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    Fiscal Chart of the Day: Heritage Shows That Unprecedented Spending, Not Taxation, Is Our Real Problem

    Fiscal Chart of the Day: Heritage Shows That Unprecedented Spending, Not Taxation, Is Our Real Problem

    Monday, President Obama issued yet another call for a “balanced” approach to our budget crisis, which is of course Obamaspeak for tax increases combined with small or phantom cuts in spending (with the possible exception of very real cuts in defense).  This wording is calculated to make him seem reasonable and moderate, but the facts of our predicament say otherwise.  To the extent that we have a revenue problem, it is due to the recession, not low tax rates.  Our spending problem, however, is a problem of policy, and one that Obama has heightened to unprecedented levels – ones that even unprecedented, social-contract-rewriting levels of taxation cannot repair.

    From the Heritage Foundation’s Budget Chart Book,  a chart describing our historical revenue – and spending – situation.

    Over time, revenue has hovered around 18% of GDP, generally no more than plus or minus 2 percentage points. Revenue only once crossed 20% of GDP, and even then only briefly when the Clinton tax increases met the height of the tech bubble.  Think back to all the controversial tax policies of the last few decades – the Reagan Tax Cuts (and increases) Bush 41’s “No New Taxes” violation, Clinton’s massive tax hikes, the Bush (43) Tax Cuts (when discounted by the effects of the post-911 economic downturn) – in every case, insignificant in magnitude compared to the sorts of revenue required to bridge the fiscal chasm that Obama and the Democrats opened before us.  And these tax policy changes often affected large swaths of the population.  The Obama administration is selling the fantasy that there exists a reasonable solution that only raises taxes on the wealthy, corporations, private jet owners, and his shopworn rogue’s gallery of easily-scapegoated “others.”

    It is true that federal revenue has crashed to unprecedentedly low levels during this latest recession (and the previous one), possibly compounded by Obama “stimulus” spending hidden in the tax code (which is part of our spending problem, not taxation, and in any event is temporary) and other recession-driven temporary measures.  However, since actual tax rates have remained relatively stable since before this last revenue crash, this drop is attributable directly and indirectly to the recession, not tax rates.  Certainly, the income tax rates paid by the wealthiest Americans were not altered during this time, as the rates remained the same and they were generally ineligible for Obama’s hidden spending. Either way, revenue is projected to recover on its own to around the historical average in a few years.

    Besides, non-economist that I may be, I’m fairly certain that increasing taxes to make up for lost revenues in a recession violates the prescriptions of both Keynesian and supply-side economics. But I guess class warfare demagoguery can work as a political strategy even if it doesn’t work as an economic one.

    The Obama administration’s profligate spending policies have jumped spending almost to 25% of GDP, and between the ObamaCare bomb and the Baby Boomer retirement entitlement bomb, the government’s share of the economy will continue grow to unmanageable levels.  We have a long-term, policy-driven spending problem and a short-term, economically-driven revenue problem, and until President Obama and the Democrats get serious about the spending mess they’ve got us into, no amount of even-sounding talk is going to get us out of it.


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    […] As for me, I’ll just bang the Rahn curve drum here again, and note that while gov’t spending may buy short-term growth it won’t help us in the long run, and that short-term fiscal candy is how we got into today’s ugly mess. […]

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