Funding Government Spending

Stimulus Spending Equals More Debt, Not Economic Growth

Yet this was the recovery that was aided by the largest Keynesian-style big government “stimulus” since World War II. Since 2008, total federal “stimulus” has been $4.6 trillion, as shown in the chart. As a share of GDP, recent deficit spending has been far greater than during all other recessions since the war.

Biggest Keynesian Stimulus + Slowest Recovery = Time to Rethink Keynesian Theory.

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Federal Revenues and Spending

The CBO report and many centrist budget wonks focus more on the problem of rising federal debt than on rising spending. As a result, many wonks clamor for a “balanced” package of spending cuts and tax increases to solve our fiscal problems. But CBO projections show that the long-term debt problem is not a balanced one—it is caused by historic increases in spending, not shortages of revenues.

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Federal Deficit

The federal budget deficit will reach a record of nearly $1.5 trillion in 2011 due to the weak economy, higher spending and fresh tax cuts, congressional budget analysts said, in a stark warning that will drive the growing battle over government spending and taxation...

The CBO report offered a sobering look at both the short-term and long-term fiscal outlook. It projected the unemployment rate would fall from 9.4% now to 9.2% by the end of this year and then to 8.2% by the end of 2012. It projected the unemployment rate wouldn't fall to typical pre-recession levels—about 5.5%—until 2016.

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Cartoon: It is Simple

Bush Tax Cuts and the Federal Deficit

Although the cuts were large and drove revenue down sharply, they are not the main cause of the sizable deficit that exists today. In 2007, well after the tax cuts took effect, the budget deficit stood at 1.2 percent of GDP. By 2009, it had increased to 9.9 percent of the economy. The Bush tax cuts didn't change between 2007 and 2009, so clearly something else is to blame.

The main culprit was the recession -- and the responses it inspired. As the economy shrank, tax revenue plummeted. The cost of the bank bailouts and stimulus packages further added to the deficit. In fact, an analysis by the Center on Budget and Policy Priorities indicates that the Bush tax cuts account for only about 25 percent of the deficit this year.

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It is the Spending, Stupid

This week, federal red ink topped $1 trillion. And there's still three months to go before the government's accounting year finishes. To put that in some perspective, the entire federal budget didn't reach $1 trillion until 1987...

The simple fact is that deficits are out of control right now because spending is out of control. That's the pretty obvious lesson drawn from looking at the past 60 years of federal budget data.

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Can Tax Rate Increases Eliminate the Deficit?

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Federal Debt and Deficit

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Budgets Projections: 2010 v 2011

A $2 Trillion Increase

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Federal Deficits: Real v Projected

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Budget Freeze (Sorta)

President Barack Obama intends to propose a three-year freeze in spending that accounts for one-sixth of the federal budget—a move meant to quell rising concern over the deficit but whose practical impact will be muted.

To attack the $1.4 trillion deficit, the White House will propose limits on discretionary spending unrelated to the military, veterans, homeland security and international affairs, according to senior administration officials. Also untouched are big entitlement programs such as Social Security and Medicare.

The freeze would affect $447 billion in spending, or 17% of the total federal budget, and would likely be overtaken by growth in the untouched areas of discretionary spending. It's designed to save $250 billion over the coming decade, compared with what would have been spent had this area been allowed to rise along with inflation.

read the WSJ article

Cartoon: White House Jobs Summit

US Federal Deficit As Percent Of GDP

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Federal Budget Deficits: Bush v. Obama

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The Federal Budget

The White House said it would launch a search for new tax revenues, as Congressional leaders moved to scale back proposed spending increases and tax cuts in President Barack Obama's ambitious budget.

read the WSJ article

CBO Analysis of 2010 Budget Proposals

A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook

read the CBO report

Obama and the Budget Deficit

The Congressional Budget Office is forecasting a deficit for this year of $1.2 trillion...

Besides, Obama also promised Tuesday night that 98 percent of American families, those earning less than $250,000, would not pay an extra dime in taxes. So to cut the deficit in half, he needs to raise taxes on the richest Americans and look for spending cuts...

In 2006, the latest year we have data for, the top 2 percent of tax returns yielded around $500 billion in revenue. So to cut the deficit in half, Obama will have to roughly double the tax rates on the top 2 percent. I don't think that strategy will be politically viable or economically productive...

Every president who inherits a deficit promises to cut it somewhere down the road. Only one president in recent years has kept that promise — Bill Clinton. But he was helped by six years of Republicans in the House and Senate. When the White House and the Congress are from the same party, it's very hard to say no to key constituencies that expect rewards for past support. If Obama is really serious about cutting the deficit down the road, he will almost certainly have to fight with his own party.

read the entire essay

Obama to Cut Budget Deficit in Half

President Barack Obama wants to slash America's ballooning deficit in half by 2013 by cutting spending on the Iraq war, eliminating wasteful public programs and raising taxes on the wealthy, an administration official said Saturday.

"The deficit this administration inherited was $1.3 trillion or 9.2 percent of GDP. By 2013, the end of the president's first term, the budget cuts the deficit to $533 billion or 3.0 percent of GDP," the official said on condition of anonymity.

read the CNN story

My thoughts: This is dishonest at best. FY 2008 the deficit was $455. The FY 2009 began October 1, 2008. It is Bush's budget in the sense that he proposed it, but the recently passed $787 billion that will effective balloon the budget to $1.3 trillion belongs on Obama's tab. If you look back at the Bush estimates, Bush was projecting a surplus by 2013. So a $533 deficit is hardly a victory. In addition the actually numbers will be closer to $2.0 trillion than to $1.3 trillion.

Budget Surplus/Deficit as % of GDP

The House passed an $819 billion tax-and-spending bill Wednesday, in a recession-fighting effort that would extend the reach of the federal government across the U.S. economy by reshaping policy on energy, education, health care and social programs.

The House bill is one of the largest single stimulus packages in history, almost equal to the entire cost of annual federal spending under Congress's discretion. A parallel Senate measure, which is expected to come to a vote next week, is now valued at nearly $900 billion.

read the WSJ article