Point #3/b: Temporary Spending Doesn’t Drive Deficits

February 15th, 2012 at 7:46 am

In the interest of efficiency, I’m going to start assigning numbers to frequently made points around here.  One that’s particularly germane today is point 3-stroke-b: temporary spending is not what drives the budget deficit.

The WaPo tell the story: Congressional negotiators, unable to agree on an offset to pay for extending the payroll tax break for the rest of this year agreed to add the $100 billion cost to the deficit.

I know–that doesn’t sound good.  But you can’t let big numbers knock you around.  You have to look at the actual contribution to the deficit as a share of GDP over time.  I made a graph of this in an earlier blog that I can’t find right now and I’m in a rush.  What it shows, however, is that by 2014, extending the payroll cut along with unemployment benefits–about $160 billion together–adds 0.02% to the deficit as a share of GDP.  That’s two basis points or two-one-hundredths of a percent.  IE, small (the reason it doesn’t go to zero is because of interest costs).

It’s not the temporary stuff that hurts you when it comes to the longer term deficit.  It’s the stuff that just won’t go away, like the Bush tax cuts.  Or, to put it more simply: 3/b.

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11 comments in reply to "Point #3/b: Temporary Spending Doesn’t Drive Deficits"

  1. foosion says:

    What point numbers are

    Austerity is counter-productive in a time of high unemployment, low capacity utilization, slow growth and low interest rates

    Counter-cyclical fiscal policy is a good idea

    Adding to the deficit now, if it spurs growth, lowers the long-term deficit as a share of GDP

    The major driver of the long-term deficit is healthcare costs. Shifting costs from the tax-payers to seniors doesn’t help anyone (other than the 0.1%), as it just increases total healthcare societal costs

    The WaPo hates Social Security and Medicare

  2. Bud Meyers says:

    I’ve noticed that most of the time we see charts comparing government spending as a percentage of GDP.

    Would it be possible to see a chart made of government spending (in today’s dollars) as a percentage to the population going back 40 years when we grew from 200 million to over 300 million?

    And then in another chart (or incorporated into the first chart) of government spending (in actual dollars) in ratio to tax revenues (with top marginal and capital gains tax rates included) for every year going back for those same 40 years?

    How much has government spending risen over the last 40 years per-person (in today’s dollars), and where did the total bulk of that spending go (e.g. defense, Medicare) over the past 40 years?

    Here are some other charts for you:

  3. Tyler says:

    The great news is that the payroll tax cut pays for itself. It’s tax cuts like the high-end Bush tax cuts that do not.

    A tax cut for incomes under $200k is very likely to pay for itself.

    • Tyler says:

      In a recent article, Dean Baker makes a very important point:

      “[P]oliticians and pundits … have deceived many people into thinking that the economy would somehow be stronger and there would be more jobs if the deficit was reduced, either due to spending cuts or increased taxes.

      “This view makes no sense… All … actions that reduce the deficit, either on the spending or tax side, translate into less demand and therefore less employment. In short, those who want to cut the deficit now are lobbying for fewer jobs and higher unemployment.”

  4. Michael says:


    There, let’s see if caps-lock can get this idea across, since apparently 80 years of Economics is insufficient.

  5. Tom in MN says:

    Other Numbering (in order of likeliness of being made into a movie):

    Plot #1/a: Boy meets girl


    Plot #666/f: GOP complains bitterly about debt until in control then proceeds to double it.

  6. Jean says:

    Don’t know if this is up your alley, but once a billionaire has donated a million to a Super Pac, where does the money go? Is there anything stimulative about these donations? Will Citizen United be the great equalizer?

    This is something I have been wondering about for a while.


    • Jean says:

      OK, so maybe this idea, after thinking about it, is buying into “Trickle Down”. And since the uber-rich are probably only spending a fraction of their income [can’t really put my head around that one … a fraction of their income is in the millions] it wouldn’t make that much difference anyway. But lots of the time carrying things to their “logical conclusion” is a good way of bringing out all the problems with it. Since we have Citizen’s United, there has to be a way of making it turn around and bite the people who support it.

      Just sayin’ …

  7. the buckaroo says:

    …point #7/c: remove cap on fica, period…as in no limit, whatever you make. Funding problems simply melt away.