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All Da King's Men

Is The Problem Spending, Or Is It Revenue ?

By Da King Published: July 9, 2011

President Obama's thursday meeting with Congressional leaders didn't resolve the issues associated with the imminent debt ceiling crisis. More meetings will be held on sunday.

Make no mistake. If the debt ceiling isn't raised, it WILL wreak havoc on this nation. I've been hearing some politicos, mostly conservative ones, saying the country could still operate if the debt ceiling isn't raised. This is poppycock, and it's dangerous poppycock. Yes, the country still could operate without going further into debt, but that doesn't meant we should operate that way. Without a debt ceiling increase, government services would have to be seriously curtailed (we're currently borrowing over 40 cents of every dollar the federal government spends). Without a debt ceiling increase, 40% of the federal government would effectively shut down.

I do believe some kind of agreement will be reached to avoid a debt ceiling disaster (I sure hope so), but right now, Congress is playing chicken with our fragile economy. Each side of the aisle is making demands. In broad strokes, the debate boils down to this - the Republicans are demanding spending cuts. The Democrats are demanding tax increases. Who is right ? Do we have a spending problem, or do we have a revenue problem ?

A few historical charts should clear things up pretty quickly. The following charts are stated in dollars.

Here's a chart of government federal spending from 1900-2011:

As you can see, spending has gone through the roof. Since the advent of big government in the later half of the 1960's and 1970's, we've pretty much seen the size of government double every decade, far above the rate of inflation. Beginning in 2000, things got even worse. Government spending has more than doubled since then. In 2000, federal spending was $1.789 trillion. In 2011, it is estimated to be $3.8 trillion. That means spending has increased by $2 trillion per year in just eleven short years. That increase is more than the ENTIRE government spent in 2000. When Republicans say spending is the problem, they are standing on solid ground. The facts back them up.

Now, let's look at federal revenue from 1900-2011:

Government revenue has also gone way up over time. This is the "revenue problem" of which Democrats speak ? All I see is revenue increasing. If there's a problem, it's only that revenue hasn't kept up with the skyrocketing spending. This brings to mind a drunken sailor analogy. If a drunken sailor spends all his money on booze and can't afford to buy any more, does he have a revenue problem, or does he have a drinking (spending) problem ? Democrats are trying to tell us the drunken sailor has a revenue problem. I beg to differ.

Liberals like my blogger pal The Reverend will counter by saying things like 'federal revenue is at a 60-year low as a percentage of GDP !!!'. This is roughly true, and would make sense except for a key omitted fact. What the left leaves out of it's hysterical equation is this - GOVERNMENT SPENDING IS PART OF THE GDP CALCULATION, and that skews the numbers. For example, if government spending was $10 trillion this year instead of $3.8 trillion while revenue remained constant, revenue would fall to a much lower percentage of GDP than it is now. Would that be a revenue problem ? No, it would be a spending problem. It's disingenuous to skyrocket government spending and then blame the resulting deficits on a lack of tax revenue. That's little more than a political parlor trick. Btw, government spending at all levels accounts for a whopping 46% of GDP these days. That's the cause of the "revenue problem". Our federal, state, and local deficits represent artificial inflations of GDP. They are not real. That's why I keep saying we are living in a fictional economy. On the federal government level, it's about 40% fictional.

In the above chart, you'll notice a big dip in revenue starting in 2008. That's the recession. To the extent we have a revenue problem, the recession is the cause.

The argument being put forth by liberal Democrats, that we have a revenue problem, is very weak. The facts say otherwise. What the liberals are really saying is this - we don't have enough revenue to pay for all the government programs and social engineering desired by liberals. I doubt we'd ever have enough money for that. As British Prime Minister Margaret Thatcher said, "the trouble with socialism is, eventually you run out of other people's money".

Here's how fictional our economy is right now. This is a chart of federal deficits:

The final chart I'll show is our federal debt. Notice how the debt chart tracks almost exactly to the spending chart:

We have a lot of Democrats running around these days calling for "shared sacrifice". What Democrats mean by "shared sacrifice" is this - the bottom 50% of wage earners pay nothing, while the top wage earners, who already pay the lion's share of the taxes, pay even more. I'm not sure how that represents "shared" anything, but then again, I don't speak liberalese. I'm still trying to figure out what "social justice" means.

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