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Battle of the Charts: Spending Is the Problem, No Doubt About It

Posted By Kathryn Nix On July 6, 2011 @ 10:59 am In Economics | Comments Disabled

While Americans across the country were celebrating independence on Monday, Talking Points Memo (TPM) was churning out its “Chart of the Day” [1] to support the false claim that the nation doesn’t have a serious spending problem.

According to TPM, conservatives in Congress are focused on cutting discretionary spending as part of a vote to raise the debt limit. (Discretionary spending represents the sliver of the federal budget that lawmakers can control.) Discretionary spending has increased in recent years and should be reduced, but it is open-ended entitlement spending, which includes Medicare, Medicaid, and Social Security, that accounts for almost 60 percent of the budget and will drive looming deficits. Several conservative proposals exist to reform these programs (see here [2], here [3], here [4], and here [5]). Their aim is to curb runaway entitlement spending and put these programs on a sustainable path.

The Heritage Foundation has its own series of charts [6] to separate fact from fiction. They were created using data from the non-partisan Congressional Budget Office and the President’s scorekeepers at the Office of Management and Budget, and they make it clear that spending is not just a huge problem. It is the problem.

TPM’s chart compares security and non-security discretionary spending to entitlement spending and total revenues in 2001 and 2011, disregarding what happened in between. This shows defense spending rising over the last decade more than any other category. It should come as no surprise that military spending grew as the nation went from a time of peace to fighting the global war on terrorism. But the chart is misleading. Looking at the bigger picture, defense spending is currently below its historical average of 5.2 percent of GDP, despite wars in Iraq and Afghanistan. Meanwhile, entitlement spending has increased rapidly [7], from just 2.5 percent of GDP in 1965 to about 10 percent today.

[8]

TPM also points out that federal revenue is 76 percent lower (as a percentage of GDP) than in 2001 and puts part of the blame on the 2001 and 2003 tax cuts. But low revenues are a result of the economic recession. History shows that tax revenue depends on more than just tax rates [9]. For example, in 1960 the top individual tax rate was 91 percent, bringing in 7.8 percent of GDP in revenue. Despite a monumentally lower tax rate of 39.6 percent in 1993, tax revenue remained at the same percentage of GDP. In 2007, after the 2001 and 2003 tax rates were firmly in place, tax revenue was at 18.5 percent, above its 18 percent historical average. Tax revenues dropped shortly thereafter during the financial contagion and the global recession. The best way to raise revenue back to more normal levels is with tax reforms that promote economic growth, like those in Heritage’s Saving the American Dream [10] proposal.

[11]

It’s irresponsible to say Washington doesn’t have a spending problem, when spending is actually Washington’s biggest problem. The historical average for federal spending is 20.3 percent of GDP, but spending will reach 24.7 percent by the end of this year and continue to climb from there. By mid-century, funding the federal government under current policy will consume more than half the U.S. economy [12]. Meanwhile, tax revenues will return to their historical average by the end of the decade and then continue to rise. As enormous deficits add to the national debt, it’s clear what’s to blame: spending, spending, and more spending.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/07/06/battle-of-the-charts-spending-is-the-problem-no-doubt-about-it/

URLs in this post:

[1] Talking Points Memo (TPM) was churning out its “Chart of the Day”: http://tpmdc.talkingpointsmemo.com/2011/07/chart-of-the-day-out-of-control-spending-not-really-out-of-control-at-all.php

[2] here: http://www.foundry.org/2011/06/21/from-sen-hutchinson-another-opportunity-for-congress-to-save-social-security

[3] here: http://www.foundry.org/2011/06/28/two-cheers-for-the-coburn%e2%80%93lieberman-medicare-proposal/

[4] here: http://www.foundry.org/2011/05/25/more-bold-proposals-to-solve-the-medicaid-crisis

[5] here: http://www.heritage.org/Research/Reports/2011/05/Ten-Myths-of-Ryans-House-Budget-Plan

[6] own series of charts: http://www.heritage.org/budgetchartbook

[7] entitlement spending has increased rapidly: http://www.heritage.org/budgetchartbook/defense-entitlement-spending

[8] Image: http://www.foundry.org/wp-content/uploads/defense-entitlement-spending-6001.jpg

[9] tax revenue depends on more than just tax rates: http://www.heritage.org/budgetchartbook/income-tax-receipts

[10] Saving the American Dream: http://savingthedream.org/

[11] Image: http://www.heritage.org/budgetchartbook/runaway-spending-tax-revenue

[12] more than half the U.S. economy: http://www.heritage.org/budgetchartbook/entitlements-consume-economy

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