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Does Washington have a spending problem?

July 28, 2011

Well, they sort of do. But it’s not as dire as the GOP wants you to believe.

Washington’s spending has recently been higher as a percentage of the nation’s economic output than at any time since World War II. But by the same measure, Washington’s revenues are the lowest in more than 60 years. (source, more on this tomorrow

Another valid point: it turns out that most of the programs that are wildly unpopular with people who insist the federal government has “a spending problem” are actually sucking up very, very little of our federal expenditures.

2 Comments leave one →
  1. August 1, 2011 5:06 am

    That’s a very nice chart showing Outlays vs. Revenues. But I wonder why the chart’s left side values are absent? Probably just an oversight.

    However, even though my vision is a little blurry, it appears the revenue line (blue) is nearly flat. And since this chart goes back to 1930, it raises a question….

    How could the revenue line remain flat if lower tax rates bring in less money and higher tax rates bring in more money? Shouldn’t the revenue line rise & fall along with the various tax rates since 1945?

    Something’s not right. I may be plastered, but it seems like I keep hearing that it’s necessary to raise taxes in order to bring in more revenue. Yet your chart indicates that tax rates have little or no effect on revenue.

    If the chart is correct, then all this talk about increasing revenue by raising taxes is just, well, talk. Increasing taxes apparently will not bring in more money. And isn’t that the reason given for raising taxes – to bring in more money?

    If revenue per GDP remains flat regardless of tax rates, then the only way to increase revenue is to increase GDP. And increasing GDP is only achieved by creating wealth.

    Wealth creation will require higher employment because more people working = greater revenue.

    But if government does the hiring, then the government must spend money. How will spending money bring in more money? Especially since the government is so inefficient. At best the government can only break even.

    If raising taxes doesn’t bring in more money and lowering taxes doesn’t bring in less, why not lower taxes and let people keep more in their pockets with each and every paycheck? People spending their own increased paycheck cash is much more efficient than the government doing it for them because people know what they need while the government can only guess.

    And wouldn’t this increase in spending eventually result in higher employment?

    I believe that the reason “Washington’s revenues are the lowest in more than 60 years” is because there are fewer people paying taxes due to being unemployed. Furthermore, even those who are employed are earning less money resulting in less revenue.

    Therefore, by lowering taxes, more money will be kept by the workers (who are actually creating wealth). More spending by those workers will result in a higher demand for employees. GDP will grow as a result of the increase in employees. And finally, revenue will increase due to the increase in GDP!

    If spending can be held in check, then eventually the increasing revenue will catch-up to spending and a balanced budget will materialize.

    But it can’t be that simple. Increasing tax rates and/or government spending is what many advocate. And who am I to disagree? Hell, they’re sober!

    • August 6, 2011 8:01 pm

      “How will spending money bring in more money?”
      The single most stimulative thing a central government can do in a recession is hand out money. $1 of food stamps turns into $1.73 re-injected into the broader economy. $1 of unemployment insurance becomes $1.63 of increased GDP. One dollar the Feds spend on infrastructure injects $1.59 into the economy. The argument you’re making sounds logical; it’s just not backed by the facts.

      If I get a job created by the Federal Government, or get an unemployment check, I’m going to go to my local supermarket and my local Target or WalMart and SPEND IT. And the merchant at the shop isn’t going to ask me where my money came from before he takes it. He doesn’t give a damn where my money came from. Consumer spending represents nearly 70% of our economy. Multiply my WalMart buying spree by the tens of millions of unemployed people we currently have and suddenly you’ve got a real economy. Real widgets being bought, real clerks being paid real money to wait on those widget-buyers, real managers supervising those clerks….pretty soon that manager notices he needs another employee and hires somebody. Lather, rinse, repeat and we’ll get ourselves out of this economic mess.

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