The picture I’m about to show you is not a shocker if you follow this sort of thing but I made it for a presentation this AM and damnit, I’m gonna use it!
It shows federal gov’t spending and receipts since 2007, in dollars adjusted for both inflation and population growth. The deficit/GDP ratio’s in there as well.
Here’s what I DON’T see: out-of-control spending! Federal spending rose going into the downturn, as it must, due to automatic stabilizers (UI, food stamps) and the Recovery Act. Then it quickly charted a path back to pre-recession levels. To be fair, I’m not sure if even Fox/Tea Party types rail at Obama as a big spender anymore but…there it is.
These reductions in outlays were partly due to the fading of temporary stimulus, and more recently the improving economy taking pressure of the stabilizers. But the largest factor was spending cuts through a variety of budget measures over the past few years, cuts slated to amount to over $3 trillion over the next decade when you factor in interest savings.
The result was a smaller deficit every year since 2009, despite the fact that the economy still needed fiscal support. So, no–we’re not Europe…but neither have we eschewed fiscal austerity.
On the revenues side, the recovery is predictably boosting tax receipts which are climbing back to their historical average of around 18% of GDP, which is where CBO expects them to stay over the next decade.
But two things.
First, there are two themes percolating in tax policy world. One is the desire for tax reform that both sides seem to broadly agree should be revenue neutral. A more recent theme–one I’ve supported–introduces progressive tax policies that close tax loopholes at the top of the scale and use those revenues to help boost earnings and opportunities for middle- and low-income households.
Second, we face a number of future fiscal challenges that the private sector will not, by design, meet. Here’s a list I put up at the presentation today:
- Aging demographics
- Poverty, inequality
- Human capital
- “Secular stagnation,” lower potential growth.
So, while one should appreciate the lack of anything alarming in the figure below, one might well join me in worrying that a) revenue neutrality is an insufficient goal, b) hitting the historical average in terms of revenues/GDP is likely to be inadequate to meet our future fiscal challenges, and c) with an election coming and all this talk of tax cutting heating up, there’s a danger of doing damage to even that historical average revenue figure.
Anyway, that’s what I see in the figure. What do you see?
Sources: Treas, NIPA