The Federal Deficit: A Spending AND Revenue Problem

The past couple days, I’ve been railing against the tax/benefits compromise on Twitter and getting a lot of push-back from the right side of the Twitter-verse. The argument goes something like this:

“The deficit is due to the fact that we’re spending too much, not because we’re not pulling in enough revenue. We have a spending problem, not a revenue problem.”

In response to this, I’d like to submit the following into evidence. It is a graph of the federal receipts and federal spending since 1980, taken from the monthly treasury report, which is as non-partisan a source as possible. The gap between the red line and the green line is the deficit.

Technical note: The data here is inflation adjusted by month and represents a rolling 12 month sum. So, for example, the point for October, 2010 (the latest data point) is a sum of the previous 12 months of receipts and outlays, all adjusted for inflation. This is necessary due to the fact that the treasury reports fluctuate drastically from month to month… especially in April, for obvious reasons.

So, what can we learn from this chart?

  1. our current deficit is driven by BOTH a dramatic increase in spending and a devastating decline in revenue.
  2. the Bush tax cuts are not wholly to blame for the deficit. If revenue had held steady at 2007 levels, we’d still be looking at record deficits based only on the spending increases.
  3. spending increases are not wholly to blame for the deficit. If spending had held steady at 2007 levels, we’d still be looking at record deficits.
  4. compared to revenue, spending is relatively stable, increasing more or less steadily year after year.

That last one indicated to me that the federal government has more control over spending then they have over revenue. Because of this (in my humble opinion) it does make more sense to try to cut spending than to raise taxes, since we have more control over the spending side.

However, we need to look at the situation practically. We can’t possibly cut enough out of the federal budget to balance it without additional revenue. Those kinds of budget cuts are not even remotely feasible politically. I’ve little interest in playing fantasy politics where we magically get rid of a fourth of the government without people lighting their Congressmen on fire.We have about enough revenue to balance a budget from 10 years ago.

The rebuttal, of course is that raising taxes will slow economic growth, which will drive revenue down anyway. I believe there is some merit to this, but does that mean we’re going to just tolerate insane deficits while we wait patiently for the economy to improve?

There is no way to have our cake and eat it too. Lower taxes is quickly becoming a luxury of a country whose financial situation is not dire. If we want to close the deficit, we need more revenue and less spending. Period. Full stop.

35 comments

  1. Michael Fisk says:

    Overall, though, in terms of long-run fiscal stability, it’s probably not representative of where we need to be in a few years to be using revenue numbers that, as usually happen, plummet during a recession (especially with as much of our tax burden as it is on high earners, who normally exhibit the sharpest drops in income during an economic downturn).

    I agree that the current budget shortfalls are as much a revenue problem as they are a spending problem, but, on a historical (post-WWII) average, tax receipts tend to hold within a pretty well-defined range with respect to GDP, regardless of what the rates actually are (with the obvious exception of recessions). Veronique de Rugy of the Mercatus Center compiled a graph showing this trend recently for Reason magazine ( http://reason.com/archives/2010/12/05/how-to-balance-the-budget-with ).

    In other words, as the economy recovers, so will tax receipts. The sad reality is that, regardless of the state of the economy, spending won’t self-correct very much. That’s why most of the debate about restoring fiscal stability has centered around the secular trend of government outlays rather than the cyclical trend of federal tax revenue.

  2. Ike says:

    …and then, there is the Krugman camp, whereby we are to immediately spend away our savings, then borrow more to keep spending.

    Traction!

  3. Pablo says:

    Shouldn’t you clarify the differences between cutting taxes and cutting tax rates? According to Thomas Sowell, and lots of others, all the times tax rates have been cut, tax revenue increases. Also, the proportion paid by the rich increases. You can look in your graph at what happens in 2003 – significant revenue increase, with a tax RATE cut – much better growth too.

  4. Dan says:

    OFF TOPIC: This is neat information. Do you use excel or some other program to make all of these visuals? If I wanted to learn how to make my own visuals like this, do you have any recommended reading or resources?

    ON TOPIC: I think that it would be very interesting to see this same graph overlaid with the total population of the US, and with GDP, to see if the general growth in tax receipts and spending tends to track with population and or GDP. Another interesting graph would show the rate of change for all four of these numbers and overlay those as well. I also have to admit that my history knowledge is pretty weak. I really only know stuff going back to the later part of the Clinton administration (yes, I am fairly young, and I hated history when I was in school). But it might be interesting in general to have an augment to the bottom part of graphs like this that indicated which president was in office as well as the party balance of both congressional houses. Like I said, my knowledge of history is fairly weak, but I would wager that such a graph would show how BOTH parties have made missteps in the past that have lead us to where we are today.

    @ Pablo: I think that your point is correct overall. But to my knowledge, the most significant modern taxes are rate-based, not a specific amount. You don’t pay just X amount for every Y thing that is taxed, you pay X% of whatever Y costs (or provides to you – in the case of income tax). So despite the semantical difference, in practice isn’t it about the same thing to say “Lets cut taxes” as it is to say “Lets cut tax rates”? I suppose that there’s also the issue of what “things” get taxed, which would muddy the issue some, but in general I take the two statements to mean the same thing. Perhaps I am wrong in doing so…

  5. Hutch says:

    great graph once again, i would be nice to put the unemployment rate in it as well.

  6. Nomasir says:

    Nice post. The chart shows quite painfully through 80s & early 90s that spending was roughly 2 years or so ahead of revenue. Had we just held spending level for 2 years at any point, we would’ve caught up. I suspect the double wave starting in 2000 is a sign of the times. In inflation-adjusted dollars (if you accept the inflation calculation methods) I doubt we’ll ever get a wave that bounces up above the $2.7 trillion mark. We’ve reached and passed the credit saturation point – additional borrowing does not cause economic increase anymore. But I digress.

    Would have added to the last paragraph: “Lower taxes is quickly becoming a luxury of a country whose financial situation is not dire. High spending is quickly becoming a luxury of a country whose financial situation is not dire.”

  7. Ed Skinner says:

    I, and those who come to read via the links back to your work that I pass along, sincerely thank you for the careful work that you do in preparing each of these. Your meticulous efforts are most appreciated. Thank you.

  8. Bill says:

    What I am finding interesting is that the spending graph does not register an acceleration in the rate of spending increase from 1998 to ’08. I think that that alone should put to rest the notions of the crushing cost of the war.

    I am curious about the downward blip that occurred in ’06, what law was enacted or policy took effect right there to bend the spending curve that dramatically?

    All that said, I can think of little reason why the 2.2 trillion that the federal government takes in should not be sufficient to run the federal government. Yeah, deficit is the gap between income and expenditure, but the federal income is not a little number. The federal spending machine is insatiable.

  9. Bob says:

    The revenue side will fix itself when the economy recovers if we leave tax RATES alone. Kennedy, Reagan, and Bush all proved that revenues will increase (due to an expanding economy) when you cur rates. The fact that congress spends more than it takes in has nothing to do with how much is taken in.

  10. Justin says:

    I love your work.

    But, an observation in support of “Problem = Spending, not Revenue”: Current Revenue is about the same as FY 97-98 yet current spending is about 60% higher than FY 97-98.

    The problem (math aside) is the idea that: problem (real or perceived) => government program => more spending.

    The vast majority of government programs are a budget is search of a problem.

    Also, we have social programs (i.e. Social Security and Medicare) that are structured on political dreams rather than financial reality despite the fact that then have very real financial consequences.

  11. Snarky Mark says:

    @Justin:

    “The vast majority of government programs are a budget is[sic] search of a problem.”

    I would argue that “vast majority” is a bit of an exaggeration. Sure, there are many smaller programs that fit your description, but by far the biggest government program in search of a problem is our military. Seems we’ve never been able to let our military simply sit idle since WW2. And while this is easily the biggest domestic budget cost to be curtailed, it’s also one that has immeasurable, additional, residual costs, which are not factored into the military budget, but nevertheless cost individuals and our society.

    @PoliticalMath:

    Sure would be nice to see someone estimate and include the peripheral and residual costs of some of our larger government-funded programs, that aren’t included in ‘Govt Spending’, but are nevertheless paid for directly or indirectly by US citizens: military wars, DHS, NAFTA, massive incarceration w/o rehabilitation, tax loopholes, corporate crime, etc.

  12. Justin says:

    @Snarky Mark:

    You’re right. “Vast majority” is an exaggeration. But, that doesn’t mean Congress shouldn’t take a close look at the utility of many programs.

    Also, military funding does indeed have its problems. However, the solution is probably both complicated and politically challenging. Simply scaling back the military (ala Carter) without thought to readiness, training, etc. isn’t a good idea. What is needed is targeted cuts but then you start chopping programs that greatly affect certain congressmen’s districts and… well, they never get cut. Again, this is a problem for Congress to address.

    Regarding estimates of peripheral and residual costs, I’m not sure how you could do that without a great deal of political bias. Example: tax loopholes. Who decides what is or is not an acceptable loophole? I think that most people would agree that there are too many loopholes but then wouldn’t like zero loopholes (flat tax, one tax bracket, no deductions, no credits, etc). How do you do this fairly and without bias? I don’t know. I’d like to hear your ideas.

  13. ARDAvis says:

    “I think that it would be very interesting to see this same graph overlaid with the total population of the US…” Dan Dec. 2010

    I actually produced a spreadsheet that showed growth in spending verses change in population. Population has been growing at roughly 2% per year. Federal Spending has grown much faster. During the mid 70’s to mid 80’s it grew at a minimum of 10% per year. We had a short period of time, early to late 90’s, when spending increases were held to 2.5% – 4.0% per year.

    These numbers are not adjusted for inflation on purpose. They are not tied to GDP either. Tying to GDP assumes there is a relationahsip that government must be a certain size of the economy. I question that assumption. Also it is well accepted that trends in government spending influence inflation. So was the rapid increase in the spending in the 70’s – 80’s due to inflation? or was inflation due to the rapid increase in spending? Obviously both!

    I also created a look at the political control of our Nation (Federal level) from 1861 – 2010. I created a statistic I call “Power Pts”. Each party was assigned 1 pt each (per Congressional session)if they controlled the President, the House and the Senate. They were given a second point for the House and Senate control if they controlled them with 60% of the seats or more. There was a potential for 5 points per Congressional session, with a minimum of 3 points. What you see is three eras:

    1861 – 1930: Democrats = 0.86 Republicans = 2.86
    1931 – 1994: Democrats = 3.13 Republicans = 0.72
    1995 – 2010: Democrats = 1.25 Republicans = 1.88

    In doing this, I also saw the control of the House and Senate. Most people don’t realize how much Democrats controlled Congress from 1933 – 1994. During that period Republicans only controlled the House for 2 sessions (2 year periods – 1947-48 & 1953-54). Democrats averaged an 80+ seat majority during that time. During that same period Republicans controlled the Senate for 5 sessions of Congress (2 year periods). Three of those came during Reagan’s terms as President in addition to the two sessions they controlled the House. But even during Reagan’s terms the House was solidly Democratic averaging 256 seats to 179 seats for Republicans.

    It was during this period of Democratic dominance that we saw the size and role of the Federal government change dramatically.

    1937 – Social Security: 88 Republicans vs 334 Democrats; 16 Republicans vs 76 Democrats
    1965 – Medicare & Medicaid: 140 Republicans vs 295 Democrats; 32 Republicans vs 68 Democrats
    1969 – Unified Budget: 192 Republicans vs 243 Democrats; 43 Republicans vs 57 Democrats
    1977-81: Depts of Energy & Education: 150 Republicans vs 285 Democrats; 40 Republicans vs 60 Democrats
    2009-2010: Cap & Trade and Obamacare: 173 Republicans vs 262 Democrats; 41 Republicans vs 57 Democrats

    In all of the above cases Democrats controlled the Presidency and had large majorities in the House and Senate.

    Finally, to put Federal Spending in propsective:

    1970 = $0.2 Trillion
    1980 = $0.6 Trillion
    1990 = $1.3 Trillion
    2000 = $1.8 Trillion
    2010 = $3.7 Trillion

    I don’t think you have to adjust those numbers for anything (population, inflation or GDP) to see a big problem in growing size of our Federal government.

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  15. Bill says:

    @Snarky Mark.

    You are incorrect. Not only is the military not “the vast majority”, but it isn’t even the highest spending department. That would be HHS. and in 2010, social security also outspent the military. In total, 2010 military spending was roughly 20% of the federal budget.

    http://www.federalbudget.com/

  16. LOUDelf says:

    Even without charts and graphs, we know something simple in any situation: You don’t have debt without spending. This is oversimplification, of course, but at the same time, it’s just that simple. Companies constantly look at cost-cutting measures, even in times of prosperity. It does not appear the government has this same approach. If it had, we may not be having this discussion.

  17. Ed Skinner says:

    Link is good now.

  18. Daren Kaiser says:

    I appreciate the chart on Fed revenue vs. spending. Here are my ideas of the top 4 actions we could take to solve all of this and make the USA so economically prosperous again, that anyone wanting to work could find a good job and still increase our standard of living. I’m wondering what you think and what the math (and the pennies) would look like for these ideas:

    1. Eventually End FICA (Social Security & Medicare) by allowing voluntary & mandatory “opt-out” changes. How it would work: Under 30 years old, you are forced to opt out. You get a one-time payment for 100% of what you have personally paid in (not your employer’s share). No FICA benefits for you, ever. You are on your own, just like all other Americans prior to the start of FICA. However, you never have to pay in and neither does your employer. Age 30 and over, you can voluntarily opt-out or stay in. If you opt-out, your one-time payment, however, is just 50% of what you have already paid in. And, you never get any future FICA benefits, but again, you do not have to pay in. However, to keep the current system funded, your employer does need to pay in at current percentages, the same amount that they are already paying in on your behalf until you leave that employer. If you opt-in, you stay in the FICA system per the existing percentages and benefit rates. This eventually gets the Fed out of this monsterous disaster. The last 50 years have proven that the Fed is not competent, and never will be, to manage a program like this.

    2. Become Energy Independent and keep all foreign oil money in the US. I think about $1Trillion a year of our US income goes to foreign nations to buy oil. If that $1Trillion stayed in the US, we could employ all of the currently unemployed people at a decent annual salary. So, what if the Fed put the policies in place (like allowing drilling everywhere in the US, like allowing Nuclear plants to be built; like taxing foreign oil and diverting that money into subsidies for US Nuclear or Wind Energy generation; like removing restrictions and costs on coal generation; like subsidizing electric cars & batteries built in the US). What would the pennie look like on that? Don’t forget the billions we would not have to spend fighting Middle East crazy people who arm themselves with oil revenue from the US.

    3. Replace the US Income Tax with the Fair Tax. This would bring many foreign companies to the US since they could operate with all our great infrastructure but without any corporate income tax. Our unemployement problems would go away. The only problem we would have is a shortage of US workers and a shortage of housing. What would the pennies look like on that?

    4. Increase the annual Immigration Quotas. To get the additional workers that we need, due to item #3 above, we need to get back to allowing 20-50million new immigrants per year into the US. If we do this and we streamline the immigration process, this would also solve the illegal immigration problem.

    Thanks for considering these ideas.

  19. Jim says:

    Is anyone bothered by the fact that this graph is inflation adjusted, and still federal spending has increased from about $1.35 trillion in 1983 up to $3.75 trillion today? The US population has only grown from 234 million people to 309 million people?

    In inflation adjusted dollars, the US spent $5,770 per person in 1983, while today they’re spending $12,100 per person.

  20. Justin says:

    @Jim

    Yes, that bothers a lot of people. That’s why you hear so many people say, “cut spending first”. We don’t have a tax problem, we have a spending problem.

  21. Daren, I really like a lot of your ideas. I propose some very similar ones in my blog (libertysrest @blogspot). I particularly liked your idea number 1. That is a great idea.

    ARDAvis, those are some interesting numbers as well. Thank you.

    Jim, I am incredibly concerned, which bring me to why I replied to this blog. Mathematically it is correct to say that a deficit is both a spending and revenue problem. The numbers in fixing it are easy — make that much more, spend that much less, or a combination of the two. However, when trying to apply that method, you run into political philosophy, not math. I would never disagree with the premise of this article mathematically.

    Philosophically, however, you must look at all of the money that is spent and whether that is a legitimate expense or not. I would argue (like most here seem to) that most of our expenses are not legitimate, Constitutionally-supported endeavors of Federal government. Then you look at the programs that are legitimate (the military is a good example) and see that even though we should spend money on it, perhaps it shouldn’t be nearly that much. Once you cut all of the spending that should not happen in the first place, there is no need for any more revenue, and the problem is already solved. Then people can keep more of their money and those that are concerned about caring for the less fortunate can give that extra money they have to an organization that accomplishes the same goals, but more efficiently.

    Just my two cents on why it is philosophically a spending issue.

  22. juandos says:

    We can’t possibly cut enough out of the federal budget to balance it without additional revenue“…

    I totally disagree sir! A look what part of the yearly federal budget is set aside so politicos can pander the parasites and one will in excess of 60% goes towards those insanely expensive but totally useless federal programs…

    A short look at the Constitution would show anyone that the federal government has no business in many if not most of the businesses its in…

  23. Tom Perkins says:

    “(not your employer’s share)”

    You are under the delusion that the “employer’s share” wasn’t a part of the employee’s pay, and shouldn’t appear on the W2 as income?

  24. Chris says:

    @Daren Kaiser — I like a lot of you ideas, but this one sentence pretty much kills the prospects: “However, to keep the current system funded, your employer does need to pay in at current percentages, the same amount that they are already paying in on your behalf until you leave that employer.”

    What do you think employers will do when they have to pay social security for employees over 30, but not for employees under 30? Experience tells me that they will find a way to get rid of the over 30 crowd, regardless of any laws that we put in place to discourage that. A better solution would be for employers to have to contribute social security for all employees regardless of age until some arbitrary time point at which the majority of the currently over 30 crowd is retired — perhaps 25 years.

    @Tom Perkins: “You are under the delusion that the ’employer’s share’ wasn’t a part of the employee’s pay, and shouldn’t appear on the W2 as income?” Employer share of Social security does not show up in the employee W2, but is reported separately to the IRS. It is part of employee “cost”, but definitely not part of employee “pay”.

  25. Diogenes says:

    Am I missing something here or are the colors of the TWO lines reversed, I.e. revenues (green) show to be significantly larger than expenditures (red).

    If so, why is there a deficit?

  26. Boyd says:

    Here is the link to Kevin Williamson –

    http://www.nationalreview.com/exchequer/274695/paul-krugman-still-wrong-about-texas

    Lots of data and discussion on this exact topic.

  27. Deoxy says:

    I am very strongly in the “cut spending only” camp, even though this data is absolutely not new to me.

    We don’t have a revenue problem, at least, not in the long term. We have a severe recession (that government action is trying to turn into a depression, just like how the last one happened), and that’s hurting revenue. When the economy recovers (is allowed to recover), so will the revenue.

    If spending was in line with NORMAL revenue, we’d be running a noticeable-but-not-catastrophic deficit, and (almost) no one would care. When the economy recovers (which is would have done long before now without government interference, looking at the history of recessions since WWII), we could pay it off and go on like it never happened…. IF our spending (and our existing debt) wasn’t insane.

    Going by the last peak of revenue (not current revenue), our debt is between 5 and 6 times our annual tax income. That’s bloody crazy. We blew over $1 trillion out our collective hind quarters is “stimulus” that didn’t do any good (because it was almost entirely payoffs for cronies, etc). That’s insane.

    Get spending in line with historical revenue norms, get the government out of the way, and watch the revenue take care of itself.

  28. Taylor says:

    @Diogenes: I had the same thought, until I realized that my browser was only showing the left end of the chart. The really ugly end (the present debacle) was not visible until I expanded the image.

  29. christy says:

    Just read your texas jobs thing which i thought was very good

    This post is pretty poor though

    spending will tend to rise during periods of recession as a result of automatic stabilizers -reducing spending in the middle of a demand slump is a pretty terrible idea – especially when long term bond yields are, after inflation, effectively zero.

    The US ought to borrow, at ludicrously low rates, and use the money to invest in infrastructure and the like – that stuff can bring in returns of 10-20%

    Further, it seems clear that the debt problems of the US are structural. It is difficult to see how the US can have the education, health and social security framework it currently has without raising taxes, as the population is aging.

  30. AndyN says:

    @Daren Kaiser. I hate your idea. Main reason is it is based on fundamentally flawed understanding of Social Security. SocSec is not an “expense” at all. Money is put in by citizens, and money is then taken out when retired. It is perfectly solvent. In fact it annually produces a surplus. The problem is in the fact that the Govt uses this surplus to pay for other things besides just those collecting their SS benefits. The govt then writes an IOU to the SS fund, and is required by law to pay back the loan to the SS fund WITH INTEREST.
    The ONLY problem with Social Security is that our huge government deficit is making it impossible to make good on the IOUs to the SS account.
    If Social Security were kept off limits to borrowing by other government agencies, it would be indefinitely solvent, and perfectly capable of guaranteeing all working
    Citizens a retirement income that is independent of the very unstable open market, where stocks and pension plans can dry up in a heartbeat, at the mercy of the economy. I have watched my personal IRA plummet to almost nothing in just a couple years. A stable, guaranteed retirement income like Social Security SHOULD be, is something I feel we all should be able to have.
    Stop listening to the BS spin about Social Security. It being perpetrated by those who don’t want to mke good on all the IOUs generated by raiding the fund.

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  32. steve says:

    Hold on here. Let’s back up. Who said that both lines have to increase together? That’s an illogical assumption. How do companies and people manage their expenses? You make so much money as a person (your salary) and then you don’t spend more than you make (at least most people are prudent and manage their wealth this way). Corporations also work the same way – they have a certain market size with only so many customers that will pay for their product up to a certain price, and revenue grows as they win new customers. The corporation then manages it’s expenses accordingly – and if the company is public then they eventually have to be profitable or their stock price gets hit hard. Both personal and corporate entities work within certain limitations (leverage ratios, competitive pressure, etc.). Some people make more money than others and some companies have bigger opportunities than others. Apple has a huge market, makes a lot of money and therefore can spend more. An accountant generally makes less than a CEO and therefore spends less. But the government is different. The government is not a person or company. It’s the PEOPLE contributing their income in the form of taxes to be allocated to certain expenses for the benefit of the country (unfortunately today it gets allocated based on special interests and lobbyists).

    Anyone who says that this is a revenue problem is mistaken in my opinion. Government should “scale” an not have to grow at the same rate as GDP or population. You start with your market size first – tax revenue. We can argue that total tax revenues are too low but RELATIVE to spending the last 10 years they are not.

    Based on the graph above, let’s assume by end of 90s we have a “market” of $2 to $2.5 trillion of revenue from the people. Yes, maybe it’s too low or high, but the graphs show we have a $2 trillion base of revenue. So first you manage to that. But look at the expense line. Straight up an out of control – the fault of both republicans and democrats problem (wars, pork and entitlements) . It’s the PEOPLE’S problem.

    If you are going to increase expenses, then you FIRST have to approve an increase in revenue, not borrow hoping the economy will turn around or that the next democratic president will raise taxes. The PEOPLE vote on these issues and we increase taxes or we don’t. But what we have been doing is borrowing from other countries and the Fed to fund our deficit. And the leverage is huge. We are now a broken leveraged buyout. Most companies don’t have such easy access to borrowing and certainly people can’t go to the Fed and sell them bonds. The government borrowed beyond the revenue base that the debt can support. When people and companies do this, they don’t get an automatic increase in revenue to pay off the debt, they are forced to cut expenses and their stock prices get hammered.

    So first we have to cut and cut deep until expenses are less than revenue so we can take the surplus and pay off debt. It’s call a restructuring and they are painful. Then we can talk about increasing revenue. Do we really need a military trying to “protect” the entire world with about 1,000 bases? Do we really need a tax code with loopholes for the rich and big corporations? We could do so much by just simplifying the tax code, regulating some industries more (banks) and others less (small business), and getting rid of the pork and entitlements. Also, all of Congress is bought. They are not voted in but auctioned into their position. 94% of the candidates that raise the most money win their election. They are all bought by special interests and corporations.

    I’m happy to pay an increase in taxes to pay off some debt, but this is much more of an expense problem than a revenue problem. If we get rid of the corruption, AND the people vote for more taxes to $3 trillion in revenue, then that’s fair. But then expenses have to be LESS than $3 trillion and we need to SAVE for a rainy day and not borrow to oblivion. But if the country votes for $2 trillion in revenue, then expenses have to be less than $2 trillion and we save for rainy day. The military complex, banks and powerful lobbyists can’t dictate policy. The PEOPLE have to dictate policy. Unfortunately Congress is a disaster and can’t get out of it’s own way.

    In summary, graphs of revenue and expenses and percentage of GDP must b analyzed taking into consideration the business model. It’s easy to draw two different conclusions with the same data. Government must have limitations and the people can’t have it all. This country was not built by government, it was built by the people with the help of government that was elected by the people. The people have to step up and take some responsibility for their health, education, safety and their government’s financial health. The government is not some magical entity that can borrow and spend forever to become some huge part of the economy. Just think about it this way: why don’t we all just give every person in the entire country a government job. Where will the tax revenue come from and would the country be productive?

    Raising taxes is the easy way out for politicians who don’t have the guts to stand up to those that gave them money to give them some tax break or other monetary advantage. It’s very hard to cut expenses when an industrial military complex, banks and healthcare have a hold on the politicians. But someone has to step up and tell them they get no more money. If we keep raising taxes, by nature the government will never cut spending.

    The financial condition of this country is seriously messed up. No company would be rewarded with revenue if they ran operations so poorly. We can’t just keep raising taxes to cover up a bloated and inefficient system. Remember in the above graph that even if expenses were cut or revenue was increased, we still have $15 trillion of debt and $80 trillion of off balance sheet entitlement obligations to pay back. This is impossible and why the Fed will continue to print money.

    Finally, remember, printing money is a tax. It dilutes us all by making the US dollar worth less (when you print more of it electronically, each $ is worth less and buys less goods, so you have less – that’s a tax). So we have already raised taxes through money printing. Those that say we haven’t raised taxes don’t understand the entire financial system. We borrowed a lot, printed money to get us through the debt crisis, inflation increased (commodities are up big) and then the poor and middle class gets hit hard because everything is more expensive and their incomes are not up. So now the government is supposed to raise taxes from the rich (which would still never be enough to pay off all the debt and entitlement obligations), but they don’t cut expenses, so the government will still have to borrow and print more money which causes more inflation. It’s a vicious long term circle that few people understand.

    Taxes are not the answer, at least not until we get expenses under control. It will be very painful to cut expenses, but it’s death by a thousand cuts by inflation if we continue to borrow and print money.

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