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  • Infographic: Why Spending Is the Problem

    With its November 23 deadline fast approaching, the “super committee” created by the Budget Control Act is back in the news, and it is still grappling with its mandate to find $1.5 trillion in deficit reduction savings.

    One of the ideas being bandied about is a continued call to raise taxes in order to reduce the deficit. But as the chart below shows, inadequate tax revenue is NOT the problem, too much spending is. (Article continued below infographic)

    In their new paper “Three Pillars of Reform for the Super Committee,” Heritage’s Alison Fraser , Patrick Knudsen and Mackenzie Eaglen lay out ways that the super committee can get control of America’s deficit problem without raising taxes, while fully funding national defense. And they explain why raising taxes would only make matters worse and would entirely ignore the root of the problem:

    There are many calls for tax hikes (though they are often couched as “additional revenues”) as a part of a so-called balanced deficit reduction package. Do not be fooled. The very notion that deficit reduction must be a mix of spending cuts and tax increases is a kind of fiscal moral equivalency that fundamentally misstates the problem.

    Taxes are low today at around 15 percent of GDP (versus the 18.4 percent historical average), but this is the continued fallout from the global recession and the myriad of bad policies that have occurred since, plus some temporary tax cuts. The government’s deficits and debt are a problem of excess spending. Consider these facts:

    • By 2021, tax revenues will exceed their historical average of 18.4 percent of GDP—even if the Bush-era tax policies are made permanent;
    • Spending in 2021 will reach 26.4 percent of GDP—higher than the historical average of 20 percent; and
    • After 2021, spending will explode, reaching nearly 35 percent of GDP by 2035, fueled largely by entitlement spending.

    Read more of their paper at Heritage.org.

     

    Posted in Featured [slideshow_deploy]

    9 Responses to Infographic: Why Spending Is the Problem

    1. Lloyd Scallan says:

      You're forgetting one important point. Those that are pushing for tax increases are the same bunch that repersents the almost 50% of citizens that don't pay federal taxes at all. Any increase will not effect them. It will effect only those of us that will pay the additional taxes. Sounds like "wealth distribution" to me.

      • David Lee says:

        Anyone who is paid by an employer pays payroll taxes which account for about half of total federal revenue

    2. Jeff, Illinois says:

      Common sense dictates that the taxes on the wealthiest amongst us must revert to as least what they were under Clinton. The so-called spending problem is a ruse. If we hadn't thrown ourselves into two massive ground invasions that were not budgeted and had not basically relinquished our bargaining position with the prescription drug program and had effectively regulated the banking industry that got us into this mess . . . we wouldn't even be talking about this issue. Somehow in times past when the tax rate on the wealthy was as high as 90% this country was thriving. Now with loopholes the taxes on the wealthy have effectively averaged around 18 to 23% not the 35% that their bracket dictates. Additionally with more and more free trade our middle class is doomed, which diminishes demand and wa-la the wealth of the nation will stay depressed. Wages will continue to drop and our country will continue to move toward the likes of third world status where all the wealth is concentrated with a very few.

      • Todd says:

        First, you do not budget for wars. That is not practical in a annual – five year budget process. You budget to provide funds to maintain a standing military that can respond to threats and to maintain a R&D program to keep the military as modern as possible.

        Second, when we had 90% tax on the wealthy, the country had over 20% interest ratees, our military was a joke, and people were in gas lines trying to fill their vehicles. It was Reagan who immediately began lowering taxes that stimulated the economy and brought the country back from finincail disaster. If Carter had wona second term, we would not have had the economic times we did in the 80's and 90's.

        Get your history and economic right. The people with the means (i.e. the wealtyh) are the ones that create jobs and get people back to work. The government just needs to establish the best conditions (taxes and regulations) that people have the resources to establish and/or grow businesses as well as conditions that create a return for the risk they take.

        • Jeff, Illinois says:

          The notion that Reagan brought us prosperity is a Faux News / GOP myth as is linked to the obvious failure of trickle down economics. With so much wealth at the top, where's the job creation. The job creators are those who increase demand. And for demand to be high the middle class needs to be prospering and can not be sabatoged as it consistently is with Republican policies. And the idea that regulation is a stumbling block is another tired GOP talking point. Deregulation gave us the banking crisis. The GOP would have us drink and breathe poluted air and water, just to make a buck . . ex. Koch Industries. . . The comment about not budgeting for wars is laughable . . given how NOW the GOP likes talk about how ALL of the deficit is essentially Obama's. The correct role of government is to keep the wealthy from exploiting the populace. The GOP is completely bought out to corporate interests whose only goal is to rent space in American and send their manufacturing to impoverished nations.

    3. Brian says:

      While I agree that we're spending way too much, looking at the graph kinda makes you wonder where we would be if the Bush Tax Cuts for the wealthiest of American's never happened. If I remember correctly (and I do), it seems the Clinton years were pretty prosperous for everyone. And since the Bush Tax Cuts did nothing to spur economic growth, returning to that level of taxation should be welcome for most Americans.

    4. Lee Burns says:

      There is no question that our tax structure needs mending. I don't believe a "flat" tax is the right way to go nor do I believe that a national "sales" or "value added" tax is the answer. There is, however, a need to require a greater percentage of our citizens to actually pay some taxes if they want to have a say in our nations management and for some of the outdated "exemptions" and loopholes to be adjusted. Set three rates and assure those assigned those rates are paying them.
      Spending is a significant issue and needs to be reined in at all levels but the primary issues are unwieldy regulations on businesses and the financial sector and job generation. Policies that address these two issues properly will go a very long way toward "fixing" our economy and it shouldn't take a "cop-out" ten years. Fix it now and fix it together. Republicans aren't the only ones being inflexible and are the only ones putting forth sensible bills. Give the bills a vote – now.

    5. Joan Hand says:

      My suggestion is to "try" cutting spending and see what happens. We "tried" the stimulus thing and other "fixes" so why not just say we are going to see what happens if we cut spending. Just tell the American people that it is merely a temporary thing and move on with cutting. Put them on a guilt trip and, at the same time, make sure you are also removing incentives from the wealthy so the cuts in spending are equal across classes. Yes, regulations are also a factor but if the spending cuts work , there might be more incentive to bring in regulatory fixes. If spending cuts don't work, we can go back to blaming the last two presidents for their economic policies. I have a feeling that cutting spending will work if presented in the right format with leadership appeal.

    6. JRG3 says:

      As a practical matter, revenues from taxes can neither be accurately forecasted nor controlled and future unexpected events, like wars and devistating hurricanes/earthquakes/tornadoes cannot be forecasted. Spending, on the other hand, can be controlled and forecasted. The good folks in Washington are refusing to control what they can and trying to control what they can't. It's time for rational thinking. Let's make the spending fit the income. Otherwise the only recourse is borrowing from places like China which means making it rich at America's expense. That's not wise, either in the short term nor the long term.

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