Both Sides of the Fiscal Equation

When Republicans, right-wing radio talk show pundits and FOX news commentators tell you that our deficit is a “spending” problem, they’re not being totally honest and they’re doing it on purpose.  

The current deficit exists because we’ve eliminated huge amounts of revenue through tax cuts and corporate subsidies while continuing to spend on programs that are both necessary and needed.  Other financial obligations in the form of two foreign wars have also run us short of cash to the point that we now have to borrow nearly one-third of everything we owe.

The Republicans want to ignore the fact that our current deficit mess is the result of the Bush tax cuts they approved back in 2001 and the two wars they implemented as they were reducing federal funds to pay for them.  To further enhance our deficit issues, the failure of Congress to properly regulate  greedy financial markets has led to defaults that have costs millions of jobs; jobs that served as sources of revenue to pay for wars, tax cuts and needed entitlement programs.  Thus the deficit is only a problem in the sense that Republicans need a smoke screen to conceal their negligence over the last few decades, starting with Ronald Reagan’s pro-corporate policies and extending to Dick Cheney’s assertions that “deficits don’t matter” as they went on a spending spree that has created the largest income gap in history between the haves and have-nots.

It would be true to declare that federal spending is higher now than it has been since the end of WWII.  Left at that, this would infer that our deficit problem IS a spending issue.   But the other half of the equation is that revenue to pay for what we spend is also lower than it’s been since 1950.  Spending  by the government may be a part of our debt problems but when conservatives pass legislation that reduces revenue, especially from the wealthiest amongst us, it is also a failure to maintain the necessary capital to pay for what we need to do.

Historical data has shown that when you cut federal spending too much you create conditions for recession.  Combined with tax cuts, recessions become deeper and longer.

FactCkeck.org has recently posted data on the broader fiscal picture showing that when only half of the valid information is discussed by partisan hacks, many voters are poorly informed and thus seem confused about what action they want their representatives to take.  The information from FactCheck, displayed here, clearly shows that spending alone is not the cause of high deficits and any action to address it without increasing taxes or stimulating job growth will continue to make the problem worse.

Some bullet points on their research are as follows:

  • Federal spending (“outlays” in budget jargon) is expected to equal 24.1 percent of the nation’s gross domestic product in the current fiscal year, which ends Sept. 30. The figure was 25 percent in fiscal year 2009, highest since 1945.
  • On the other hand, federal revenues are expected to drop to 14.8 percent of GDP this year, lower even than the 14.9 percent attained in both 2009 and 2010. There has been only one year since World War II when revenues have been as low as in any of these years: 1950, when the figure was 14.4 percent.
  • These historically high rates of spending and low rates of taxation have combined to produce a chain of deficits that are also the highest since WWII. The deficit was 10.0 percent of GDP in fiscal 2009. It declined to 8.9 percent last year as the economy started to recover, but is projected to go up to over 9 percent this year. Each of these deficits is larger than in any year since 1945, measured as a percentage of GDP.
  • The U.S. is borrowing about 36 cents of every dollar spent so far this year. It borrowed 37 cents on the dollar last year, and 40 cents in fiscal 2009.
  • The largest components of federal spending are Social Security and Medicare programs for the elderly (33.5 percent of total outlays in 2010) and national defense (20.1 percent). Interest payments on the federal debt alone accounted for 5.7 percent of all federal spending, and that percentage is rising.
  • The federal income tax accounted for 41.5 percent of federal receipts in 2010 (down from 49.6 percent prior to the Bush tax cuts of 2001 – 2003). Corporate taxes brought in only 8.9 percent, also down sharply since the recent recession. Payroll taxes and other “social insurance” payments accounted for 40 percent of total receipts in 2010.

Currently the Republican-controlled House is threatening further economic disaster by refusing to raise the debt ceiling if they do not get more spending cuts than they have already received from a generous White House and Democratic Senate.  They refuse to budge on the issue of raising taxes as a means of curbing the deficit and focus entirely on spending, and not just any spending cuts.  They are determined, with the aid of wealthy interests and narrow fiscal ideologues to cut that spending that impacts the most vulnerable of our citizens; the elderly, children and low-income wage earners

Besides deluding you about how we are already over-taxed (see graph above), Republicans would have voters believe that the rich are unduly burdened with taxes.  This negative image is skewered by the fact that “the rich” are also seeing income levels higher than they have ever before and at a growth rate that far exceeds more than 95% of other wage earners.

 The most recent complete data cover 2007. CBO figured in that year more than half of all federal taxes was paid by the top 10 percent of income earners. They paid 55 percent of all federal taxes in 2007, CBO said.  

That’s a comprehensive figure, counting the income tax, payroll taxes, excise taxes and even the corporate income tax (borne by stockholders in the form of reduced dividends and appreciation). And perhaps surprisingly, the top 10 percent of earners pay a greater share of federal taxes now than they did before the Bush tax cuts, which Democrats constantly criticize as a giveaway to “the rich.” The top 10 percent paid 50 percent of all federal taxes in 2001.

However, that comes in spite of lower tax rates at the top, not because of it. The reason the most affluent 10 percent pay a greater share of taxes is that they are getting a greater share of all income. Their share of all pre-tax income went from 37.5 percent in 2001 to 42 percent in 2007.

The GOP and their conservative counterparts in the media would argue lamely that by overtaxing the rich you dry up the financial resources that would go into job creation.  This sounds good in theory but is simply not the case as the first part of the 21st century has indicated.  Under Bush and the GOP, job growth was the weakest it had been from previous administrations with only a 4.8 percent increase in jobs during the entire period the Bush tax cuts were in play.

That’s not nothing, but it’s pretty anemic compared to job growth under President Bill Clinton. President Clinton, after raising taxes in 1993, oversaw an economy that went from 111 million jobs in August of that year (the month Clinton’s budget plan passed, including the increase in taxes) to 129 million jobs six years later—an increase of 16.2 percent, and more than three times better than under the Bush tax cuts.

And the Bush tax cuts didn’t just fail to stack up on jobs. Overall economic growth was much slower under the Bush administration’s tax policies than under the Clinton administration’s tax policies. Real gross domestic product grew by 26 percent in the six years after Clinton’s tax increases. But real GDP grew by just 16 percent in the six years after the Bush tax cuts began. In fact, that six-year growth rate was low even by general historical standards. The average real GDP growth in any given six year period (from any quarter to the same quarter six years later) since World War II was 22 percent. SOURCE

The Center on Budget and Policy priorities agrees that our deficit issues are more a result from discretionary spending and tax cuts than mandatory spending which entitlement programs like Social Security and Medicare/Medicaid come under.  According to the CBPP “the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.”  (See diagram below)

Though nearly a third of all federal spending goes toward Social Security and Medicare/Medicaid programs – paid for in large part by deductions from income earners – one-fifth goes to National Defense, which includes Homeland Security.  The GOP has focused on the two major entitlement programs and have given nothing but lip service to cuts in national defense.

Social Security and Medicare/Medicaid are facing fiscal problems because of retiring baby boomers and lost revenue from high unemployment rates but there are ways to reduce entitlement costs without reducing needed benefits for most of the recipients.

One such measure that would address Social Security’ financial ills, that the GOP and their wealthy, corporate friends object to, would “eliminate over 100 percent of the currently projected 75-year long-range actuarial deficit … and would provide enough funding to pay scheduled benefits every year through 2080.”   This could be done by simply raising the current income level of $106,800 that are taxed for Social Security purposes.  SOURCE

The largest cost over runs in Medicare and Medicaid are fraud committed by care givers and medical supply vendors.  Making stronger efforts to reduce this criminal activity could save the system billions in lost revenue.  Eliminating many unnecessary medical procedures and drug prescriptions would also help lower Medicare/Medicaid costs considerably.  Both of these steps are part of the new health care reform bill that was passed last year when Democrats were still in control of the House and that the new GOP-controlled House has attempted to negate by passing HR 1217 – the Repealing the Prevention and Public Health Fund bill.

One showcase item that illustrates how poorly Republicans address the needs of one segment of low-income citizens while contributing to a bloated deficit is the Prescription Drug Bill that passed in 2003 by the GOP-held Congress and signed off on by George Bush.  Rather than allowing Medicare to negotiate lower prescription prices or allowing Americans to purchase cheaper medications in Canada and Europe, the $400 billion program ensures that Big Pharma continues its practice of over charging Medicare and Medicaid beneficiaries as well as their benefactor, the U.S. tax payer.

With all of this information at our disposal why do Republicans insist on making this an issue that can only be resolved by spending cuts, especially those cuts that impact the most vulnerable amongst us?  It’s been contended that they are more interested in exploiting a bad economy (that they helped foster) with the hope that voters will oust the current president and the Democrat majority in the Senate so they can regain control of these two seats of power.

Would they really be so insensitive to inflict the damage their efforts could have on millions already struggling to make ends meet just to hold political sway in seats of government?  A bigger question is why would voters re-seat a Party that essentially has made no attempt to correct the problems that have brought our working families to their knees and who did everything they could when they last held that power to meet the special interests needs of less than 2% of their constituency?

With just a few days left before this nation defaults on its financial obligations from GOP obstructionism, the American public needs to become better informed about those who represent them in Washington.  FactCheck.org resources have helped lay this out but will those who have thus far been partially misled continue to rely on their own subjective sources and allow ideology to prevail over sanity?  I encourage all who read this to go to this page on FactCheck.org and decide for themselves if the GOP has their best interests at heart.

RELATED ARTICLES:

How the Deficit Got This Big

Debt Ceiling Poll:  Voters With Obama

Dumbing Deficits Down

The Emergency in Front of Us is Jobs


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6 responses to “Both Sides of the Fiscal Equation

  1. Okay, I am passing this one around. So many people believe the answer to everything is making cuts and eliminating necessary programs. Tired of this budget thing and at this point, I think Ohio should have to secede from the union for electing John Boehner or at the very least, they sacrifice all potential federal aid for the damage they have done. I guess that’s not fair?

    • I’m afraid Boehner is more of a pawn to be played by Tea Party extremists and moneyed interests like the Koch Brothers than pose in any roll one should take seriously. I’m afraid he’s the leader of a pack of radical half-wits and may find himself on the outside soon if he doesn’t toe the line more fervently

  2. And Boehner needs to watch his back….Cantor is just waiting to plant a knife in it…….if Cantor gets his desire and becomes Speaker…it will get WORSE!

  3. Another well thought-out, well written article. You pretty much said it all, but still, I fear people want to believe what they wanna believe, facts notwithstanding.

  4. Such a great summary, Larry! I printed out the list “Where Did It Go” to show my husband so he can correct his cronies who think that all the money is going to foreign aid. Something has to happen, so, but I am not sure if the President can pull this off. Scary!

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