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  • Chart of the Week: Runaway Spending, Not Low Tax Revenue, Fueling Deficits

    Following the failure of the Joint Select Committee on Deficit Reduction, Sen. Pat Toomey (R-PA) criticized liberals for insisting that any deal include a massive tax hike. In a speech at Heritage last week, he said tax revenue isn’t the problem facing the United States in the future; it’s the massive increase in federal spending.

    “It’s actually arithmetically impossible to solve this problem on the tax side alone,” said Toomey, who noted that Democrats on the Super Committee wanted to hike taxes by $1 trillion without making any fundamental reforms to curb unsustainable entitlement programs.

    Toomey cited data from the Congressional Budget Office to make his case. Heritage’s 2011 Budget Chart Book uses that same data to depict how government spending — not inadequate tax revenue — is the main driver of long-term deficits.

    This week’s chart shows how spending will skyrocket beyond its historical average of 20.3 percent of the U.S. economy, reaching 26.4 percent by 2021. Revenue, meanwhile, will surpass its historical average of 18 percent of GDP in the same year, according to Heritage Foundation calculations based on CBO data.

    Toomey was correct in his analysis of the debt crisis. As he said at Heritage, “A trillion-dollar tax increase … would be devastating to the economy, doesn’t solve the problem and would be the wrong way to go.”

    Watch our exclusive interview with Toomey:

    Posted in Featured, Scribe [slideshow_deploy]

    21 Responses to Chart of the Week: Runaway Spending, Not Low Tax Revenue, Fueling Deficits

    1. Jeff says:

      Well of course spending is the culprit. With two wars that Dubya entered, unprecedented bailouts due to the de-regulation of financial institutions/markets and an out of control health care system that continues to spiral upwards pressuring public and private households alike, spending is the culprit. Instead of relying on proven not to work "trickle down" or supply-side economics, let's ask middle income folks cover the bill… Selective memory?

      • DaveCinVA says:

        Please, pay no attention to the spending spike the last three years have had.

      • Mike, Wichita Falls says:

        Do you mean those two wars that garnered supermajority war resolution votes in both Houses?

        Do you mean over-regulation of financial institutions and markets that forced taxpayers, not them, to pay the price for their risky decisions and looked the other way with Fannie Mae and Freddie Mac?

        Do you mean over-regulation and expansion of the health care system via Medicare, Medicaid, SCHIP and Obamacare which subsidize and encourage over-use?

        Do you mean the proven-not-to-work trickle down economics that are paying hamburger flippers $12+ per hour and truckers $100K+ per year in ND where there is an oil and gas boom?

      • goodspkr says:

        Jeff, what year did the government take in the most money in history? 2007. Now that was after the Bush tax cuts were in effect for 4 years. And do you remember what the deficit was? $160 billion or 10% of the deficit we have under BHO.

      • TheWaynester says:

        It amazes me that someone like Jeff can be so willfully ignorant. Supply side economics actually works. It worked for Coolidge, it worked for Kennedy, it worked for Reagan and it worked for Bush II. Do a little research on what happened after each of those presidents presided over tax cuts and you will find that it is true. Go ahead, compare the economic conditions before and after the reductions in marginal rates in all of those cases, Jeff. I dare you.

        • A Conservative says:

          Supply-side economics worked in those instances of Kennedy and Reagen because taxes were so high. However, it did not work in the case of Bush II. Check the charts out below http://www.taxfoundation.org/blog/show/26905.html

          Also, why isn't Heritage chart showing what happened to the GDP? Obviously, keeping spending constant, if GDP contracts, then spending as a percent of GDP skyrockets. As GDP contracts, even with the same tax rate (Bush rates), tax revenues to the government contracts…which is exactly what is happening in the chart…it drops from 18% to 14.8%. So, just the fact GDP and revenue contracted, even when keeping spending constant would be drive the deficit higher. The chart shown by Heritage is misleading.

          Thanks.

    2. Great work Rob! Will Rogers Says: “Common sense ain’t common.“ In Washington, it must be almost nonexistent among Democrats! Raising taxes during economic hard times and promoting class warfare are not common sense solutions.

      From your interview with Toomey, he seemed very well reasoned and logical in terms of finding solutions to the spending problem by going after the non-controvesial wasteful and unnecessary government programs. From your chart, it is clear the problem is on the spending side.

      This article helps sharpen the differences between the two sides, and will help voters make the best common sense decision in the next election.

    3. guest says:

      Hey Jeff, take a second to look at the chart…you see the spike up on the spending line? That's when the Dems took Congress, and after the wars were started by the attack on us. You see the second, vertical spike up two years later? That's when Obama took office and passed out taxpayer money to unions and campaign contributors…oh, and started a war that was actually illegal, instead of being portrayed as illegal for political ends.

    4. tobias took says:

      Perhaps we should start with a return to that desperately austere budget of 2007.

    5. Brian says:

      Of course spending is part of the problem. So is lack of revenue. If you study the federal budget, you will see that it is simply not possible to reduce just spending without increasing revenue to balance the budget, UNLESS you totally destroy Social Security, Medicare, Medicaid, and quite frankly, most of the rest of the federal government programs (assuming you leave defense alone). Maybe that's what conservatives want.

      A few things to remember…

      1) Social Security is funded by a separate tax taken from your paycheck. This "shouldn't" have any bearing on the budget except that Congress mandated extra SS funds be "invested" in US Treasuries. So as SS invested the funds, the government blew that money. It's the invested money that must now be returned to SS as it starts spending more than it takes in.

      2) Medicare is also funded by a separate tax taken from your paycheck. If there aren't enough funds to cover projected Medicare costs, then the tax must be increased or costs must be reduced either by reducing benefits or eliminating the waste.

      3) And finally, when the significant Bush tax cuts took effect, they should have been paid for by reductions in spending. If there is a clear and conscious effort to reduce revenue, there should also have been a clear and conscious effort to reduce spending. That should have easily happened since both the presidency and Congress were controlled by Republicans at the time. Unfortunately, Bush didn't meet a spending bill he didn't like until the Democrats took over Congress. That includes Medicare Prescription Drug coverage passed by a Republican Congress and signed by a Republican president. Further, starting two wars (good or bad, right or wrong is debatable, but not here) without any type of funding further contributed to ever increasing spending.

      There is absolutely no doubt that federal spending needs to be significantly reduced. However let's face the reality that a balanced budget cannot take place without a combination of BOTH reduced spending and increased revenue. And that's because the majority of this country will NEVER let Social Security, Medicare, and Medicaid be significantly changed. And for better or worse, it's time that both Democrats and Republicans remember that they were sent to Washington to represent WE THE PEOPLE, not simply those who contribute vast sums of money to re-election campaigns!

      • potomacoracle says:

        Why do governments with sovereign currencies need to raise revenue to balance budgets? Short answer, they don't. They are sovereign and can create all the money they want. What governments do is they tax and borrow to constrain aggregate demand, they don't need to raise revenue because the sharper pencils in the box understand that gov must spend before it can tax or borrow.

        We need to eliminate all taxes and allow aggregate demand to generate growth. Constraining gov spending is useful as we approach full employment. The other stabilizer is the savings rate. Raising it to absorb disposable income also dampens aggregate demand. Doing either now, with banks on the brink of failure, and commercial lending lower than at any time since before 1930 is truly cutting off our noses to spite our faces.

    6. S. hartzler says:

      Spending must be reduced! Revenue would be increased with a simple change – the fair tax! In the twinkling of an eye we would be rid of the "Gestapo, the IRS," and our manufacturing base, now overseas, and foreign investors will make a beeline to this country. We will be rolling in revenue. Of course, the trick would be to get Congress to relinquish the control afforded them by the IRS. That will be difficult.

      • @GerryMaine says:

        Watch it! My Governor (of Maine) was derided and chastised for referring to the IRS as the 'new Gestapo'! The IRS does have an excess of power and needs to be reined in or eliminated completely. I would love to be the one to hand out the 'pink slips'!

    7. Mike, Hickory, NC says:

      As seen in the article above, and some of the responses to it, substantively present and stick with the subject, the facts, as in the fact that the problem is runaway spending and taxing, and the factual, incontravertible, undeniable evidence presented (in this case including the chart shown above), and the response of Statists, and those with any Statist leanings (in any and even no political party) is to distract and promote or parrot for more of the same unsustainable Statist runaway, irresponsible, vote-buying, government power-growing, liberty-decreasing taxing and spending, etc., being imposed on both current and subsequent generations (which constitutes multi-generational bondage and theft) no matter how it is shown and proven that the problem is not in fact any lack or shortage of taxing and spending but is in fact too much taxing and spending, and the unconscionable, inexcuseable multi-generational bondage and theft that constitutes.

    8. steve h says:

      What is the current ratio of spending-to-GDP? By the chart, it looks to currently be at 22 to 23%. That is abotu the same level as spending-to-GDP as under Reagan, who averaged 22%. While he did have cold war issues to deal with, Reagan didn't have wars in two foreign countries to deal with, post 9/11 national security to deal with, and the baby boomer generation hitting retirment. It seems to me, Obama is currently spending about the same rate to GDP as Reagan, with far more reason for uptick in spending. I can't imagine how badly you all would be bashing Reagan if he was presicent now, since he had higher taxes than Obama and roughly same level of spending.

      • A Conservative says:

        Very well said. If Reagen was in power now, they will blame a "yet to be born Barak Obama" for the deficit during Reagen's era. That is how "some" Republicans operate. Blame it on Barack!

    9. Teacher-in-CA says:

      The use of this measure – percentage of GDP – is pretty misleading because the GDP shrank considerably from 2008-2010, when the recession took hold. Thus, even if spending stayed flat in terms of the dollar amount during that time, the percentages would still go up.

      If spending in ’08 was 19% (eyeballing the chart) of a $13 trln GDP, that’s $2.47 triln. In 2010, it was 25% of a $12 trln GDP, which is about $3 trln – an increase of $530 billion.

      Same equation on the revenue side. ’08 taxes at 18.4% of $13 trln = $2.39 trln.
      2010 taxes at 15% of $12 trln = $1.8 trln – a decrease of $590 billion.

      Despite the headline at the top, it seems that the deficit blame is about equal on both sides.

      GDP source: http://www.usgovernmentspending.com/spending_char

    10. Stirling says:

      The main problem with "Statists/Progressives/Liberals,etc" is that no matter how much money they throw at the problem it never will be enough, plain and simple.. Their "Utopia" is not achiveable, due to the human race being flawed by nature. Unfortunately in the real world their goals cause others (who do not share their beliefs) pain by forcing the spending/tax the rich policies that do not treat everyone equal. It's really a shame they have a belief that a perfect world is that which nobody succeeds and nobody fails thru government tyranny of wealth redistribution. Spending is just the means to this end, and thus the current problem we face today.

    11. Teacher-in-CA says:

      The use of this measure – percentage of GDP – is pretty misleading because the GDP shrank considerably from 2008-2010, when the recession took hold. Thus, even if spending stayed flat in terms of the dollar amount during that time, the percentages would still go up.

      If spending in ’08 was 19% (eyeballing the chart) of a $13 trln GDP, that’s $2.47 triln. In 2010, it was 25% of a $12 trln GDP, which is about $3 trln – an increase of $530 billion.

      Same equation on the revenue side. ’08 taxes at 18.4% of $13 trln = $2.39 trln.
      2010 taxes at 15% of $12 trln = $1.8 trln – a decrease of $590 billion.

      Despite the headline at the top, it seems that the deficit blame is about equal on both sides.

      GDP source: http://www.usgovernmentspending.com/spending_char

    12. James says:

      Yes, increased revenue volume (long term), that is, more people spending, investing, getting paid, etc. is way more stable and preferable to spike revenue (short term), that is, increasing taxes. It's a hard choice because some companies will suffer, but in the end we have a more robust economy, not one that keep getting shot up with steroids.

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