How politicians really see the deficit



Where the deficit comes from

Short version: it’s not out-of-control government spending.  It’s the fact that the recession has killed tax revenues.  Justin Fox:

The Treasury Department reported on Oct. 15 that the deficit in fiscal 2010, which ended Sept. 30, was $1.294 trillion. That’s less than FY 2009’s $1.416 trillion, but it’s still really really big. Why is it so big, though? Is it because of all that stimulus and bailout spending? Or is something else going on?

To find out, I created a fantasy world. I figured out how fast federal spending and revenue grew over the last business cycle, from 2000 through 2007, and calculated where we’d be today if those growth rates had continued through 2010. I was originally motivated to do this for a commentary that’s supposed to air tomorrow night on Nightly Business Report. But I’m thinking there’s not a huge overlap between Felix Salmon readers and Nightly Business Report viewers, so I’ll go ahead and share what I learned.

In my no-financial-crisis, no-bailout, no-recession, no-stimulus scenario, spending kept growing at 6.22% a year, and revenue kept growing at 3.45%. You can see from the difference between the two numbers that this was an unsustainable path. But it clearly could have been sustained for a few more years.

Where would it have left us in fiscal 2010? With $2.843 trillion in federal revenue and $3.270 trillion in spending, leaving a deficit of $427 billion. The actual revenue and spending totals for 2010 were $2.162 trillion and $3.456 trillion. So spending was $186 billion higher than if we’d stuck to the trend, and revenue was $681 billion lower. In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending. Nice to know, huh?

Nice to know, indeed.  Now, if only Republicans would stop posturing with all this runaway government spending business.  Of course, that will happen when they embrace higher taxes for rich people.


Chart of the day (Social Security)

Via Kevin Drum:

Looks bad, doesn’t it?  But, it’s actually pretty encouraging.  Unlike medical costs, expected Social Security costs flatten out after we deal with the Baby Boomers.  This is a problem we can fix relatively easily– much more so than Medicare.   The truth is fairly modest tweaks in benefits and revenues close the gap.  No dramatic reform needed.

Dahlia Day

Today we our having our annual American Values speaker sponsored by NCSU’s School of Public and International Affairs.  I’m on the committee to choose the speaker, and this year I worked really hard to bring in Dahlia Lithwick.  If you read my blog, you should be familiar with her, as I love to link to her work in Slate.  For my money, she’s the most intelligent and engaging person writing on the Supreme Court and legal issues in America.  I loved the stuff she was writing about the pending KSM trial and the “Ground Zero Mosque” so we invited her to speak on this timely topic.   Tonight, she’s talking on “Islam, American Values, and the ‘War on Terror’: A Legal Perspective.”  Should be terrific.  If you’re in the area, try and make it.

John Boehner’s tan (redux)

Oddly enough, the search terms: John Boehner tan bring more readers to my blog than anything except for soft core tennis porn (hey, as long as they stick around to read the entries, I guess that’s alright).  Thus, I really could not resist yesterday’s Doonesbury:


What could Democrats have really done differently?

Lots of stuff, sure.  But differently that would have significantly altered the current state of the economy?  No, actually.  About the only thing Democrats could’ve done that would have made us materially better off than we are now is a much larger stimulus (as many economists, notably Krugman, have argued).  Problem is, there just weren’t 60 votes in the Senate for a larger stimulus and its hard to imagine a scenario where there were.  Other than that, what exactly was Obama supposed to do to get us a speedier recovery?  Tax cuts and less regulation?  Hello, that’s how we got here.  More “focus on the economy”?  Oh, right, presidents only need focus on the economy to make it better.  If only Obama had not wasted all that time improving our mess of a health care system and instead used the time “focusing on the economy” we’d be at only 8% unemployment and rapidly improving– right?  Just how that might be, is never explained.  I think the most frustrating thing about the success of Republicans blaming the state of the economy on the Democrats is that they’ve got absolutely nothing to suggest that it would’ve been better under their stewardship and plenty of evidence to suggest it would’ve been worse (i.e., the stimulus, though too small, still saved millions of jobs; and failure to bail out the banks would’ve been a truly epic disaster).   Argh.  Nobody ever said life or politics was fair.

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