It is a medical truism that if you get the diagnosis wrong, the treatment will be wrong. The same holds true with Washington budgeting. Unfortunately, as we prepare for yet more debates over budgeting, spending, and stimulus, we can expect to once again enter a fact-free debate.
Among the most common myths:
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1. Republicans have slashed government spending. While there are political reasons for both Democrats and Republicans to pretend that we’ve entered a new age of austerity, it’s not even close to true. According to figures released last week by the Treasury Department, federal spending this year is up by roughly 5 percent over the same period last year. That’s a $120 billion increase in just the first nine months of this year. That’s right: Despite a near shutdown of the government and “holding the debt ceiling hostage,” government spending is still increasing. And not surprisingly, we are borrowing more money in order to fund it. The deficit is already $23.5 billion higher this year — with three months still to go. As a result, our national debt continues to grow. This month it will close in on $15 trillion. Throw in the unfunded liabilities of Social Security and Medicare, and our real indebtedness tops $120 trillion and rising. If Keynesian-style stimulus worked, we should be swimming in jobs.
2. States are firing teachers and firefighters because they are broke. Washington has to help. That’s the logic behind the president’s plan for $35 billion in additional federal aid to the states, a bill that the Senate is expected to vote on this week. In reality, however, state government spending has also been rising, up more than 10 percent in the past two years. And while some of that represents a pass-through of federal aid from earlier stimulus bills, state general-fund spending rose 5.2 percent this year. If state governments are laying off teachers and firefighters, it’s because they are failing to manage their priorities, not because they don’t have any money.
3. We have a revenue problem. Yes, tax revenues are low today by historic standards, in part because of the recession and in part because of the Bush tax cuts. But this is a temporary phenomenon. According to the Congressional Budget Office, even if the entirety of the Bush tax cuts were made permanent and the Alternative Minimum Tax (AMT) repealed, tax revenue would rise to more than 20 percent of GDP by 2020. That’s roughly two percentage points of GDP above the historic average. If taxes will bring in more revenue than usual, how is it that we are still projecting huge future deficits? Simple, spending is expected to rise even faster. In 2020, federal spending is estimated to be roughly 25 percent of GDP, roughly four percentage points higher than historic averages, and seven points higher than it was under President Clinton. So, which side of the ledger has a problem?
4. We can solve our problems by taxing the rich and closing corporate loopholes. Set aside the question of whether higher taxes on the rich would stifle economic growth and job creation. There is simply no way to raise enough money to cover our deficits by taxing the rich. As the president would say, “It’s math.” This year, we will run a deficit of roughly $1.3 trillion. Eliminating the tax break for corporate jets, a prime Democratic talking point, would raise roughly $300 million this year. Yes, that’s million with an “m.” Ending tax breaks for oil and gas companies, another frequent Democratic target, would bring in somewhat more, nearly $4 billion per year. And, the big enchilada, the Democrats’ proposed 5.6 percent surtax on “millionaires and billionaires,” would raise an average of $45.3 billion in additional revenue per year. Therefore, if the Democrats were able to get every penny that they want, they would raise all of $49.6 billion per year, leaving us with a budget deficit this year of only $1.25 trillion.
5. We can balance the budget by cutting “fraud, waste, and abuse.” This is the Republican flip side of the Democrats’ reliance on higher taxes, a way to avoid making tough choices about cutting defense and reforming entitlements. Total domestic discretionary spending — everything from the Department of Education to the Department of Commerce, from the FBI to the FDA — amounted to roughly $650 billion this year. If we simply abolished all of those programs, the muscle and bone as well as the fat, we would still have a $650 billion budget deficit. That is not to say that we shouldn’t cut everywhere we can, but to spend too much time searching for “fraud, waste, and abuse” is to pluck out a splinter while the patient is bleeding to death.
With any addiction, the first step to recovery is to admit that you have a problem. Washington remains addicted to spending. It is time for Congress to get honest about that and stop hiding behind these budget myths. Maybe then, we can begin the path to economic recovery.
“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master that’s all.”
The problem is a budget process that makes Enron and Solyndra look like the epitome of responsible accounting practices.
Start by repealing the Budget Control Act of 1974 (brought to you by a Democrat Congress over a Presidential veto), make all spending 100% discretionary and force it to be affirmatively re-authorized every two years by an actual vote at the time of re-authorization. None of this "automatic increases unless voted down" garbage.
Then require any additional money in excess of the previous appropriation plus inflation be scored as an increase - period.
Until the current budget process itself is totally thrown out the window, we haven't got a prayer for fiscal honesty - to say nothing of sanity - from the Federal Government regardless of which party controls things.
Not that I'm holding my breath for it to happen, mind you, but if ANY candidate ran on this platform, I think he'd sweep Obama right out of the White House.
The Republican House would do the country, and the conservative cause, a big favor if it would just go along with the Obama tax increases and take the issue off the table. The entire Obama smorgasbord -- restore the Clinton income tax rates on the $200K+ earners: $70 billion/yr; repeal the oil depletion allowance: $4 billion/yr; tax retained interest as regular income: $4 billion/yr; increase airplane depreciation to 7 years: $0.3 billion/yr -- would add less than $80 billion/yr to federal revenues. That's enough to cover just 20 days worth of what Obama has been adding to the national debt every day of his administration. Just do it, and expose the Big Lie that is the lifeblood of Obama, the Democratic party, the MSM, and the OSW-ers. Just to take this issue off the table and to force the country to get serious about the economy will ultimately cost us a lot less than will the perpetuation of the Big Lie.
An interesting idea. But I suspect that the Democrats would say that there was some reduction and therefore the mistake was by not raising taxes enough. They use the same argument for spending.
I am also not sure that we do our nation a favor by allowing the destructive policies of liberals to have unrestricted reign.
Do we not already have enough mathematical and empiricle proofs of the failures of liberal economics without having to go 'all in' on a losing hand?
Ron Paul's budget proposals are the only honest ones. Unfortunately, they have been termed radical, and have been consciously dismissed and ignored by the Media and Political Elites. (Including NRO.)
However, under the current hyper-bloat spending regime, the existing budgetary model is used as the baseline and then illusory incremental cuts are made to future growth.
Dr. Paul's plan though, inverts the baseline model. I.e., massive cuts are the baseline. However, admitting politics is a game of give and take, there would be a follow on negotiation process that approves incremental add-ons.
So the budgetary end-state under Dr. Paul's planning regime, may be less than the 1 Trillion dollars in reductions he proposed. But the actuals would be much closer to the his target than the other way around - which is bogus and unsustainable.
At this point, anything but radical is a recipe for economic implosion.
BTW, unfortunately Dr. Paul's ideas may also be infeasible because of Media malfeasance and because voters are bought off by debt funding from sides of the sclerotic Politico-Crony-Capitalist Apparatus.
Maybe it doesn't really matter but a topic for a future column worth considering might be to look at what the deficit would look like if Obama's plan were to pass. It is frquently stated that the "millionaire" surtax would "cover" the cost presumably over 10 years and that appears roughly correct. Assuming that most of the additional spending would occur during the current fiscal year that would yield a deficit of 1.75T! Assuming GDP is 15T the deficit would be greater than 11% of GDP!
Makes me feel sort of "Greecey"!
The Republicans need a nominee who can communicate these painful facts effectively and have a concrete plan to deal with them. As it is, Obama the community organizer is able to ride around in his bus claiming that all we need is for millionaires and billionaires to pay their fair share and happy days will be here again. He is seeking reelection on a campaign of disinformation. The public needs to understand that it will take a decade for the tax increases Obama wants just to pay for the election year spending spree he's proposed. They will do nothing to solve the enormous problem that already exists. And if the mean ole Republicans block Stimulus II, Obama's tax increases would reduce the annual deficit less than 5%, about two weeks' worth. That is, if they don't deter job creation and growth and don't send high earners looking for tax shelters. If that happens, the reduction would be even less.
"If state governments are laying off teachers and firefighters, it’s because they are failing to manage their priorities, not because they don’t have any money."
I have to take exception to that quote from the article. You are assuming that laying off workers is only done because of a failure to manage priorities. In other words, that it must be a priority to never lay off teachers or firefighters. WHY? Why do even conservative writers assume that keeping every teacher and firefighter employed is a priority????
Mr. Tanner misses one major point. While it's true that the feds pass down both money and mandates to states, the states ALSO pass the buck to counties. THEN the counties pass the buck to municipalities. THAT'S where the majority of this firemen/teachers/cops stuff hits the fan fiscally. And how do THEY get the money? Property taxes, mostly. And how is THAT going regarding foreclosures, etc.? We know. So we loop back the blame to the feds for passing out cheap mortgages. Lather, rinse, repeat.
The economic malaise we find ourselves in is not a short term phenomenon. Incomes, the stock market and job creation have been flat or down since 2000.
You have to zoom out and look at the last 6 decades to get a perspective. Then ask yourself, what is causing our economy to stagnate? It's not the lack of a 2 % temporary payroll tax cut.
The trends dragging us down are big, long term and fundamental. We need to understand them before we can find a solution. External Link
some people think the Departments of Education, Transpostation and Energy are nothing but waste, fraud and abuse and much of the EPA and the Interior are as well ...
