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If you read this web site the odds that you are also living under a rock are pretty small. That probably means you already know that over the weekend the so-called Deficit Reduction Supercommittee failed to reach an agreement (and had to admit its failings on Monday). A little back-story: the Debt Panel was trying to find deficit savings in excess of $1.2 Trillion over the next 10 years. A little more back-story: the entire concept and execution of the debt panel was a disgusting farce. The entire $1.2 Trillion was to be cuts from ‘baseline spending’, better known as ‘planned future spending increases’.
At heart, this is an Economics article but on the surface, it is a Political article. Feel free to attach your own biases while reading it, it’ll be more fun!
The Disgusting Spending Problem (and the Much Smaller Revenue Problem)
If the following statements seem biased, they aren’t. They come from data in the Office of Management and Budget’s Fiscal Year 2011 Report. In your PDF reader scroll to page 25. If you have an issue, contact the Office of Management and Budget or escalate it to their boss. Note that the 2010 numbers are estimates!
- $1.2 Trillion over 10 years is a joke. Estimated spending in 2010 was $3,720,701,000,000.00. In 2006? $2,655,057,000,000.00. You could save over a trillion dollars a year by just reverting to the 2006 budget.
- $120 billion would be the average cut per year. That is 3.2% of the estimated 2010 spending. Even if $120 Billion hadn’t been spent in 2010 it still would have been the most the United States has ever spent in a year.
- The most the United States has ever collected in revenue (in 2007) was $2,568,001,000,000.00. Again, note I said ever. Holding spending static at ~ $3.7 Trillion a year you’d still be adding over $1 Trillion to the deficit per year with that revenue. To bridge the gap by taxes alone you’d have to increase all taxes by approximately 50% – even if you taxed the top 1% at 100% it wouldn’t bridge that gap. And any Economist (including Paul Krugman) will tell you that the relationship between taxes and revenue is not 1 to 1.
- The Government has been spending more than that 2007 revenue number since 2006. Even if revenue had stayed strong we’d still be adding to the US deficit. This is a bipartisan problem (and having a Democratic Congress under President Bush is not an excuse for Republicans – note that the President can veto.).
- The last time the Government spent less than it had in revenue was in 2001 (again, having a Democratic President isn’t a good excuse for Democrats – Congress was Republican when the surpluses started).
- Some other funky stats: The Bush Tax Cuts of 2001 and 2003 did increase revenue. 2003 revenue was $1,782,321,000,000.00 and it was $2,568,001,000,000.00 by 2007. Clinton both raised income taxes and cut dividend and capital gains taxes. In 1993 revenues were $1,154,341,000,000.00. In 2000? A whopping $2,025,198,000,000.00. Sure, some of that was the whole Internet Bubble thing… but revenue has never dropped below the 2007 numbers again.
Interesting stuff – as is the fact that $2,165,119,000,000.00 in revenue was collected in 2010, 15.6% less than 2007. That revenue will come back as the economy recovers, but there is no automatic mechanism to bring spending back down to realistic levels. Yes, revenue has decreased 15.6% since 2007. That’s a problem. You know what’s a bigger problem? Spending has increased 36.35% at the same time (and there was already a deficit)! If you made 15% less this year would you spend 36% more? I doubt it.
The key to fiscal sanity, at least over the last 20 years? Political gridlock. Under Clinton, Congress and the White House were controlled by different parties. There you have it… a reason to actually like Congress! If they are fighting, at least they aren’t passing bad laws… Like my colleague Cameron Daniels wrote, the entire debate is kind of like “a 400-pound man who is gaining 50 pounds a year who plans on being 850 instead of 900 pounds in a decade while his doctors warn him of losing weight too fast.”.
Readers, what do you think? Am I on to something? Are you ready to embrace divided government?