The Unwanted Blog

As the “debt ceiling” deadline gets closer, the debate in the FedGuv about what to do about the deficit gets louder and louder. On one hand you have Republicans who want to cut spending; on the other hand you have Democrats who want to raise taxes. In a simple world, if you have a deficit, you could solve the problem by either cutting spending, raising tax revenues or some combination. But this is not a simple world. Pay close attention whenever you hear a politician discuss raising taxes as a positive: they talk about raising tax *rates,* but you rarely if ever hear them mention raising tax *revenues.* This is, I believe, due to the fact that an increase in tax rates does not necessaril;y mean an increase in revenues. Sock it to the rich folk, and they’ll buy less stuff. Which means less stuff will be sold, and less stuff transported and less stuff made. Every step along the way an increase in taxes will lead to a decrease in jobs… and a decrease in the number and income of taxpayers. Right now the scapegoat for the “tax the rich” memesters is the “corporate jet.” We’ve seen this before in the form of increased taxes on luxury yachts. That did not turn out well.

Another thing to keep an eye and an ear out for are claims by the tax increasers that they are not out to punish the rich; they just want them to pay “their fair share.” Really. Well, take a look at taxes raised or lowered on specific, targeted industries: taxes are high on tobacco; “renewable” energy companies tend to get tax breaks. Why are these so? Simple: the government wants to discourage the use of tobacco, so increased taxes are supposed to help convince people to quit (when the actual end result seems to be more that poor people just shell out more money, and get poorer – and thus more dependant upon government handouts); the government wants to encourage the development and use of solar and wind technologies, so giving those companies tax breaks is supposed to make their products cheaper.

The government is quite clear that taxes are raised or lowered on certain products or industries based on whether or not the government likes them. So why should *people* who get their taxes raised or lowered see this any differently?

OK. So, the other side wants to cut spending. But the Democrats and their allies claim that the budget should not be balanced “on the backs of (fill in special interest group HERE)”. The budget, they say, cannot be balanced by simply cutting. Well, is that accurate?

According to gpoaccess.gov, the FY 2011 budget included $2.57 trillion dollars in revenues and $3.83 trillion in expenditures… a deficit of $1.27 trillion. The deficit is 49% the size of the actual revenues. Fixing the deficit with taxes would mean adding another 1/2 to the tax bill. Because obviously the government could not function if it could only operate with $2.57 trillion. or could it? Taking a look at the data, the government spent less than that ($2.47 trillion) way, way back in 2005. How about the last time the government ran with a surplus… all the way back in 2001, when the expenditures were only $1.86 trillion? Seems to me, if we simply used the same budget for 2012 that we used in 2005, we’d have a balanced budget *instantly.* What would be the problem here? What great benefit has been added in six years? What would collapse if we went back to what was obviously working in 2005? Or, better still, the golden age of the Clinton balanced budget years?

Looking at the graph of the budget, you can see that in recent years the “receipts” line has taken two major hits. Listening to the tax-increasers, the claim is often made that the reason for our current budget woes is due in no small part to the Bush tax cuts. But is that true? There were two major tax cuts during the Bush years… the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. The first one, the 2001 cut, might appear to be responsible for a dip in revenues. But if you look at the actual data, the tax revenues peaked in 2000 at $2.025 trillion, and were already starting downwards in 2001, with revenues of $1.99 trillion. The EGTRRA of 2001 didn’t kick in until 2002, and since it was a phased-in system, most of it didn’t kick in for some years more. Same with the JGTRRA of 2003. But the revenues started climbing between 2003 and 2004… when the JGTRRA started to kick in.

From 2003 to 2007, the revenues went from $1.78 trillion to $2.57 trillion. Compare that to the same time span for the previous upward-slope period… 1996 to 2000, when revenues went from $1.45 trillion to $2.03 trillion. In the 90’s, revenues went up by a factor of 1.4. In the 2000’s, revenues went up by a factor of 1.44.  Take note of this: the “boom years” of the Clinton administration were slightly outstripped by the Bush years and his supposedly disastrous “tax cuts for the rich.”

So, what the hell happened after 2000? Same thing that happened after 2007… a recession hit. Pay got cut, jobs got lost, personal and household spending was reduced… the economy slowed down, there was less income and thus less *taxable* income.

Note that there is no similar cut in *spending* for either the 2000 or 2008 recessions. Indeed, between 2008 and 2009, when revenues declined by a fifth, spending increased by about the same fraction.

This meandering diatribe now takes me to a speech given by Senator Marco Rubio. Among many other noteworthy things he had to say, there’s this:

 First of all, if you taxed these people at 100 percent, basically next year you said, ‘Look, every penny you make next year the government’s going to take it from you,’ it still doesn’t solve the debt. Not only does that not solve the debt problem, but I looked at a host of other — a great publication that came out today from the Joint Economics Committee, our colleague Sen. DeMint chairs it. And it kind of outlines some of the tax increases being proposed by our colleagues in the Democratic Party and the president to solve the debt problem. And you add them all up, you add all of these things up — the jet airplanes, the oil companies, all of the other things they talk about — you put them all together in one big batch, and you know what it does? It basically deals with nine days and 23 hours worth of deficit spending. Nine days and 23 hours of deficit spending. That’s how much it solves.

There are all kinds of arguements for and against tax rate increases and cuts. But it’s clear that tax increases give you less of what you’re taxing than a tax cut would; taxing productivity gives you less productivity at a time when the economy desperately needs as much of it as possible. It’s  entirely unclear that anywhere near the revenue needed can be raised by raising taxes. But at the same time, it’s equally clear that simply replacing the 2012 budget with the 2005 budget would give us an instant balanced budget; taking spending back to 2001 levels would clear up the debt in short order. Making no changes to the tax code whatsoever, $1.86 trillion in expenses with $2.57 trillion in revenues would give a surplus of $0.71 trillion. That’s just a whole lot of money. But even so, it would take twenty years to pay off the current $14 trillion debt… and that assumes that the debt doesn’t accrue interest between now and then (I’m guessing it would).

The answer to the countries budgetary woes is simple: cut spending. Cut spending to what it was just a few years ago, and the problem can be solved. But is that going to happen? I kinda suspect… no.