The Debt Limit, Budget, Deficit and Debt: Framing the Picture

The talk of the town is the debt limit.  Raise it or not raise it; and what it would take TO raise it.

Reasonable people can agree on a couple of things:

1. We are in debt and it’s getting worse.
2. To balance the budget, there needs to be a combination of an increase in revenue and a decrease in spending.

I honestly feel that if you were to ask this question, hidden in such a way as to bypass the normal political partisanship, every single American would agree.  If the checking account is overdrawn, a second job becomes something to consider and a review of the household spending becomes a priority.

But, how do we agree on such a combination when the discussion changes from the household budget to the federal budget?  How can we get folks who demand that we raises taxes together with folks who demand we don’t?  How do we get people who refuse to cut spending to shake hands with those who feel we HAVE to cut spending?

I propose that we do it by doing neither.

Watch:

First, let’s take a look at the situation we’re in.

Using numbers taken from the Tax Policy Center, I have graphed the Receipts and Outlays below:

From the graph, it’s kinda tough to tell what the trends are.  The red line is year over year government outlays; spending.  The blue line is year over year receipts or revenue.   The graph starts in tax year 1950.  I’ve started the measurement here because it removes the massive spending and taxing related to the war.

Just looking at the graph tells a couple of stories.  One is that virtually every year we spend more than we make.  Two is that up until about the early 70’s we were pretty close in the whole spending and making thing.  After that, spending has trended upwards.This upward trend lasted until 1983; the high-water mark.  After that year, spending as a % of GDP fell virtually every year until 2001.  2002 represented the beginning of some pretty big spending.

Another important story is that described in the years from 1998-2001.  These years, these blessed years, represent a point in time when the US deficit wasn’t a deficit; it was a net gain in money.  The debt actually fell.  However, this didn’t last long and we saw massive spending occur in 2008-2009 and 2010.

But, what do the numbers really show us?

What they show is pretty clear.  We have a steadily increasing gap between what we take in and what we take out.  Additionally, the data shows that while our level of outlays has been increasing year over year, our receipts are remarkably consistent; the trend line is almost perfectly horizontal.

So, what to do with this problem?  Well, if you remember, I proposed that we neither raise taxes OR cut spending.  And I maintain, still, that I can accomplish this.  Look.

Year over year, since 1950 our receipts have increased by an average of 7.20%.  And, year over year, our outlays have increased by 7.83%.  And that little bit of an increase makes all the difference.  However, there is good news.  Just such a difference, and time, can work in our favor if we let it.

Consider:

Let’s let revenues increase each year at the normal average rate of 7.20% each year.  That is, we AGREE that we HAVE to INCREASE revenues years over year.  We could then simply reduce the RATE of growth and get to our goal of a balanced budget.  No taxes are raised.  And no spending has been cut.  Indeed, spending continues to grow, but at a, say, 1 percentage point rate less than revenues.  What’s that look like?

Hmmph.  Good, I guess.  But only barely kinda.  In this picture we hit the magical year of shrinking deficits in 2057, fully 46 years from now.  And we hit a surplus in 2072; 61 years out.  What if we change the numbers some?  Like, what if we limit spending increase to only 5.2% annually?

Wow.  Now THAT is getting better.  The year we hit shrinking deficits is in 2025!  That’s just 14 years away.  And we have a surplus in only 30 years; 2041.  But, hell, let’s get greedy.  Let’s go to 4% growth in spending.  That’s still more than inflation.  So, what does it look like if we allow government to grow at 4% year over year?

YOWZA!  Would’ja look at them numbers!  We see shrinking deficits right away; there is no waiting period to see the benefits.  AND the surplus is seen in 2030; only 19 short years away.

I’m sure it’s harder than this, but not much.  The awesome thing about math is that it works in Raleigh just as well as it works in DC.  This is pretty straight forward kinda stuff, not rocket surgery at all.

So, next time you’re debating your favorite liberal statist, just remember, we CAN balance our budget without raising taxes and without cutting spending.