Fiscal Reality: The Problem Isn't Just Government Spending

Jared Bernstein, the liberal former economist for Vice President Joe Biden, posted this chart Wednesday morning, which helps to frame the current debate over shared sacrifice in deficit reduction. To explain the current fiscal mess the country now finds itself facing, one must look at both lines.

[atsimg]http://files.abovetopsecret.com/images/member/60e94427bd61.png[/atsimg]

Martin Wolf, in the Financial Times, makes this same point:

The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 per cent of GDP in 2011, far below their postwar average of close to 18 per cent. Individual income tax is forecast to be a mere 6.3 per cent of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2 per cent of GDP. Tax revenue has to rise substantially if the deficit is to close.

Preferences for Spending Cuts vs. Tax Increases to Reduce the Deficit

Only with spending cuts – 20%
Mostly with spending cuts – 30%
Equally with spending cuts and tax increases – 32%
Mostly with tax increases – 7%
Only with tax increases – 4%

Only/Mostly with spending cuts – 50%
Only/Mostly with tax increases – 11%

Preferences for Spending Cuts vs. Tax Increases to Reduce the Deficit, by Political Party

Republicans / Independents / Democrats

Only with spending cuts – 26% / 23% / 10%
Mostly with spending cuts – 41% / 28% / 23%
Equally with spending cuts and tax increases – 24% / 30% / 42%
Mostly with tax increases – 2% / 7% / 12%
Only with tax increases – 1% / 4% / 8%

Only/Mostly with spending cuts – 67% / 51% / 33%
Only/Mostly with tax increases – 3% / 11% / 20%

Source

67% of Voters Say A Debt Ceiling Deal Should Include Tax Hikes On The Rich
Poll: Voters trust Obama more than GOP on economy
More voters would blame Republicans than Obama in absence of debt limit deal, says poll

Washington’s spendthrift ways have taken much of the blame for sending the budget deficit more than $1.5 trillion during the recession, but equal blame should go to a collapse in federal revenues to 60-year lows, budget analysts say.

To be sure, President George W. Bush, President Obama and Congress went on spending binges in 2008 and 2009 in an effort to quell the financial crisis and counteract the downturn. But at the same time, revenues plummeted by a historic 18 percent because of high unemployment, widespread bankruptcies and a series of tax cuts.

Revenues plunged from their peak of $2.57 trillion in 2007 to reach $2.1 trillion, or 14.8 percent of economic output in 2009 — the lowest level since the 1950s — and taxes remain that low today, according to the Congressional Budget Office (CBO).

60-year-low tax revenues contribute to deficit growth

"Raise the required revenues by approving whatever levels of taxation may be necessary" – Prescott Bush

Whatever happened to the sentiment that our major financial problem is not taxes, or even spending necessarily, rather it is deficits? In my opinion nothing is more threatening to our nation’s general wellbeing than continual deficits. Raise the tax rate to 70% and it still would not hurt like a continual deficit, regardless of its size, would.

“It just isn't going to work, and it's very interesting that the man who invested this type of what I call a voodoo economic policy...” – George H.W. Bush

Tax cuts pay for themselves. Deficits do not matter so long as they are caused by tax cuts. We can cut taxes and rise military spending, that always works.

"You know, Paul, Reagan proved deficits don't matter" – Dick Cheney

If Republicans in the Congress honestly believe that we can just cut our way out of our enormous deficits they must be smoking something pretty strong. Let’s just use our 2010 revenue and expenditures as a base. We collected around 15% of GDP in 2010 and spent about 23.8% of GDP. The Congress would have to cut 36% of federal spending just to bring us down to balancing the budget. This is of course excluding any rise in the revenue either due to economic recovery, tax increases, or both.

Do you think there is any chance the Republicans could even come close to proposing a 36% cut in federal expenditures? As of the 2011 United States federal budget which was $2.17 trillion the Republicans in Congress would need to cut $781,200,000,000 for just one fiscal year. To bet money on that happening you are one stupid gambler.

Even Alan Greenspan said in response to a question if tax cuts pay for themselves, "They do not".

Is anyone here inclined to believe only that “Washington doesn’t have a revenue problem, it has a spending problem”? Guess what, I have a bridge in Brooklyn to sell you. Look the problem is that we have both, a spending problem and a revenue problem. The individuals and politicians who fail to see that (as I had before) are just lying to themselves or are willing to accept being lied to.


Taxes are not going to implode our economy, deficits will. What are we supposed to do really? Just cut and not spend anything other than what is absolutely necessary? I hate to sound like a Liberal (as I damn sure am not one) but we have crumbling infrastructure, failing schools, and a host of other issues that require immediate attention before more people die or get injured from them, the longer we wait the more expensive it will be to fix. Not to mention the additional costs that businesses will have to impose because of poor infrastructure.

So yes I am on the side that says CUT and TAX because right now we need to begin balancing our budget. It will not happen overnight but to reassure investors on the security of our government and economy we must begin reducing the deficits. I guess that puts me at odds with people I have for a while called my ‘allies’ here but we need to do something and ‘cut, cut, cut’ is not a real solution it cannot only be part of the real solution.

The Bush Tax Cuts must be repealed, tax loopholes closed, and non-essential subsidies eliminated or else they are just admitting their allegiance lies with tax cuts not debt reduction.

I'm in total agreement with you. Thank you for posting this.

I understand why the wealthy support the tax breaks. Hell, not paying your share and getting a bigger bonus must be really nice. We all know Trickle down doesn't work. It's become nothing more than a favor that gets passed for republicans. It's been tried and it causes the country to lose revenue. Always.

What I don't understand is why the ones who don't qualify for the break support it. Why in your right mind would you support a program that enables the wealthiest Americans to have a free pass? They see wealthy people paying their fair percentage as a punishment! All the while they pay their own taxes and it's their duty. How did this ludicrous double standard ever get into the minds of the public as acceptable? Is it because we're too busy discussing gays being barbarians? Planned Parenthood murdering babies?

I see it as simple. We are all having a hard time. Well, most of us anyway. This is going to take a collaborative effort. Before we start to take away from social programs, wouldn't it make sense that everyone pay their fair share of taxes first? The idea is to not live above your means. Well the country's means are being written out in bonus checks. The government cannot put a accurate cap on what their spending limit should be until it realizes its full potential for revenue.

By no means am I against cuts. Spending does need to be controlled. I am just saying the tax breaks need to be abolished first before we take a crtitical look at how much to cut or reform defense, SS, Medicare etc.......
Weigh the options. Who suffers here? The rich not paying or the elderly who cannot buy bread and their Caduet?

Originally posted by spinalremain
How did this ludicrous double standard ever get into the minds of the public as acceptable?

Two words: Culture Wars.

Is it because we're too busy discussing gays being barbarians? Planned Parenthood murdering babies?

Yes that is a major contributing reason as to why the working class has abandoned the Democratic Party. By the end of the 1960s working class individuals began to see Democrats as more worried about minorities, proponents of cultural progressivism, and becoming more anti-war. This angered the base of the party which is what inevitably led to the collapse of the New Deal Coalition. Carter was able to bring back the old coalition briefly in 1976 but by 1980 the populist Democrats saw Carter more as a Liberal than the Moderate they originally seen him as.

This is why they turned to Reagan, hence the ‘Reagan Democrats’. Come the mid-1980s the Democratic Leadership Conference tried to reinvent the party by turning it further towards the GOP fiscally but far more socially progressive thus it ruined their chances among the people they were fighting for on the economic front. Democrats used to be economic populists, if you have not really heard about that try reading “What’s the matter with Kansas?” it details how, as the Liberal author depicts, the working class voters began to vote against their interests because they were left economically but very much socially conservative.

If you want to get the working class voters back in the Democratic Party you must either becoming more culturally moderate and economically populist (think Brian Schweitzer) or abandon social/cultural issues altogether.

New Deal Coalition

How is it that with all the available information freely available about how the United State economy actually works people are still fooled by the “Dog & Pony Show” our Politicians put on.

First and foremost you must learn and internalize that dollars are created out of thin air. Dollars have NO real value. The only value they have is Faith. Faith that someone else will accept them as payment for an item of real value.

Second is the United States creates dollars as needed. When an obligation comes due or a War is started the Treasury simply creates a Bond. This is just an I.O.U. promissory note saying give us this amount of dollars and in the future we will give it back plus a little interest, but when this obligation comes due the Treasury just repeats the process, creating another bond. In the past other countries and fund managers were fool enough to fall for this ponzie scheme, but times have changed. Now, only the Federal Reserve buys Treasury bills on mass. OK, the agency that actually prints dollars is buying promissory notes valued in dollars. Let us look at that more closely.

The United States has given the authority to print Dollars to the Federal Reserve. So when the United States Government needs to borrow some dollars they give a promissory note to the FED and they just print the cash and hand it back. Sounds to me we are lending money to our self. If we did this on a private scale this would be illegal. There are many citizens severing time in prison for “Hanging Check Schemes”. This is exactly what our Government and they partner in crime , the FED, are doing.

But if that wasn’t bad enough, it gets worst. Not only is the FED printing money and giving it to the Government, they are also printing money and giving it to Wall Street. Money created out of thin air is being spent on Wall Street to purchase Stocks. This is how the Stock Market has been pumped up recently. QE1, QE2 and now QE3 is how the Stock Market has been kept afloat, but not just the US Market but these no value dollars have found there way into all the world markets.

As long as what ever the commodities is if it is valued in US Dollars all we have to do to acquire the commodity is just create more dollars out of thin air. So, if we want a tanker load of oil, print dollars, if we want a barge of grain, print some more.

How long do you believe that the rest of the World will go along with this Scheme ?

So, when our Politicians are on the boob tube alluding to this fact or that fact about our economy know this, it is all BS.

It is only done to distract everyone from the truth.

Truth being we are already bankrupt, the dollar has no value, and we are going to print dollars as fast as we can, as long as we can, before the whole thing blows up in our face.

Let learn a little about how Federal Taxes really work.

Think of taxation as the relief valve for the FED’s ponzie scheme.

100% of all Federal taxes go straight to the Federal Reserve. The Treasury would say that we are paying down our debt. Not completely true.

The Federal Reserve does need to have some control on the amount of dollars in circulation. This keeps the ponzie scheme working longer.

So with the help of the Federal Government dollars are removed from circulation through taxation. Transferring these dollars to the FED allows the FED to have some control of the number of dollars in circulation.

Federal Taxes are only a siphon pump for the number of dollars in circulation.