Thursday, July 07, 2011

A Revenue Problem, or a Spending Problem?

We definitely have a spending problem:
Take a look at the trends here (easy-to-understand chart at the link), again remembering that the data is all in 2010 dollars. In fifty years, we have tripled overall federal revenue, and prior to the current recession/stagnation we had quadrupled it...

Now, let’s put the data in this chart with one showing the rate of spending in inflation-adjusted 2010 dollars:
(chart at link)
While revenues have tripled during this period, federal spending has more than quintupled. The economic expansion of the 1990s (including the dot-com bubble) temporarily raised revenue above the spending trendline, but the slope on spending increased in the early 2000s, and practically launched spaceward in 2007 when Democrats took control of Congress.

I have to ask this: is it even possible to raise taxes high enough to pay for everything the government has promised? I doubt that it is.


mazenko said...

Taxes as personal burden and percentage of income and GDP are at their lowest point in sixty years.

Then again, if you are counting spending as military spending in general, and two wars in particular, I'd agree. And of course if spending is a Medicare drug benefit designed to pad corporate balance sheets, and enough tax loopholes that the average American corporation pays less than 5% in taxes, then it's certainly a spending problem. And if it is subsidies for oil, corn, and other ag products, then you're on to something. And if we want to add two tax cuts to the top earners that has cost a couple trillion dollars in revenue, especially when they can deduct second, third, and fourth mortgages into the tens of millions, while producing no net job growth, then sure.

Yup, we are spending way too much on the wealthy. I agree.

Darren said...

Tax cuts are not "spending". And all *your* facts don't explain or justify *my* facts, which are that we've tripled federal revenue (in constant dollars) over the last 50 years but we've more than quintupled spending. That sounds much more like a problem than "tax receipts as a proportion of GDP are relatively low", which is an interesting factoid but useless beyond that.

mazenko said...

Is that adjusted for inflation? Because $4 trillion is a lot for a war - but it explains a lot when you compare it to WWII. Spending outpaced revenue because we cut taxes below a reasonable floor at the same time we offered programs that people wanted and are wildly popular - ie. Medicare.

Keeping the elderly insured and out of poverty from medical expenses is a good investment that every successful industrialized country does, and does well, and that could have been paid for by allowing the government to negotiate prices and set reasonable spending limits. To cut revenue when you know the largest, most expensive generation in history is about to retire was foolish, naive, stupid fuzzy math. And tax cuts, rebates, and subsidies are all the same on the balance sheet, D. The represent a cost against revenue.

Darren said...

As the quoted part says, it's inflation-adjusted 2010 dollars.

Has the Iraq War, 8 years on, yet cost as much as the 2009 porkulus package?

Let's cut to the chase. Some things are necessary, some aren't. War, in general, is a legitimate expenditure of government funds--the porkulus package was simply not.

mazenko said...

Check out the book and do some research on "The $4 trillion dollar war." The financial reverberations are astronomical. And the Iraqi invasion/occupation was far from necessary.

Though I would agree with you that the $350 billion in tax cuts in the stimulus package that produced no jobs was a waste of money. Of course, there's also the billions lost in Iraq that simply can't be accounted for.

The spending outpaced revenue because, starting with Reagan, revenue was cut while spending increased. And one man's "pork" is another man's highway. And, of course, as the private sector has jacked medical costs 400% as millions of baby boomers retired expecting health care that had been promised, it was, again, foolish to cut revenue.

But some idiot said - for the second time in two decades - that the cuts would pay for themselves and increase revenue - even as his own advisor Gregory Mankiw said it wouldn't.

That is why spending outpaced revenue, and it's naive to think otherwise. But you've always ignored the significance of ill-advised tax cuts. And you probably always will.

Darren said...

Sorry, I don't view cutting taxes as a "spending" problem. Cutting taxes could create a "revenue" problem if you cut below what's needed for the legitimate purposes of government.

And it's on the legitimate purposes of government where you and I truly disagree.

mazenko said...

Paying its bills is a legitimate purpose of government - as a matter of fact, it's required by the Constitution. And the bills can't be paid without raising revenue. Raising and/or cutting taxes has never "starved" or "grew" the beast. The spending happens regardless. But $14 trillion must be paid.

And the really sad thing is that people like you and Boehner will look at $2 trillion in cuts, and not agree to revenue. You've said before you know that we can't pay off trillions without new revenue. And now there is $2trillion in cuts with agreements to put another $2trillion on the table, and there is an absolute no on revenue increases.

That's irrational and that is what leads to debt and deficits.

Darren said...

You and your friends on *that* side of the aisle will just keep spending, and *that* is what leads to debt and deficits.

BTW, paying its bills isn't a "purpose" of government, it's a function or responsibility of government, and those are very different from its purpose.

Darren said...

Just stumbled upon this; I've read it before, and seen the charts, but never "needed" that info until now:
I so appreciate Rubio taking aim at the president’s “balanced approach” and at the idea that the country can actually raise revenue by raising taxes. Sure, more revenue would be nice — and additional revenues are indeed one way to pay down the debt and deficit — but as several Hot Air commenters have pointed out, tax receipts historically have remained at about 18 percent of GDP regardless of tax rates. Why? Because incentives matter: Folks respond to tax increases and to tax cuts in ways that bring receipts right back to the average range. The only way to really grow revenue, then, is to grow the economy. (boldface mine--Darren)

MikeAT said...


Something else from the junior senator from Florida.

Rubio: 'We Don't Need New Taxes. We Need New Taxpayers' | The Weekly Standard

We don't need new taxes. We need new taxpayers, people that are gainfully employed, making money and paying into the tax system. Then we need a government that has the discipline to take that additional revenue and use it to pay down the debt and never grow it again. That's what we should be focused on, and that's what we're not focused on.
You look at all these taxes being proposed, and here's what I say. I say we should analyze every single one of them through the lens of job creation, issue number one in America. I want to know which one of these taxes they're proposing will create jobs. I want to know how many jobs are going to be created by the plane tax. How many jobs are going to be created by the oil company tax I heard so much about. How many jobs are created by going after the millionaires and billionaires the president talks about? I want to know: How many jobs do they create?

W.R. Chandler said...

Mazenko, you are either misinformed or you are lying. You say that during the Reagan years revenue went down but spending went up. Wrong. After Reagan and the Congress lowered the top income tax rate from 70% to 28% and lowered some other taxes, tax revenues coming into federal coffers went way up. The problem is that spending went even more way up. In order to get the defense spending increases he wanted in order to bury the Soviets, Reagan had to compromise with the Dem Congress by agreeing to their huge increases in social spending.

You keep referring to tax increases as revenue increases. They are not the same thing. Study the presidencies of Coolidge, Kennedy, Reagan, and GW Bush, and you will find that tax cuts led to revenue increases.

mazenko said...


What bizarre world do you live in when you believe cutting revenue increases revenue. A little check of Bruce Bartlett, advisor to Reagan and W. Bush, and Gregory Mankiw, advisor to Bush, reveals that cutting taxes generates enough revenue to make up for half of what was lost. And in terms of Reagan and Kennedy, you naively think that cutting marginal rates from 80% to 30% is the same as 39% to 36%. There is a floor for effective revenue production with this government and we are below it.

And before you start spouting off random selections of numbers that ignore Mankiw's, keep in mind your complete lack of causation. Did the 81 tax cuts kick start the economy - or was it inflation, interest rates, and oil prices dramatically dropping. If you know anything about economics, you'd know it's the latter. And if the 81 tax cuts did kick off the 80s boom, did the 93 tax increase kick of the 90s. Of course, not. Though if you think so, you don't understand complex emergent systems. And if the 81 tax cut grew the economy, why didn't the next 10 federal tax increases under Reagan derail the economy. Keep in mind the numbers didn't start turning until late 83, after tax increases had begun. 10 tax hikes under Reagan. Ten. And one under Clinton that was predicted by Gingrich to "derail the wold economy."

Did it? Why not? Is the economy more complex that tax rates. For anyone who is economically and mathematically literate, you already know the answer. For followers of voodoo economics and fuzzy math, it's hopeless.