On Tuesday, President Bush announced that the federal budget deficit will be $100 billion lower than initially expected due to higher levels of economic growth. This is the third consecutive year substantial downward revisions were made to the deficit as part of the administration’s mid-year budget review. The president further claimed that the nation is ahead of schedule by one year in its goal to cut the budget deficit in half.
On the surface this appears to be good news. Yet the biggest mistake the conservative movement could make is to focus on the budget deficit. The deficit is an unimportant number that reflects two very important numbers: how much the government takes in taxes and how much the government spends. Fixing a deficit “problem” can be achieved by raising taxes or by cutting spending — and raising taxes is always the establishment-approved solution.
The downward reduction in the deficit is being driven entirely by strong economic growth which is increasing tax revenues. Growth should be valued and growth is happening. The president and Congress have cut taxes each year and the large reductions on double taxation of savings and investment has led to unprecedented growth and hence higher tax revenues.
But growth is just one part of the equation. Total federal spending, which is accelerating at an unsustainable level, is the other half of the equation, and is currently being masked by the reduction in the budget deficit.
Each year, Americans for Tax Reform releases a report which details the total cost of government to American taxpayers and calculates the date of the year the average American is done paying for those costs. The “Cost of Government Day” report has become a true measure of whether the conservative movement is achieving its goal of shrinking the size of government. And this year’s report demonstrates that the size of government continues to increase — an unprecedented event during times of strong economic growth.
Today, July 12, is this year’s Cost of Government Day. It’s the date in the calendar year when the average American worker has earned enough money to pay off his or her share of the burdens of spending and regulations at all levels of government. This year, Cost of Government Day is one day above 2005 levels and nearly twelve days higher than in 2000.
Large increases in federal spending are responsible for 67 percent of the increase in the total cost of government since 2000. And total federal spending is accelerating contrary to what we often hear from elected officials.
Consider these key facts from this year’s Cost of Government Day report:
Federal spending has increased faster than national income in five of the past six years, leading to a 10.2 percent increase in the federal spending burden on American workers since 2000.
This year the average American worker will need to labor 86.5 days out of the year to earn enough income to pay for the cost of federal spending. This is an increase of 1.4 days compared to 2005 and eight days more than was required in 2000.
51 percent of all of the gains achieved in the 1990s have been wiped out in the past six years. The federal spending burden declined eight straight years from 1992 through 2000 as strong economic growth coupled with federal spending restraint led to the average American worker needing to work 15 days less in 2000 than was required in 1992. Half of all those gains have now been wiped out and the index currently stands at 1995 levels.
If spending increased only as a percentage of national income since 2001, the federal government would have a $20 billion budget surplus (not a $296 billion deficit) in fiscal year 2006. Moreover, the country would never have reached surplus in the late 1990s if spending equaled national income. The surplus resulted because spending was actually lower than national income during that time period.
If spending is such a problem, why is the deficit being reduced? The deficit is only declining because tax revenues have entered the Treasury at the highest rate in twenty-five years for two consecutive years. This double-digit growth masks the fact that spending will increase 9 percent this year and has averaged 7.1 percent annual growth since 2000.
But growing tax revenues at 11 to 15 percent per year is unsustainable; this growth rate will decline over time. If the growth of spending is not reduced correspondingly we will not only have a higher cost of government imposed on American families but we will also have an increasing deficit. Then the tax-increasing politicians will come home to take an even larger share of worker’s incomes.
The Bush administration, Congress, and the conservative movement must turn its attention to the most pressing issue facing American taxpayers — total federal spending. Continued focus on the deficit will only lead to increased taxes and a larger cost of government at a later date.
– Grover Norquist is president of Americans for Tax Reform.