How many times have you watched the tube and heard a GOP talking head repeat the tired old talking point, "We don't have a revenue problem, we have a spending problem"?
Well, I've heard it more times than I wish to count. Being an analytical guy, and wanting to actually LOOK AT NUMBERS, I took the time last night to "go to the videotape" and find the truth. What do I mean by that, and what did I find out? Read on, after the fold...
As a big baseball fan, whenever there's a close play at the plate and the umpire makes a controversial call, one team says "He was SAFE!" The other team, of course, insists "He was OUT!!" The broadcast then goes to the videotape (or digital instant replay, to be precise) to find the truth.
That's essentially what we have here with the partisan battle between two political teams, the Dems and the GOPers. Dems say "We have both a revenue and spending problem", while GOPers say "We don't have a revenue problem, we have a spending problem." (ugh, did I have to write that AGAIN?).
So, to use this baseball analogy, let's go to the videotape! Well, I don't have video, but I do have numbers. In fact, everyone can look up the numbers, over at www.treasury.gov for our revenues and outlays, and www.bea.gov for our GDP numbers so that we can relate revenue/spending to the size of the economy.
I took those government numbers, and imported them onto a spreadsheet, handcranked some calculations, and found out something remarkable. Here's the main table that I constructed:
Last 30 years Last 20 years Last 10 years Prior 20 years
FY81 - FY10 FY91 - FY10 FY01 - FY10 FY81 - FY 00
Receipts CAGR 4.37% 3.66% 0.83% 6.28%
Outlays CAGR 5.69% 4.92% 6.37% 5.13%
Nominal GDP 5.29% 4.58% 3.61% 5.96%
The last 10 years, we have surely created a fiscal mess. From 2001 - 2010 (fiscal years ending September), the revenues to the federal government (referred to by Treasury as "receipts") grew at an annual compound rate of LESS THAN 1%. 0.83% to be exact. This is comparable to the population growth rate. Thank you, Bush tax cuts, two major recessions, two massive bubbles, and one humongous financial crisis. All have served to eviscerate the topline revenue growth of our federal government. By comparison, the prior twenty years, from 1981 - 2000, federal receipts grew at a compound rate of 6.3%, which actually slightly exceeded the nominal GDP growth of 6%. The recent anemic 10-year revenue growth didn't even keep up with our more sluggish 3.6% annual GDP growth. Houston, we have a revenue problem!
Also, spending has gotten wacky. Over the last decade, it has grown at a 6.4% compound rate at a time GDP grew just 3.6% and revenues creeped up at 0.8%. This is why we have a massive annual deficit now. Thank you, Iraq and Afghan wars, MIC, sprialing healthcare/Medicare costs, and an unpaid-for Medicare prescription drug program. Again, 6.4% is way higher a growth rate than the prior twenty years, which averaged a 5.1% annual spending growth rate. Spending from 1981 - 2000 actually grew less than the 6% annual nominal GDP growth.
All of this is damning information. Damning to the dishonest GOP that repeats the "BIG LIE" about not having a revenue problem. OF COURSE WE DO. Over the past 30 years, from 1981 - 2010, revenues to the federal government grew at a 4.3% rate, but it is only 0.8% for the final decade of this period.
As a percentage of GDP, by the way, revenues are running at 14.7% in the latest fiscal year. In fiscal 2009, revenues dropped below 15% of GDP for the first time. It had been averaging about 18% of GDP since 1981, and as high as 20% in 1995 (shortly after Clinton raised tax rates).
It's obvious to me what needs to happen. Revenues need to be raised to post WW II level norms of just under 20% of GDP from the current sub-15% level. Actually, we need a corrective period to catch up to the revenue shortfalls of the past decade, and should have higher than normalized taxes for a number of years before going back to more normalized levels, but that'll never happen.
Spending, which is running at about 24% of GDP the past couple years, needs to be brought down to the 20% level it has averaged since 1981. However, the MIX of spending is far more important than the LEVEL of spending. We have a bloated defense budget and militaristic mindset, which is hurting our productivity and standard of living. If more spending was allocated to domestic infrastructure rather than the infrastructure of warfare, including weapons systems and hardware we don't need (since we have more of that stuff than the rest of the world combined), we'd be far better off. We'd improve transportation, communications, and commerce if we as a nation invested in our infrastructure as well as education and healthcare provisioning.
In any event, any honest observer from this country or from any of our creditors (China, etc.) can see the same numbers I saw, and they will excoriate America in the credit markets if we do not recognize the huge revenue shortfalls we've had the past decade, which has helped take America to an over-indebted situation. In the long-run, the GOP would be helping our economy to support revenue increases, because this will give confidence to those who lend us money. If we continue to bury our head in the sand, and believe the tripe that the GOP spews about this ONLY being a spending problem, we will be a doomed economy, and continue in the direction of 3rd World nation status. The wealth and income gap will get even wider, and our collective standard of living will decline, perhaps disastrously so.
I hope this diary has put to rest the question of whether or not we need to do anything with revenues. BTW, if I can get my spreadsheet onto Google Docs later, I'll do it, so you can see all the details.
UPDATE: The term "CAGR" in the table means "compound annual growth rate". So, for example, the past 20 years our actual (nominal) GDP, unadjusted for inflation, grew at an annual rate of 4.6%, while our revenues and expenses grew 3.7% and 4.9% respectively.
Glad this diary was rescued to the Community Spotlight. These facts need to be shared with a wider audience.
UPDATE 2: I have now made a webpage for the spreadsheet on Google Docs. Click on the "Annually" tab on the top for most relevant info. The spreadsheet is available when you click here.
UPDATE 3: Now you can see on the spreadsheet that spending ballooned in 2009 by 18.2%, causing the biggest deficit ever. That was a result of Bush's budget and the extraordinary stimulus program. In fact, the two biggest jumps in spending were in fiscal 2008 and 2009. In fiscal 2010, spending actually dropped 1.8% while revenues, which dropped a lot in 2008 and 2009, rose 2.7%. This underscores the GOP myth that Obama is responsible for blowing out our deficits. In the one year that was entirely during his administration (where he could have had an impact), both spending went down and revenues climbed. The worst year for deficits was during the financial crisis when measures were taken to avoid a great depression. So far, so good.