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  • Deficits: Spending, Not Revenue, Is to Blame

    Deepening federal budget deficits indicate that one component of the federal budget baseline—either spending or revenue—is out of alignment. Closer inspection reveals that spending is the root cause, but both spending and revenue deserve equal treatment in policy discussions about reducing debt and deficits.

    Often, however, Members of Congress and others influencing policy simply tout the need for more revenue as it suits their spending policy aims. A prime example of this tendency comes up in assertions about extending the 2001 and 2003 tax relief packages.

    Some, like the Committee for a Responsible Federal Budget (CRFB), have stated that any extension of these temporary tax policies must be “paid for”—either through spending cuts, revenue increases, or a combination of both. This condition is necessary, CRFB claims, because the 2001 and 2003 tax cuts—if Congress extends them beyond their scheduled 2012 expiration—would “cost” nearly $2.4 trillion over 10 years. Assigning blame for federal deficits solely to tax cuts ignores a large and more significant element of the deficit equation: federal spending.

    If Congress has decided to vote to extend tax relief, it should also have to vote on the amount of taxpayer dollars it wants to spend. Few spending programs are authorized indefinitely, and this is a good thing. Countless spending programs, such as the highway bill, the farm bill, and all appropriations, are temporary (just like the tax cuts) and should be paid for if they are reauthorized. Programs subject to appropriation, excluding defense funding, are projected to cost nearly $7.7 trillion over the next 10 years. Reauthorizing the farm bill in 2008 continued a policy of giving $25 billion in annual taxpayer subsidies to farmers.

    Total federal program spending, which is projected to reach 26.4 percent of gross domestic product (GDP) by 2021, has an undeniable impact on the baseline. Indeed increased spending—not insufficient revenue—is the cause of worsening deficits, as this graph from Heritage’s 2011 Budget Chart Book illustrates.

    Blaming deficits on policies affecting only the revenue side of the budget baseline equation may be convenient, but any sound budgetary policy should not be based on such an asymmetrical perspective.

    Posted in Economics [slideshow_deploy]

    15 Responses to Deficits: Spending, Not Revenue, Is to Blame

    1. Kevin H, college par says:

      To say there is just one thing to blame is disingenuous…and silly. Increased spending certainly has had an effect – two wars are costly, the 2003 Rx bill is costly, but those do not compare to effect of the 2001 and 2003 Bush tax cuts.

      In the last 3 decades, taxes for the top marginal rate have been cut from 70% of every dollar made over $214,000 to 35% for every dollar over $435,000. That, along with the massive cuts in estate tax, capital gains and dividend tax – and you try and make an argument that it's all do to spending.

      Seems like the far right has become a crown of 'all or nothing' and life just isn't that simple.

    2. Kevin, Ellicott City says:

      spoken like a true Liberal – tax cuts are the problem. A tax cut from 70% when Reagan took over down to 35% today is a problem? Only a true Lib does not have a problem with a tax rate of SEVENTY PERCENT. No sir, the problem is, you MORON LIBS HAVE TO QUIT COUNTING OUR MONEY AS GOVERNMENT REVENUE. ITS NOT THE GOVERNMENTS MONEY YOU JACKWAGON…..WE EARNED IT!

    3. Don, Meredith, NH says:

      Kevin H., perhaps you should consider the purpose of the tax code. Is it to raise revenue for the government? Is it to make people think the rich are being taxed more when they are not paying more taxes? If the purpose of taxation is to fool people into thinking the rich are paying more taxes rather than to actually collect more taxes including more from people with higher incomes, then I would have to agree with you.

      Otherwise … for example ….

      You may recall how "horrible" the economy was during the Bush years. The average unemployment skyrocketed to about 5.5% and, according to the media, the only jobs people could get was flipping hamburgers at McDonalds. Then Bush cut the tax rates in his "tax rates for the rich" scheme which is part of what you seem to be complaining about. And, all this Bush era "depression" followed the boom years of the Clinton economy that so many people think of as nirvana.

      This leaves me with two questions:

      1. Even before the Republicans took over the House of Representatives, Obama and the Democrats extended the "Bush tax cuts for the rich"? Why did they do this if the only beneficiaries were the rich? The answer is that the label "Bush tax cuts for the rich" was always a lie. Those tax cuts were extended because they a) shifted more of the burden of taxation onto those with higher incomes, b) eliminated millions of lower income Americans from having to pay any taxes, and c) cut the tax bill for middle income Americans by $2000 – 3000 on average.

      2. If cutting the income tax rates for the higher income people is so bad, how come the total income tax collection during the Bush years, years we were told had a horrible economy and that suffered the shock of 911, were significantly higher than the total income tax collection during those wonderful, thriving Clinton years? In fact during the Bush years total income tax collections were about 22% greater than during the Clinton years ($7.6 T vs $6.2 T).

      The fact is that tax rates are not the important factor, total tax revenues is what is important. Total income tax (estate tax too) went up during the Bush years. You will also see if you check the records that tax revenue also went up after Kennedy lowered the tax rates and after Reagan lowered the tax rates.

      If you want to complain about the spending during the Bush years, I will agree wholeheartedly. They spent too much. The only positive thing that can be said about the spending under Bush is that except for the military, the Republicans almost always spent less than the Democrats wanted them to spend. But, as far as I am concerned that is no excuse for the irresponsible spending.

    4. Chris J. Breisch says:

      Good article, but would be better if it would further break down the increases in spending by category. Is it really "two wars" or "entitlements" or something else? Or, more likely, some combination of the three?

    5. Holden Magroin says:

      Gee Kev,

      Yes, marginal tax rates have at times been higher. Yet, as the article (and history itself) shows, we usually collect around 18% of GDP as revenue. In fact the most we have ever collected is 20.9%. So please enlighten us as to how 20.9% of GDP taken in covers 26 percent of GDP spending? Or the current 24%?

      I sincerely urge you to read this:

    6. Ty Brentwood says:

      Applying Spending cuts and increasing Gov. revenue will NOT solve anything, indeed, will only cause the general spending by public to contract further due to instability. What is needed is a total overhaul of the entire Economic Structure at State and National levels then by default to apply to legal citizens also.

      The FALGAFT Plan is based at this level.

      To continue with this "Us and Them" scenario in-line with current economic variables will ultimately cause the entire system to ground to a halt. Then WHO will to be blamed ?? More importantly, — How many people and families have to suffer while this maddness continues. ???

    7. Danal J Charlton, 43 says:

      After looking at the Graph, we can see spending is out of control and needs to be fixed. But the Revenue could help to balance the Budget. I think they should all try working together in order to Balancing the Budget and controlling the spending !!We are all going to have to live within our means, I have to !!

    8. David, Buena Vista, says:

      Keven you need to actually LOOK at the data. Did you see the chart in this article? The revenue as a percentage of GDP has essentially remained unchanged, so your constant mantra of Bush's Tax Cuts needs to go. The Spending as a percentage of GDP has gone up drastically since Obama took office and revenue has remained essentially unchanged, as a percentage of GDP.

      Look, it's pretty simple math. Let's walk you through it. You spend 23 percent of your income on a home every month. If your income goes down, your spending as a percentage of your income goes up. Simple. Can you just get rid of your home? Well maybe you have to… or maybe you have to cut elsewhere, like lose the cable, eat generic food, get a walmart haircut, and buy cheaper clothes and make them last longer.

      Do you get it yet? You simply cannot just go to your boss and demand more money! If he gives you more money, he has to take it from somewhere else. You need to make do with what you have, until things get better.

      This is what our government needs to do. It needs to cut things that can be cut, that we can do without, and stop trying to increase the income in relation to GDP. It never works, because when you take money out of the economy and give it to the government, it decreases the amount of money in the economy and the number of times it can be circulated amongst a free market. This reduces the GDP and will by direct action, deplete the reserves even farther.

      There isn't enough money to pay for the things you want. You have to learn to want less.

      Get some lessons on how the economy works, then come back with something a little more than just "BUSH THIS AND BUSH THAT".

    9. Jerryb, texas says:

      yea dummy the more they tax the more the idoits spend on pure nonsense

    10. Bob H. says:

      @Kevin…revenue has increased year after year after year with few exceptions. We need fair tax rates, not higher tax rates. Revenues don't go up just because rates do.

    11. Brad S., Detroit, MI says:

      Kevin. Jealousy of rich people is so unbecoming. Here are some famous quotes that you need to review before you spout the typical liberal talking points.

      "A government which robs Peter to pay Paul, can always count on the support of Paul. " – George Bernard Shaw

      "A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury." – Alexander Tytler

      "To tax the larger incomes at a higher percentage than the smaller, is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbors." – John Stuart Mill

      Just some food for thought. The government needs to live within its means and not spend money it doesn't have in the name of morality.

    12. Bill P. says:

      The article is about revenue and spending. What really needs to be addressed is the cvulture in Washington that says Congresses job is to spend money. Given that task we all would succeed!! The American government needs to learn that the job is not spending but getting out of the way of where the spending c

      onstitutionally was designed to be and that is in the states. 70% of what goes to Washington should never leave the states. What the Federal government has done for 80 years has been to usurp the power and authhority of the states. If we can change that attitude there is hope!!

    13. Pingback: Morning Bell: Send Education Dollars and Decision-Making Back Home | The Foundry

    14. Taum, Bossier City, says:

      Kevin H. I have one question for you. Would you like your income to be taxed at the same percentage rate as the "rich" as you refer to them? The "rich" and not so "rich" are the people that create jobs through their businesses. Taxes are not the only expense these "rich" people have in relationship to their businesses. Insurance and government mandates are costly expenses also. So just because someone is shown as being "rich" there are many other factors to take into account.

    15. Pingback: Morning Bell: Unemployment Is No Laughing Matter | The Foundry

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