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How can we really shrink the federal government before it’s too late?

As we face the largest expansion of the federal government since the 1930s, trillion dollar deficits, out-of-control regulation of business, and government takeovers of major industries, many people in America are increasingly frustrated and terrified at the consequences this will have on our way of life and our economy.

Although government expansion has been much worse under Obama, the bigger problem is that the federal government has been expanding under both Republican and Democrat presidential administrations and Congresses nearly unabated for decades.

Simply throwing out the current political bums and replacing them with new political bums will not work. Even the Tea Party movement, which has the explicit goal of shrinking the federal government, is not enough. There need to be some more radical changes or the federal government is likely to keep growing at the expense of ordinary citizens and our economic future.

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How could this be accomplished? Here are a few outside of the box suggestions.

The vast majority, possibly as high as 90 percent, of federal income taxes are paid by the top 1 percent of the households. If this group would take extraordinary measures, all within the current tax laws, to reduce tax liabilities, this would have a devastating effect on the ability of the federal government to fund itself.

For example, a 50 percent reduction in the taxable income of this top 1 percent probably would cost the federal government trillions of dollars of revenue per year. There is almost no way that the feds could replace this lost revenue or borrow this much more every year, so it would force them to cut spending or try to implement extremely unpopular new taxes on the middle class.

Some ways to accomplish a tax liability cut under current tax laws are: 1) if close to retirement age, simply retire early, 2) if your company allows you to do so or you own your own business, defer as much income as legally possible for as long as possible, 3) if you have the resources to do so, simple take a few years off from working and spend more time on other pursuits or with your family, 4) donate substantially more money to charity, 5) redirect investment capital into companies that don’t pay dividends and state and local tax exempt bonds rather than taxable bonds, income property, or other interest or dividend generating investments.

By legally cutting off the funding mechanism for the federal government, spending reductions will become unavoidable whether the politicians want to do it or not.

As a longer term solution on taxes, there should be proposed and hopefully ratified a constitutional amendment limiting all federal taxation to no more than 17 percent of GDP. Various economic studies have shown that this is the level of taxation that is optimal for economic growth and is still sufficient to fund the legitimate activities of the federal government such as national defense. The only exceptions would be during a time of war or other national crisis to fund specific programs to deal with those situations.

Congress, the president, and the Supreme Court need to have their power severely limited. Rand Paul recently suggested that Congress should not be allowed to pass a law without proving that there’s a constitutional justification for it. This is a good start, but there are other things that could be done to rein in Congress.

For example, Congress should be prohibited from funding any federal government program or approving any regulations unless it can prove those programs or regulations cannot be handled at the state level. The initial intent of the Constitution was that the federal government’s powers and spending should be limited to national defense, international treaties, and regulating commerce between the states. Obviously, that has been expanded enormously over the years and has reached a point that is no longer sustainable for our economy.

Existing federal programs and regulations that can’t pass this strict constitutional test should be scheduled for elimination over a period of years to allow for the necessary transition and adjustments to take place. The same restrictions should apply to regulations or decisions by the president or the Supreme Court. They would have to show that whatever issue in question could not be handled adequately at the state level.

To ensure that the above restrictions would be followed by the feds, there would probably need to be a constitutional amendment passed to require these limitations on the federal government. Since the state governments would be beneficiaries of these restrictions, and 75 percent of the states can ratify a constitutional amendment, this would seem to be possible even though it would certainly be a difficult political battle.

Eliminate the ability of the Federal Reserve to buy long-term government or agency debt, manipulate interest rates to make them substantially different from those determined by the market, or provide any long term funding to banks or other financial institutions.

The Federal Reserve’s job would be limited to certain regulatory functions for national money center banks and securities markets, providing short term liquidity to the financial markets and institutions, and buying or selling short term government debt. By restricting the Fed’s role in this way, it would further constrain the ability of the federal government to spend beyond what it could generate in taxes or borrow in the marketplace and market interest rates.

If the federal government’s role and expenditures as a percentage of GDP are not dramatically reduced soon, fiscally conservative, market friendly states such as Texas could begin to follow through on recent threats to secede from the Union.

Although the legality of secession is questionable, desperate times could lead to desperate measures by states and their citizens who are tired of being taxed and regulated to death by their royal masters in Washington, D.C.

The economic, political and social repercussions from the secession of even a few states could be disastrous for this country. Socialists and other left-wing politicians and citizens who believe that the federal government can solve all of our problems are ignoring the most basic principle of this country, which is the right of free people to determine their own lives and make their own choices.

Either the federal government will dramatically shrink its role and its percentage of GDP in the coming years, or this country will very possibly cease to exist in its current form. If this secession outcome were to happen, it would almost definitely be through a very ugly and chaotic forced dissolution of the Union. That is the harsh reality facing us, and the time we have left to avoid an extremely negative outcome is quickly running out.

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