d like to see the specifics.