FEDERAL SPENDING FOR DUMMIES, Part One Reply


As seen in the Des Moines Register, January 24, 2010

“I am confident we can get government off our backs and out of our pockets …” Ronald Reagan, November 3, 1980

“Read my lips, no new taxes.” George H. W. Bush, August 18, 1988

“The era of big government is over.” William Jefferson Clinton, January 27, 1996

“We must balance the federal budget.” George W. Bush, January 23, 2007

“That’s why today I’m pledging to cut the deficit we inherited by half by the end of my first term in office.” Barack Obama, February 23, 2009

Three Republican Presidents and two Democrats have been united in their rhetoric:  we must be concerned about excessive deficits, taxation, and government spending.  Each pledged to do something about it in their own way.

Collectively they have failed us. Spending is out of control.

Joe Sixpack is struggling to pay his mortgage, to put some food on the table, and to try to put a few bucks away to help his kids go to college.  A hundred bucks is a lot of money in these economic times.  So talk of government debt in the trillions of dollars is enough to make our beer go flat.

I have developed a simple way to relate to the way the national government spends our money.  I call it Federal Spending for Dummies. I simply take the total dollars the federal government spends (official White House numbers) and divide it by the population (according to the U.S. Census Bureau).  I compare the amount the government spends per person by decade and adjust for inflation.

I did something similar two weeks ago looking at state spending.  Here are the raw, unadjusted numbers:

In 1980, the Federal Government spent an average of $2498 per citizen.

In 1990, the Federal Government spent an average of $4943 per citizen.

In 2000, the Federal Government spent an average of $6138 per citizen.

In 2010, the Federal Government will spend an average of $11,640 per citizen (estimated).

If we adjust for inflation using 1980 dollars, Federal spending has climbed from $2498 per person in 1980 to $4470 today.  In the last decade alone, spending has climbed $1533 per citizen in inflation-adjusted 1980 dollars.

Democrats and Republicans have collaborated in this dramatic expansion of government spending.  In fact, the most frugal period was the decade of gridlock when President Clinton, a Democrat, and Speaker Gingrich, a Republican, helped keep the other party’s spending habits in check.

And yet, even with the modest restraint of the 90’s, federal spending has increased more than twice the rate of inflation since 1992.

We have a spending problem, not a tax problem.

The national debt is near $12 trillion, about 61 percent of gross domestic product (GDP).  By contrast, China’s national debt is only 16.2 percent of their GDP.

The Government Accountability Office (GAO), the auditor for the federal government lays it on the line to us:  the U.S. is on a fiscally “unsustainable path.

Has spending skyrocketed because of the war on terror?  No.  As a percentage of GDP we spend less today on defense than we did during the Reagan years.

On the other hand, pork barrel spending is out of control.  According to Citizens Against Government Waste, earmarks have increased from 13, 443 from 1991 through 1999 to over 20,000 in the past two years alone.

The risks of excessive government spending deficits are significant.  Either taxes have to be raised so dramatically, that the economy is crippled and jobs destroyed.  Or else government spending has to be yanked back abruptly with whiplash repercussions to the country.  Or else we have to inflate our way out of the mess, which creates an even worse problem.

As I write this piece, a Republican was just elected to the Senate from the liberal state of Massachusetts.  Ted Kennedy’s Senate seat is now in the hands of a Republican.

Is this a ringing endorsement for the Republican Party?

I think not.  Rather, it is a ringing endorsement for restraint.  It is an indictment of proposed health care legislation.  It is a reflection of the electorate’s desire for moderation in government spending.

It’s not too late to change our course.  But we need to start now.

FEDERAL SPENDING FOR DUMMIES, Part 2 Reply


As seen in the Des Moines Register, February 21, 2010

“Federal deficits were caused by Bush’s tax cuts for the rich.”

That was a typical response I got to last month’s column, “Federal Spending for Dummies.” It struck me as a legitimate reaction.  After all, President Bush and a Republican-controlled Congress cut income tax rates for all workers in 2001.  Specifically, they reduced the top marginal income tax rate from 39.6 percent to 35 percent.

Additional tax-reduction legislation was passed in the ensuing years which lowered various tax rates for America’s most productive workers.

The suggestion was that government revenues shrunk because of these tax cuts, depriving the treasury of funds and driving up the deficit to unprecedented levels.

I decided to check it out using my Federal Spending for Dummies model.

I added up total government tax receipts by decade, adjusting for inflation in 1980 dollars.  Then I divided that number by the total U.S. population for the last year of each decade.  Here are my calculations:

For the 1980’s (1980 through 1989), the federal government collected an average of $22,688 per citizen for that decade.

For the 1990’s, they collected an average of $26,179 per citizen.

For the 2000’s, they collected an average of $29,427 per citizen (2009 tax receipts are estimated).

Remember, these numbers adjust for inflation and population.  According to my calculations, the treasury was not drained by the Bush tax cuts.  In fact, they collected more than ever from all sources, even income taxes.  In the 90’s, the government collected $11,889 in income taxes per citizen compared to $13,357 in the 2000’s.

Were the Bush tax cuts at the expense of us working class Americans?  In other words, did the rich bear a lighter load?

The answer is no.

Here is where the confusion sets in:  there has been a steady reduction in average tax rates for high earners since 1980.

Back in 1980, the average tax rate (as a percentage of adjusted gross income) for the top one percent of earners was just under 35 percent.  By 2007, the percentage had dropped to just over 22 percent.

That’s a pretty good deal for the fat cats, isn’t it?

Not so fast.  Their total share of the nation’s income tax load increased from about 19 percent in 1980 to about 40 percent in 2007 according to the IRS.

In one generation, the tax load shouldered by the rich doubled.

The rich paid more when we cut their taxes.  The top 25 percent of earners pay nearly 87 percent of the nation’s income tax; the bottom half pay less than 3 percent.

When you penalize (tax) productivity, you get less of it.  Lower marginal tax rates reward productivity.

So if the problem isn’t the tax cuts for America’s most productive workers, it must be big corporations.  They must not be paying their fair share.

Not according to the President’s Office of Management and Budget.  Their tax charts reveal that corporations picked up a bigger share of the income tax load under Bush than Clinton (12.1 percent in Bush’s last year in office compared with 10.2 percent in Clinton’s).

The evidence suggests that tax cuts weren’t the root cause of America’s growing indebtedness.  Spending is the problem.

For the past thirty years, the federal government’s tax haul has averaged 18.4 percent of our Gross Domestic Product (GDP).

Entitlement spending will soon swamp that number.

In 1980, entitlement spending (Social Security, Medicare, and Medicaid) consumed 7 percent of GDP.  The number is growing, projected to reach 10 percent of GDP by 2015.  The Congressional Budget Office tells us it will consume 18.5 percent of GDP by 2055.

In other words, our entire budget, if we go by the historical tax share of GDP, will be consumed by just these three budget items in the next generation. Taxes will have to be raised to unprecedented levels.  Lifestyles will be a shadow of what America knew.

Is this the responsible thing to do to our kids?

We have a spending problem in America, not a tax problem.