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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 457612  
Subject: The real source of our budget troubles Date: 11/8/2012 8:28 AM
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There has been a lot of talk about how our budget problems are the result of tax cuts and wars. While the budget deficit would obviously be reduced if tax revenue was higher and defense spending was lower, I think that this evades acknowledging the biggest driver of our deficits: the increase in non-defense spending.

The last time that we ran a budget surplus was FY 2001. Non-defense spending was $1.513 trillion (Refer to Table 3.1 below: "Total, Federal outlays" less "National Defense" less "Veterans Benefits and Services"). It is projected to be $2.950 trillion for FY 2012. This means that non-defense spending increased by $1.437 trillion since the last time that we ran a surplus.

To put the $1.437 trillion dollar increase in non-defense spending into perspective, our total individual income tax revenue for FY 2012 is projected to be only $1.165 trillion (Table 2.1).

Even if we had managed to double the individual income tax revenue, we *still* would have lost ground to the increase in non-defense spending to the tune of about $272 billion. And that's with a 47.1% increase (15% vs. 10.2% per Table 2.3) in individual income tax revenue as a percentage of GDP over this country's record high!

If we also doubled corporate income tax revenue ($237 billion), we *still* wouldn't have closed the gap!

Meanwhile, the increase in defense spending (National Defense + Veterans Benefits and Services) increased from $350 billion in FY 2001 to $846 billion in FY 2012, an increase of $496 billion (and some of this is from inflation and increased defense to fight terrorism, not wars). If you assume that individual tax revenues would have been 50% higher absent the tax cuts (an absurdly high estimate), tax revenue would have been $585 billion higher. Adding the two together gives you $1.081 trillion, still well short of the increase in non-defense spending, even with extremely conservative assumptions.

Sources:

Table 3.1—Outlays by Superfunction and Function: 1940–2017
Table 2.1—Receipts by Source: 1934–2017
Table 2.3—Receipts by Source as Percentages of GDP: 1934–2017

http://www.whitehouse.gov/omb/budget/Historicals
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