Misleading Mantra, Tax and Spend Version

July 13th, 2011 at 12:34 am

While crunching some numbers tonight, I stumbled on this graph.  These trends are well known but in the hurly-burly of the head-spinning/maddening budget talks, I was struck by them.

Source: OMB

You know the Republican mantra against revenues in the budget talks: “The problem isn’t that Americans are undertaxed; it’s that their government overspends?”

Well, since Reagan, who did actually spend above the historical level, and putting aside the Great Recession for a moment, the problem hasn’t been particularly high levels of spending, at least in historical terms.  The problem has been low levels of tax receipts.

Both Reagan and Bush lowered taxes initially (Reagan later raised them—numerous times, in fact).  But Reagan and Bush I spent an average of around 22% of GDP while Clinton and Bush II clocked in with averages of around 20%.

But of course revenues tank with the Bush tax cuts, and fall off of the cliff with the Great Recession, when spending rises sharply, both due to automatic stabilizers like unemployment insurance and policies like the Recovery Act.

There’s obviously much more to this analysis then a couple of lines on a graph, but the history of structural (versus cyclical) deficits in recent decades is that they are largely the result of cutting revenues rather than raising spending (and visa-versa–remember Clinton’s budget surpluses).

That doesn’t imply that spending shouldn’t be on the table in the budget talks—though the real pressures come in the future, through health care—whacking food stamps, education, and so on is just plain mean.  But it’s awfully hard to look at this graph and see support for that Republican mantra.

 

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9 comments in reply to "Misleading Mantra, Tax and Spend Version"

  1. fausto chavez says:

    i am shocked, SHOCKED!! to learn that evidence doesn’t support GOP ideas.


  2. Ed says:

    Or to generalize in a Colbertian vein: “It’s awfully hard to look at reality and see support for any Republican claim.”


  3. The Raven says:

    You just aren’t wearing the proper Red State glasses :-P

    “The mirror never lies / It’s just these foolish eyes / And we all see what we want to see / What we need to see, what we have to see”–NMA, “Vanity”


  4. Fred Donaldson says:

    Lower revenues has resulted in more borrowing, and more borrowing has sharply increased debt payments. In addition, Social Security was used by previous administrations as another borrowing source and more than $2 trillion of the national debt is owed to the SS trust fund.

    Republicans AND Democrats want to cut Social Security so they can “eliminate” the debt to the SS fund and use the money required for that to lower corporate and rich folks’ taxes.

    Making the simple complicated, including finance, is the best-paying job in the Capitol.


  5. Paul J says:

    The most recent part of the chart could give Republicans an opportunity to whine that, see, it’s Obama who has increased spending. The chart would probably look better if you used absolute, or even better, inflation adjusted numbers instead of percentage of GNP.


    • J.Singleton says:

      ACTUALLY..the last part of the graph substantiates Obama’s claim that he has succeeded in cutting spending and has,at least,stabilized revenue from the Republican excesses of the first decade of thr milennuim


  6. Shooter242 says:

    But of course revenues tank with the Bush tax cuts, and fall off of the cliff with the Great Recession, when spending rises sharply,

    That’s not what the graph shows at all. You’ll note the big slide in revenue from 2000 to 2003?
    2000 was Clinton rates,
    2001 was Clinton rates minus one half percent
    2002 was Clinton rates minus another one half percent.
    2003 was the full tax cut and you see revenue stabilize then go up.
    Then we lose it at the financial crisis. (I blame Robert Rubin)
    If anything, both Clinton and Bush’s changes demonstrate context rather than rates, determine collections.


    • joyzeeboy says:

      Shooter, your are correct UP TO A POINT.
      You conveniently left out the biggest portion of the Bush tax law of 2001, the portion that pushed the vast majority of the impact of the cuts to the top 1% (and even more to the top 1/10%, top 1/100% etc, etc).
      Prior to 2001 Cap Gains, Interest and Dividends were taxed at 28%.
      Starting in 2001 the rate on these was lowered to 15%.
      This has enabled earnings over $1million to have an effective federal tax burden of around 17%.

      I WOULD LOVE A 17% FEDERAL TAX RATE ON MY TOP EARNINGS.

      It is amazing how arguments about taxes only mention personal income taxes.
      Never mention cap gains, interest or dividends.
      Seldom mention payroll taxes when you count what the employer pays on your wages amount to a net tax on what you earn of over 13%! The payments were split between employee and employer for the stated aim of giving the illusion to us wage earners that they were not hitting us with a HUGE tax increase.


  7. Kraven1957 says:

    You do not have to be an economist to know this. I’m not and I been have saying to people; Don’t believe the twisted lies by the Republican leaders. It takes money to make money and create jobs. And another lie or myth is; You can’t tax the very people/corporations that create jobs. I am not a politician or an expert on economics, but I’m not a sucker for the P.T. Barnum carnival either.


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