Thursday, November 11, 2010

Deficit Commission proposal

Rush Limbaugh recommended this article:

Putting aside all the minutiae and detail, the crux of the proposal comes down to two points: capping federal government expenditures at 22% -- and eventually 21% -- of GDP, and capping revenues at 21% of GDP. And each of these represents a BIG problem. The first is on the spending side. Except for the anomalous stimulus/bailout/recession years of 2009-2011, federal government expenditures haven’t reached 21% of GDP since the collapse of the Soviet Union – and since World War II only exceeded 21% of GDP during the Reagan-Bush military buildup of the 1980s and early 90s. For virtually all of the Clinton and G.W. Bush years – and during all the Kennedy/Johnson/Nixon years – federal expenditures ranged between 18 and 20% of GDP. So while the 21% figure represents something of a cut versus the out-year projections of the President’s most recent budget, it leaves plenty of headroom to establish and make permanent even more government than we had in the immediate pre-Obama years.

The more important problem is on the revenue side. According to Office of Management and Budget figures, federal revenues have NEVER reached 21% of GDP. In fact, only in Bill Clinton’s final year in office – and during WW II – did revenues even exceed 20% of GDP. During the whole time from 1960 through 2008, federal tax revenues almost always fell between 17 and 19% of GDP, only occasionally rising above 19% (chiefly in Clinton’s second term) or below 17% (G. W. Bush’s first term). Even President Obama’s FY 11 Budget has federal revenues rising only to around 19% of GDP by 2015. So the 21% “cap” represents two full percentage points of GDP above what we have experienced even during historically “high” tax environments.

By way of comparison, the last time we had a “balanced” federal budget – FY 2001 – revenues were 19% of GDP and expenditures 18%. The Commission’s draft, in effect, proposes solving our deficit problem by allowing the federal government to grow 15-20% larger than it was under Bill Clinton, then raising taxes as much as necessary to pay for it. It institutionalizes President Obama’s expansion of the role of government – maybe not quite as much as he and Nancy Pelosi would like – and lays the burden squarely on the shoulders of American taxpayers.

As several commenters have pointed out, the Federal Government should not be entitled to a percentage of GDP.  The taxpayers are not here to serve the government "needs".  The politicians should balance the budget by spending less.

Posted via email from The Blue Pelican

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