Interesting article on US surplus turning into massive debt

[MillCreek]

http://www.washingtonpost.com/business/economy/running-in-the-red-how-the-us-on-the-road-to-surplus-detoured-to-massive-debt/2011/04/28/AFFU7rNF_story.html?hpid=z3

The article states that the prime factors in a surplus in 2001 turning into massive debt by 2011 has been loss of tax revenue caused by two recessions and tax cuts.  Also some interesting comments about how when forecasts and modeling run up into cold hard reality.

[Chuck Dye]

I still hold that until there is zero debt, there is no surplus, only politicians' lies and self delusion.

[Tallpine]

Wasn't the "surplus" mostly an accounting trick to begin with 

[Ron]

Isn't obvious to everyone that Americans are under taxed?

[RocketMan]

Isn't obvious to everyone that Americans are under taxed?

I agree.  We need to be more like the progressive countries of the world and quit whining about paying our fair share.

(Yes Virginia, that was sarcasm.)

[roo_ster]

http://www.washingtonpost.com/business/economy/running-in-the-red-how-the-us-on-the-road-to-surplus-detoured-to-massive-debt/2011/04/28/AFFU7rNF_story.html?hpid=z3

The article states that the prime factors in a surplus in 2001 turning into massive debt by 2011 has been loss of tax revenue caused by two recessions and tax cuts.  Also some interesting comments about how when forecasts and modeling run up into cold hard reality.

Recessions and tax cuts do reduce revenue, but they are of secondary importance.  The number one cause is spending.

Without regard to revenue, if gov't doesn't spend it can not incur a deficit or debt.

[HankB]

There never was a real surplus during the last years of the Clinton administration - the "surplus" was only due to creative accounting.

If you have doubts, take a look at the official numbers at  http://treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

You'll notice that for each of the "Clinton Surplus" years, the national debt increased.

If you're deeper in the hole at the end of the year than you were at the end of the previous year . . . you didn't have a surplus.

[SteveT]

Since the majority of Americans are dependent on the government for their survival large budget cuts will never happen.   The deficit will be dealt with by raising taxes.  In a democracy, or republic (please don't jump on my ass) you are not going to have your citizens vote themselves into the poorhouse.

Spending cuts are popular ideas until either:  They are made specific or they are enacted.  

[Nick1911]

Since the majority of Americans are dependent on the government for their survival large budget cuts will never happen.   The deficit will be dealt with by raising taxes.  In a democracy, or repubxlic (please don't jump on my ass) you are not going to have your citizens vote themselves into the poorhouse.

Spending cuts are popular ideas until either:  They are made specific or they are enacted.  

Citation, please?

[Gowen]

Citation, please?

The search I did came up with "1 in 6" are on government assistance.  That is a far cry of a majority, but 1/6th of Americans is a fair number in a voting block.

[roo_ster]

The search I did came up with "1 in 6" are on government assistance.  That is a far cry of a majority, but 1/6th of Americans is a fair number in a voting block.

Multiply that by 2x to account for the bureaucritters to administer the assistance.

[SteveT]

http://blogs.wsj.com/economics/2010/11/04/some-14-of-us-uses-food-stamps/

14% on food stamps

http://www.ssa.gov/pressoffice/basicfact.htm

17.5% on Social Security (provides 40% of total income for recipients)

http://thehill.com/blogs/blog-briefing-room/news/113073-poll-17-of-workers-employed-by-government

17% employed by government

http://www.bloomberg.com/news/2011-02-10/u-s-initial-jobless-claims-fell-more-than-estimated-to-383-000-last-week.html

Currently 3.9 million receiving unemployment benefits

2.5% of the working population

http://www.bloomberg.com/news/2011-02-10/u-s-initial-jobless-claims-fell-more-than-estimated-to-383-000-last-week.html

27.8% on Medicare/Medicaid

http://www.kaiserhealthnews.org/Daily-Reports/2010/October/01/Medicaid-data.aspx

15.7% 0n just Medicaid

There's obviously a lot of duplication here, but it's way over 50%.     Plus many of these are force multipliers i.e. unemployment insurance to 4 million who provide for 1-3 others in their households.   I tried to find statistics on government pensions but those numbers are hard to come by.   

The largest recipients of government monies:  the over 65 crowd.   The most conservative voting bloc: the same.   

Who's gonna tell 'em?

[TommyGunn]

http://www.washingtonpost.com/business/economy/running-in-the-red-how-the-us-on-the-road-to-surplus-detoured-to-massive-debt/2011/04/28/AFFU7rNF_story.html?hpid=z3

The article states that the prime factors in a surplus in 2001 turning into massive debt by 2011 has been loss of tax revenue caused by two recessions and tax cuts.   Also some interesting comments about how when forecasts and modeling run up into cold hard reality.

Tax cuts do not cause decreased tax revenue.  JFK, Ronald reagan, and Dubya cut taxes which actually increased government revenue.  In fact, Reagan's tax cut doubled government revenue by the end of his presidency.
The problem was SPENDING!!! 
But yea, of course recessions hurt tax revenue ....you're unemployed, you're gonna pay tax on $0 dollars??

[MillCreek]

Tax cuts do not cause decreased tax revenue.  JFK, Ronald reagan, and Dubya cut taxes which actually increased government revenue.  In fact, Reagan's tax cut doubled government revenue by the end of his presidency.
The problem was SPENDING!!! 
But yea, of course recessions hurt tax revenue ....you're unemployed, you're gonna pay tax on $0 dollars??

So all the politicians and economists quoted in the article are wrong?  I am sure you have some good objective citations for this, and I would love to see them.

[TommyGunn]

I wouldn't give 2 cents for what some politician says.
It's a matter of record that government revenues increased during  the '80s.  More people were employed as the recession caused by Carter's malaise ended, businesses did better, paid more taxes, more employees being paid equals more tax payers, this adds up. 
It's been known that if done right lowering the government burden on private sector spurs economic growth. 

[MillCreek]

I wouldn't give 2 cents for what some politician says.
It's a matter of record that government revenues increased during  the '80s.  More people were employed as the recession caused by Carter's malaise ended, businesses did better, paid more taxes, more employees being paid equals more tax payers, this adds up. 
It's been known that if done right lowering the government burden on private sector spurs economic growth. 

So now you are talking about government revenues increasing as a function of a growing economy and tax revenue in the aggregate.  Sort of like the original article mentions:

In the end, Bush cut taxes and spent more money. Good times masked the impact, as surging tax revenues reduced the size of year-to-year deficits during the first three years of his second term. But after the economy collapsed during Bush’s final year in office, deficits — and therefore the debt — began to explode as Obama sought to revive economic activity with more tax cuts and federal spending.

[makattak]

So all the politicians and economists quoted in the article are wrong?  I am sure you have some good objective citations for this, and I would love to see them.

Well, I didn't see any economists claiming that the tax cuts caused the government revenue to go down.

As for politicians, in general, they are bad economists. Anyone who assumes ceteris paribus in anything but a static model is a poor economist.

So yes, I anyone who says taxes cause a decrease in revenue without massive qualifications, especially in an instance where we are not sure to be on the left side of the Laffer curve (and are above the historic mean for this country as a percent of the economy) is wrong.

[TommyGunn]

So now you are talking about government revenues increasing as a function of a growing economy and tax revenue in the aggregate.  Sort of like the original article mentions:

In the end, Bush cut taxes and spent more money. Good times masked the impact, as surging tax revenues reduced the size of year-to-year deficits during the first three years of his second term. But after the economy collapsed during Bush’s final year in office, deficits — and therefore the debt — began to explode as Obama sought to revive economic activity with more tax cuts and federal spending.

  . . . .    So?  

We start out with an article saying that tax cuts cause deficits and are now magically on to "as surging tax revenues reduced the size of year-to-year deficits during the first three years of his second term."

I KNOW there's some kind of magical connection between all of this.  I KNOW from all my studies of the Magical Kabala that both "A" and "NOT A" can both be true at the same exact time in our wondrous universe.

 

[MechAg94]

I would rather say that a growing economy can produce more govt revenue than the reduction in revenue caused by tax cuts.  Since tax cuts can contribute to a booming economy, there is some cause/effect there. 

The effect I am not sure many of these economists like to talk about is the negative effect reported income as taxes increase.  If taxes are high, people are going to work a whole lot harder to hide it in tax shelters and other loopholes or just not produce that revenue at all.  If taxes are lower or perceived as reasonable, people might go ahead and report income they might have hid before.

However, the same thing happened to Reagan.  Tax Revenue doubled through the first 4 or 5 years of Reagan's terms, but spending increased right with it. 

[SteveT]

It's a math problem.   If taxes are 20% of the GDP and you lower them 50% to 10% of the GDP you will need the GDP to increase 100% to have the same tax revenue.   Obviously there are extremes at both ends, where a too high tax rate results in business leaving and tax revenues falling, and a too low tax rate results in an unachievable level of growth to receive the same level of revenue as before the tax cuts.

I am thinking however that if we had a true "pay as you go" system and there was a debt of zero, and therefore for the Iraq Wars Bush would have had to raise taxes and let's say he needed a national referendum to do so.   Would that have passed?   Something like that would make priorities a lot clearer.

Reagan started this with the free lunch of lower taxes and increased spending by going into debt.   It's hard to convince people now that the ride is over and they are looking for easy answers.   "They" being the voters also known as us.

[erictank]

It's a math problem.   If taxes are 20% of the GDP and you lower them 50% to 10% of the GDP you will need the GDP to increase 100% to have the same tax revenue.   Obviously there are extremes at both ends, where a too high tax rate results in business leaving and tax revenues falling, and a too low tax rate results in an unachievable level of growth to receive the same level of revenue as before the tax cuts.

I am thinking however that if we had a true "pay as you go" system and there was a debt of zero, and therefore for the Iraq Wars Bush would have had to raise taxes and let's say he needed a national referendum to do so.   Would that have passed?   Something like that would make priorities a lot clearer.

Reagan started this with the free lunch of lower taxes and increased spending by going into debt.   It's hard to convince people now that the ride is over and they are looking for easy answers.   "They" being the voters also known as us.

Problem is, they've actually studied this, and found that to a certain point, lowering taxes *RAISES* overall revenues.  IIRC, the breakover point was around 19% (of GDP, IIRC?) - above or below that, revenues start to fall off.  Wish I could remember where I saw that, but I don't.  Spend more than that, of course, and you go into (or increase) your debt.  But that's all the blood you'll get from the stone, period.  The *ONLY* way to reduce debt, from that point, is to REDUCE SPENDING.

If I am remembering this wrong, or am not considering important elements, then I'm certainly willing to be corrected - it's not something I've devoted huge amounts of effort to study of.

[Balog]

I find it amusing how hard liberals work to avoid the rather obvious conclusion that the way to fix spending too much money is to, you know, spend less money.

[TommyGunn]

.... Reagan started this with the free lunch of lower taxes and increased spending by going into debt.   It's hard to convince people now that the ride is over and they are looking for easy answers.   "They" being the voters also known as us.

Reagan was not the first to increase spending or to go into debt; that really started to take off in the 1960s. 

[brimic]

http://blogs.wsj.com/economics/2010/11/04/some-14-of-us-uses-food-stamps/

14% on food stamps

http://www.ssa.gov/pressoffice/basicfact.htm

17.5% on Social Security (provides 40% of total income for recipients)

http://thehill.com/blogs/blog-briefing-room/news/113073-poll-17-of-workers-employed-by-government

17% employed by government

http://www.bloomberg.com/news/2011-02-10/u-s-initial-jobless-claims-fell-more-than-estimated-to-383-000-last-week.html

Currently 3.9 million receiving unemployment benefits

2.5% of the working population

http://www.bloomberg.com/news/2011-02-10/u-s-initial-jobless-claims-fell-more-than-estimated-to-383-000-last-week.html

27.8% on Medicare/Medicaid

http://www.kaiserhealthnews.org/Daily-Reports/2010/October/01/Medicaid-data.aspx

15.7% 0n just Medicaid

There's obviously a lot of duplication here, but it's way over 50%.     Plus many of these are force multipliers i.e. unemployment insurance to 4 million who provide for 1-3 others in their households.   I tried to find statistics on government pensions but those numbers are hard to come by.   

The largest recipients of government monies:  the over 65 crowd.   The most conservative voting bloc: the same.   

Who's gonna tell 'em?

Its blatantly obvious that we need much higher taxes to help find jobs for these people....

[SteveT]

Jobs would definitely be the best answer.