Sunday, March 6, 2011

Its about revenue, stupid

Last weekend I was treated to a pretty pink and purple sunrise.

This past week, Monday I think, there was a moon rise very early in the AM. The moon was just a sliver and during the 15 minutes when it was low on the horizon, it was perched in the sky nearby a large point of light, probably a planet. The juxtaposition of the two was like something you would see on a SciFi movie about a far away world.

I have heard many a deficit hawk claim that our current budget deficit woes are about spending, spending, spending. Rep Ryan has emerged as one of the leading voices in this area and he has been quoted more than once as saying something to the effect that tax revenues are fine, it is the "out-of-control" spending that has created the fiscal mess we are in.


I googled federal tax receipts and found that tax receipts for fiscal year 2009 (many Obama blamers forget that the federal budget runs from September through August so the 2009 budget was President Bush's last) were about the same as those for 2005. Clearly, the recession was in full bloom causing a backslide of tax receipts which was not matched by a similar reduction in spending. In retrospect, it is easy to see how devastating such a reduction would be and realize that very little could have been done to prevent it. (The 2009 deficit was $1.4 tillion by the way). What President Bush started - a federal plan to bolster the economy via the TARP program, various bailouts for the automakers and Wall Street - President Obama continued via more bailouts for troubled industries and the stimulus program. As a result, the 2010 federal budget, still saddled with 2005 level receipts, saw an increase in spending over 2009 to create another $1.5 trillion deficit for the year.


Clearly, we need to work towards bringing receipts and spending more in line. But to ignore the fact that tax receipts were reduced $400 billion from 2008 to 2009 (almost 20% less) ignores half of the budget deficit issue. Also, and it is certainly debatable, there are many economists who would say that the bailouts and additional spending that occurred in 2009 and 2010 prevented an even more severe recession. Again, it is hard to know what would have happened, but it is certainly conceivable that the current state of recovery would not be as far along as it is without the increased spending.

I have heard it said that President Reagan won the cold war by outspending the Soviet Union. A look at the federal budget numbers for his eight years in office reveal that there was a strain on our federal budget as well resulting in yearly federal budget deficits as well as a doubling of our national debt. If we assume it was money well spent then, why aren't we as willing to assume the current deficit spending is also worth while if it avoided a deeper recession?

Sometime soon, taxes will rise. History is clear; President Reagan's deficit spending spree resulted in higher taxes during his 2nd term and during that of the first President Bush. Rather than starting now, Congress and President Obams recently chose to extend the Bush era tax cuts, thereby increasing the deficit even more. Again, the idea is to get more money into the hands of the populace but the fact is, the debt will increase.

Lets reduce spending. But lets recognize that a deficit is the normal result of a recession. And lets also remember that how we reduce federal spending will reveal our priorities. We applaud the deficit spending which contributed to the decline of the Soviet nation. Will we be as eager to continue deficit spending if it helps fellow Americans stay in their homes, secure access to medical services, obtain medical coverage, afford higher education and place food on their tables?

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