Tuesday, October 26, 2010


Cal Thomas in the Oct 20 San Antonio Express had an article titled "How to begin cutting budget?  Here's a plan"

Mr. Thomas starts off with the statement:
In the last two years, spending by the current Congress has increased 21.4 percent, according to the Congressional Budget Office.
Now looking at that statement one would think wow! them tax and spend Demoncrats are at it again!  Has spending increased?  Yes.  Was there a reason for this increase?  That depends on which model you wanted to follow.  Obama's model said - pump money into the economy to replace money that is being withheld by nervous investors and a public now in 'save mode'.  The opposing model; let the chips fall where they may - hands off - was not chosen.

No one has hindsight to know which model would work best.  You can't say the one not chosen is better because, well, you have no data.  There are economists that will tell you their model is better, but as the Authors of Superfreakonomics stated, economists today can't agree on if Roosevelt's New Deal programs were good or bad.

Economics is not my strong point.  I know enough about the basic principles in play to be able to listen, but not enough about the dynamics to make any type of bold statement as to what is, or is not, sound.  So when a statement like "spending by the current Congress has increased 21.4 percent" is made, it is stated primarily for the sake of appearance and not to show cause and effect.

Which means I too can show something that has a lot of detail enclosed, but paints a really striking picture when you look at it.

US Outlays v. Revenue

If you are like me, this probably looks a little confusing, especially if you don't understand the terms associated with each line.  Here is how the CBO defines them:
Outlays: Spending to pay a federal obligation. Outlays may pay for obligations incurred in a prior fiscal year or in the current year; hence, they flow partly from unexpended balances of prior-year budget authority and partly from budget authority provided for the current year. For most categories of spending, outlays are recorded on a cash accounting basis. However, outlays for interest on debt held by the public are recorded on an accrual accounting basis, and outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs instead of cash transactions.
Revenues: Funds collected from the public that arise from the government’s exercise of its sovereign or governmental powers. Federal revenues come from a variety of sources, including individual and corporate income taxes, excise taxes, customs duties, estate and gift taxes, fees and fines, payroll taxes for social insurance programs, and miscellaneous receipts (such as earnings of the Federal Reserve System, donations, and bequests). Federal revenues are also known as federal governmental receipts.
So what you are looking at in this graph is a lot of accounting stuff.  That means that behind each point on the graph is something that may, or may not, be the fault or credit of the group in charge.  Yes it has spiked in 2010 because of the stimulus.  But that stimulus was the result of an economy that was collapsing.  Same thing can be said for the dip in 2001 under Bush.  That's when 9/11 hit and people changed their behavior which affected our economy.

You can also see a real dip in revenue under Bush because of the 2001 & 2003 tax cuts, which I contend, was ill advised since we had a war going on and we, as a society, should have paid for that instead of borrowing money from China to pay for it.  But I digress.

An argument could be made from the graph that revenue increased around 2004, but some of that could be from a nice little deal worked out that would temporarily drop the tax rate to 5.25 percent and hundreds of billions of dollars came back into the US.

Another argument could be made that this is when the real estate bubble was starting to kick into high gear and lots and lots of money was changing hands.  But revenue based on a bubble, in my opinion, is not a sound way to sustain a big ol' giant entity like the US.  And in 2009 you see it sink when the bubble burst.  If you look at the graph to bolster the argument that tax cuts increase revenue, then I think you are missing what is really behind those graph points.

But lets say the graph - as it looks - does support a few perceptions.  Obama has increased spending, the Bush tax cuts increased revenue.  It's all there in the graph.  OK, fine.

What else does the graph show?

Which president had the best period of revenue vs. outlays?  Go on...you can do it.  Say it...say it....

President Bill Clinton - 1993 through 2001.

Oh, and remember, that outlays include interest on the debt.  All that borrowing for the war and stimulus adds up in the form of an interest payment - which, by the way, is going to the rich investor types who argue against any increase in their tax rate and make huge bonus payments for their wise investing deals. 

We are fools to not recognize this and, as a Nation, pay for it now.  You cannot cut spending enough to slash the debt being accrued.  It has to come from taxes.  Either raise them or stimulate the economy to the point that revenue increases because money is changing hands and taxes are collected.

We got a crises here people, get off your blame the other guy horse and start walking the talk.  If we want it fixed, then we need to accept that our bad behaviour in the past has brought us to this juncture. 

It wasn't me that did it....or was it?

Nah...it's all Obama's fault.  Just look at the graph!

No comments: