More on the U.S. budget

Bruce Kaskubar analysis Leave a Comment

Figure 1

Figure 1

As mentioned a few days ago, our federal government dug our budget hole a lot deeper in 2009. Is it a big deal, looking at more than last year?

See Figure 1. For 2009, the green (generally lower) line shows government revenues — a.k.a. income — declining sharply and the red (generally upper) line shows outlays — a.k.a. spending — rising sharply. The gap is huge. The left axis is measuring billions of dollars. The budget hole was dug almost 1.5 trillion (that’s a million million) dollars deeper in 2009.

Looking from 1962 into the 1970s, it’s hard to see a gap at all. But our population, economic activity, government, and cost of living have all grown over the years. Is 2009’s gap just growth? It looks like it. Well, it looks like it from a spending perspective but not income. Income has taken a serious dive.

Figure 2

Figure 2

See Figure 2.  If our federal government collected and spent for the same purposes every year, then population growth and inflation would explain the historical upward trend in Figure 1.

Here, revenues and outlays are normalized to 2009’s numbers by adjusting for population and inflation. We still see an upward trend because government has grown over time. But now the gaps between income and spending are comparable in 2009 dollars.

The red (top) line from 2001-2006 shows the Bush administration and Republican Congress spending like drunken sailors. At the same time, though, in the second half of that period, we see income rising even faster, catching up to spending and reducing the size of the annual deficits.

Figure 2 helps us see that 2009’s spending is not just following the growth curve; it is the start of a new curve of unbelievable trajectory. (For the mathematically inclined, the spending slope from 2001-6 is $94 billion per year; from 2008-9, $539!) We’re looking at spending that makes drunken sailors look like penny pinchers. Worse, it is at a time when government revenues are in serious decline.

As long as we’re here, let’s point out something else. The uninformed and misleading like to complain about the “Bush tax cuts” causing deficits. Like Presidents Kennedy and Reagan understood, that is not true. All three presidents fought for and received tax cuts but they were cuts in the rates of taxation. More people and businesses paying less taxes per dollar of income means more revenue to the government. Following all three tax cutting policies, federal government revenues increased. The Bush tax cuts came in 2001 and 2003. The years 2004, -5, and -6 saw historic increases in government revenues. The deficits were caused by too much spending, not a lack of revenue. Before Compassionate Conservatism, the Republican Congress from 1995-2000 was reducing government spending.

Figure 3

Figure 3

See Figure 3. This shows the size of the gap from Figure 2. Where we ran a surplus, the value is above zero.In all but 5 of these 48 years, we ran a deficit so the value is usually below zero.

As we can see, 2009’s deficit is significantly different than any since 1962 and almost triple the second place deficit of 1983.

2009’s budget deficit is almost 2/3 the total deficit of the 8 Bush years.

2009’s budget deficit is 7/8 the total deficit of the 6 Bush years in which we had a Republican Congress.

2009’s budget deficit is a very big deal.

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