Spending Problem or Revenue Problem?

July 12, 2011

In April 2011, Speaker of the House John Boehner said, “Washington has a spending problem, not a revenue problem.”

Variations on this statement have been made by other Republicans, including House Majority Leader Eric Cantor, who said, “Most people understand that Washington doesn’t have a revenue problem, it has a spending problem” and added “We can’t raise taxes.”

President Obama has proposed that the Bush tax cuts should be allowed to expire for the wealthiest taxpayers, and Alan Greenspan proposed that these tax cuts should expire at all income levels.

Federal revenues come from taxes on individual and corporate income; payroll taxes for social insurance programs (such as Social Security and unemployment compensation); excise taxes; estate and gift taxes; remittances from the Federal Reserve System; customs duties; and miscellaneous fees and fines.

The two largest sources are individual income taxes and social insurance taxes, which together produce more than 80 percent of the government’s revenues.

Over the past 40 years, federal revenues have ranged from nearly 21 percent of gross domestic product (GDP) in fiscal year 2000 to less than 15 percent in fiscal years 2009 and 2010.

If we look back to 2001, we can see the last balanced Federal budget, when spending was about 18% of GDP, with revenues of about 20% of GDP.

In FY 2010, we have revenues of about 15% of GDP and spending of 24%.

I’m no rocket scientist, but I primarily see a revenue problem (in addition to a spending problem).

Clearly, the spending problem has been exacerbated by astronomic increases in defense spending relative to the wars in the Middle East, plus increased spending on homeland security.

Fact is: The Pentagon’s budget has increased dramatically since 2001.

The Pentagon’s base budget (excluding war and nuclear weapons funding), increased from $390 Billion in FY 2001 to $540 Billion in FY 2011, a real increase of 38 percent.

In inflation-adjusted dollars, the total defense budget has grown from $432 Billion in FY 2001 to $720 Billion in FY 2011, a real increase of approximately 67%.

No political commentary here. Merely a reality that you can’t spend more than you take in without incurring a budget deficit. It’s really that simple.

So, I’m patiently waiting for our Senators and Congresspeople to start telling us that they understand this simple reality.

The reason why we have a budget deficit? It has very little to do with the Obama Administration. It is mostly due to a decade of rampant spending balanced against tax preferences to the very wealthiest Americans.

It only seems reasonable to equalize income tax collections across economic lines.

Let’s allow our income tax code to become more progressive, and eliminate some of the archaic tax preference items that create tremendous inequity in our economy.

And, let’s work toward a system that tries to eliminate the “shadow economy” — in some estimates greater than $1 Trillion — where there are no taxes paid, all cash, completely “off the grid.”

We really don’t need or deserve any more political rhetoric from our elected officials in Washington.

What we do need – and truly deserve – is responsible action to put the U.S. back on track to leadership in the world economy.

We must expect nothing less from our elected officials. Let the partisan rhetoric stop, and let real leadership take center stage.

For those who are interested, here is a link to a recent analysis from the Congressional Budget Office: http://www.cbo.gov/doc.cfm?index=12085

Thanks for listening. If each of us were to do a bit of digging and take an honest informed position, we could probably fix the problems.

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