Tag: federal budget

$2 Trillion in Cuts in Perspective

Congressional Republicans have said that spending cuts must be at least as large as an increase in the debt ceiling. Negotiations over lifting the debt ceiling are ongoing, but the “magic number,” so-to-speak, would be around $2 trillion in spending cuts.

Cutting $2 trillion in federal spending sounds like a lot, but it’s actually relatively small because the cuts would likely occur over ten years. According to the Congressional Budget Office’s most recent budget baseline, the federal government will spend almost $46 trillion over the next ten years.

The following chart shows what $2 trillion in spending cuts over the next ten years looks like when measured against the CBO’s baseline. Even with the cuts, federal spending would still increase by $1.8 trillion:

Rather than actually cutting spending, federal spending (and debt) would continue to grow – just at a slightly lower rate. And as Chris Edwards continues to warn, there is a strong possibility that some or all of the “cuts” could be phony.

CBO’s Long-Term Budget Outlook

The Congressional Budget Office released the latest edition of its annual forecast of where the federal government’s budget is headed. The numbers are new but the message is the same: the budget is on an unsustainable path. According to the CBO’s more politically-realistic “alternative scenario,” federal debt as a share of GDP will hit 109 percent in 2021 and would approach 190 percent in 2035.

For those mistaken souls who believe that merely eliminating “waste, fraud, and abuse” in government programs can solve the problem, the CBO has news for you:

In the Congressional Budget Office’s (CBO’s) long-term projections of spending, growth in noninterest spending as a share of gross domestic product (GDP) is attributable entirely to increases in spending on several large mandatory programs: Social Security, Medicare, Medicaid, and (to a lesser extent) insurance subsidies that will be provided through the health insurance exchanges established by the March 2010 health care legislation. The health care programs are the main drivers of that growth; they are responsible for 80 percent of the total projected rise in spending on those mandatory programs over the next 25 years.

Others believe that “tax cuts for the rich” are the source of the problem. But according to the CBO’s alternative scenario, if the Bush tax cuts are extended and the Alternative Minimum Tax continues to be patched, federal revenues as a share of GDP will still exceed the post-war average by the decade’s end. Under the CBO’s standard baseline, which assumes that those policies will not be continued, federal revenues as a share of GDP will go zooming by the historic average. That might be good for politicians, bureaucrats, and other “tax eaters,” but it wouldn’t be good for the country’s economic welfare.

The problem is clearly spending and the GOP has rightly made spending cuts a key condition to lifting the debt ceiling. The magic number being reported is $2 trillion in cuts. That sounds like a lot of money – and it is – but it’s likely that those cuts are to be achieved over 10 years. According to the CBO’s most recent estimates, the federal government will spend almost $46 trillion over the next 10 years. And as Chris Edwards has been repeatedly warning (see here, here, and here), there’s a possibility that the cuts will be of the “phony” variety.

Seven Reasons to Oppose Higher Taxes

As I have explained elsewhere, tax increases are a bad idea - unless you favor bigger government.

And I’ve already added my two cents to the tax debate between Senator Coburn and Grover Norquist regarding the desirability of higher taxes.

So it won’t surprise anyone to know that I fully agree with this new video from the Center for Freedom and Prosperity, which offers seven reasons why higher taxes are a bad idea.


The video is narrated by Piyali Bhattacharya of Young Americans for Liberty, and here are her seven reasons.

  1. Tax increases are not needed
  2. Tax increases encourage more spending
  3. Tax increases harm economic performance
  4. Tax increases foment social discord
  5. Tax increases almost never raise as much revenue as projected
  6. Tax increases encourage more loopholes
  7. Tax increases undermine competitiveness

I think reasons #1, #2, #3, and #5 are the most powerful.

To a considerable degree, my video on balancing the budget makes the same point as reason #1 about why higher taxes are unnecessary. Simply stated, balancing the budget merely requires a modest degree of fiscal discipline, such as capping spending so it only grows 2 percent per year.

And if tax increases are not needed to balance the budget, then the only purpose they serve is to facilitate a bigger burden of government spending, which is why I like reason #2.

And reason #3 is standard economic analysis, making the common-sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship.

Last but not least, reason #5 is just another way of saying that the Laffer Curve is real, as I explain in this tutorial.

Wednesday Links

Happy Tax Day! Rest Assured. Your Money Is Well Spent Defending Rich Allies

A little over a year ago, I posted two different graphs (with the help of my colleague Charles Zakaib) that showed the growth of U.S. national security spending vs. that of other NATO allies over the last ten years. The data, based on the International Institute for Strategic Studies’ annual Military Balance, showed that U.S. taxpayers spend far more on our military, both as a share of total economic output, and on a per capita basis, than do any of our allies.

New data, for 2009, was made available in IISS’s Military Balance 2011, and the revised graphs are shown below. (Again, thanks to Charles for his help). As I suspected, the gap remains as wide as ever. In a few cases, it has grown wider.

As you can see, the $2,101 that every American man, woman, and child spends is nearly two and a half times as much as the average Frenchman, over three and a half times that of the average German, and more than fourteen times what the average Turk spends.

But all of these numbers are slightly misleading. The gap between what Americans spend on national security, broadly defined, and what everyone else pays, is actually wider.

For example, IISS’s graphs include only U.S. DoD budgetary authority, meaning the Pentagon’s base budget plus the costs of the wars. A more accurate “national defense” total includes nuclear weapons spending in the Department of Energy ($22.9 bn in 2009) and a catch-all category of “other” defense-related spending tucked away elsewhere in the federal budget totaling $7.25 bn. That adds another $95 a year to every American’s tax bill.

But wait, there’s more. A more accurate apples to apples comparison of all U.S. national security spending to that of other countries would at least include the Department of Veterans Affairs ($96.9 bn). Other countries (France, Germany, Italy, Spain, Greece, Belgium, and Portugal) include military pensions in their base budgets. Meanwhile, people in other countries would think it foolishly redundant to fund both a Department of Defense and a Department of Homeland Security, but Americans don’t (or at least Americans in Washington don’t). DHS funding in 2009 totaled $45.3 bn. All told, I estimate that the average American spent at least $2,644 on national security in 2009. The total was certainly higher in 2010 since the costs of the wars in Iraq and Afghanistan peaked in that year.

And in case you’re wondering, we spend at least 17 times as much as the average Chinese. Meanwhile, total U.S. security spending exceeds that of China, Russia, North Korea, Syria and Iran – combined - by a factor of 3.3.

As the debate over federal spending drags through the dog days of summer and into the autumn, you will hear many people talk of our government’s solemn obligation to defend the citizens of this country from foreign threats. President Obama reaffirmed on Wednesday, in case anyone doubted it: “As Commander-in-Chief, I have no greater responsibility than protecting our national security, and I will never accept cuts that compromise our ability to defend our homeland or America’s interests around the world.” (my emphasis)

Surely some of the missions that our military is asked to accomplish actually do have that effect, but the definition of “America’s interests” has expanded so dramatically over the past few decades that it is practically devoid of any meaning.

Thus, you – yes, you, American taxpayer – will be told that our national interests around the world compel us to treat the Straits of Gibraltar and Malacca as though they were of equal importance to U.S. security as that of the Straits of Florida, the 90 or so miles that separates Key West from Cuba. The Caribbean might be an American lake, but so is the Mediterranean, the Baltic, and the Sea of Japan. Ominous threats made by Russia, China, or Iran against their neighbors are treated as synonymous to threats to harm Americans. Every ungoverned place, everywhere in the world, you will be told, poses a dire and imminent threat to your safety and security, hence our need to fix them all. (For why this generally isn’t true, see here.)

Throughout the supposed impending discussion of our military’s roles and missions, the role that other countries should play in keeping the seas open and free, defending themselves from potentially hostile neighbors, and preventing terrorists and other non-state actors from setting up shop in a nearby land, will rarely be entertained. For many people here in Washington, that is entirely by design: they don’t want other countries to defend themselves and their interests around the world. Better that you, the U.S. taxpayers, pay these costs. To do otherwise, to reduce U.S. military spending, and to pull back our forces from certain regions around the world, thus “leaving partners elsewhere in the world to manage for themselves as best as they can,” wrote Robert Haddick yesterday at the Small Wars Journal, would result in “regional arms races, increased nuclear and missile proliferation, and the establishment of new outposts around the world by America’s rising rivals.

Haddick is not alone in predicting that the world will descend into complete and utter chaos if other countries were responsible for defending themselves and their interests, but all such assertions are precisely that: assertions, not fact. They rely on dire predictions of a horrible future, usually based on historical examples that are completely irrelevant in the modern age, to convince American taxpayers to pay more and more, and still more, on our military, so that others do not have to spend money on theirs. What’s more, they tend to ignore the current fiscal crisis, and are generally reluctant to explain what, if anything, they would cut. So far, fearmongering has worked splendidly to distract attention from the more important discussion of what we spend today, and what we should spend tomorrow. But the facts are incontrovertible: Americans now spend more on our military than at any time since World War II, and we spend far more on a per capita basis than anyone else in the world.

So Happy Tax Day, Americans! Our reassured allies thank you for paying to defend them and their interests. (And please now excuse them as they return to their other priorities.)

Cross-posted from The National Interest

Happy Tax Freedom Day!

If you are an average American, today is a great day. According to the Tax Foundation, you have finally worked long enough and earned enough money to satisfy the annual tax demands of federal, state, and local governments.

This means you now get to keep any additional income you earn.

That’s the good news. The bad news is that Tax Freedom Day only measures the direct and immediate impact of taxation. It doesn’t measure the overall burden of government. This chart from the Tax Foundation shows that the fiscal burden of government has jumped enormously since the end of the Clinton years.

It’s Bigger Than the Budget

Today POLITICO Arena asks:

Do the cuts (and increases) contained in the six-month spending bill House Republicans posted overnight make sense, and do they go far enough in attacking the deficit and national debt?

My response:

Today’s Arena question captures perfectly what’s missing from our current budget debate. In listing a few of the compromises contained in the six-month spending bill House Republicans posted overnight, and asking whether those cuts (and increases) go far enough in attacking the deficit and national debt, it invites us to imagine that America is one big family, arguing over how “we” should spend “our” money.

We’re not. As I wrote in last Thursday’s Wall Street Journal, we’re a constitutional republic, populated by discrete individuals, each with our own interests. Today’s question, perfectly understandable in the current climate, socializes us. The Framers’ Constitution freed us, to make our own individual choices.

To be sure, we have to start where we are today. But if that’s as far as we go, we’re doomed to never grasping the real problem. The Constitution was written precisely to check our appetite for “public goods.” It authorizes only a few, truly public goods. Not health care. Not education. Not most of what we spend “our” money on today. We’ve ignored the discipline it imposes, and we’re paying the price.