Writing at the blog of the American Enterprise Institute, John Makin is very concerned about the graph above, which illustrates the growth of federal spending and federal receipts over time:
The approach of the debt ceiling by late February, when the US supposedly can’t pay its bills, has brought the “man bites dog” attention seekers out of the woodwork. Former government lawyers write in the Wall Street Journal that concern is silly because the law mandates that revenues be used to pay interest on the debt first. True, but that means that most other programs are drastically cut — no social security checks, etc — while the economy, deprived of a quick $300 billion per MONTH (over 2% of GDP) goes into cardiac arrest.
and urges Americans to face reality rather than seeking out “gimmicks”, e.g. trillion dollar platinum coins.
Here’s another graph of federal receipts and expenses which to my eye illustrates the problem even more clearly:
That’s the same information from the same source, the St. Louis Federal Reserve, but it’s shown in log scale. Several different interpretations of that are possible but here’s mine. Federal revenues and expenditures grew approximately at the rate of inflation until the 1970s. Revenues fell during recessions; spending increased during recessions. In the late 1970s spending started growing a lot faster than revenues and that separation has continued ever since, expect for a brief, aberrant rejoining of their paths during the dot-com bubble.
Here’s what I think is the real, big question mark. Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, etc. all failed at extracting more than 20% of GDP in revenues over any extended period of time. Marginal rates, population, etc. made no difference. Occasionally, it would go over 20% very briefly and then decline again. Expenditures have exceeded 24% of GDP for some time. Under the most optimistic scenario those would fall to just over 22% of GDP. Under less optimistic scenarios they would remain at around 24% of GDP or even increase. Realistically, that means between $500 billion in annual deficit (the optimistic scenario) and $800 billion in annual deficit (the less optimistic scenario). It’s not difficult to imagine trillion dollar deficits extending into the indefinite future, especially if the economy slips into recession again, which seems more than likely over the next few years.
It’s mathematically impossible to make up that difference just by taxing the top 1% of income earners which seems to be the present plan. I don’t much care whether it’s politics, economics, psychology, or phrenology that makes it impossible to extract more than 20% of GDP as federal revenues. It’s never been done successfully over an extended period so, if that’s your plan, I want to know how you’re going to do it.
It seems to me that would take either a substantial sales job or enormously increased enforcement along with a broadening of the tax base to accomplish the feat. What’s your plan?
Alternatively, we can reduce spending. My candidate for doing that is, was, and always has been some combination of reduced defense spending and reduced healthcare spending. I don’t see any way to get where we need to go without reducing healthcare spending. Not reducing its growth; reducing the spending.