Charts: The Problem Is Not Revenue But Spending, and Chuck Schumer and President Obama Are Not Being Honest
Backing down from their hard-line stance, House Republicans said Friday that they would agree to lift the federal government’s statutory borrowing limit for three months, with a requirement that both chambers of Congress pass a budget in that time to clear the way for negotiations on long-term deficit reduction.
The new proposal, which came out of closed-door party negotiations at a retreat in Williamsburg, Va., seemed to significantly reduce the threat of a default by the federal government in coming weeks. The White House press secretary, Jay Carney, said he was encouraged by the offer; Senate Democrats, while bristling at the demand for a budget, were also reassured and viewed it as a de-escalation of the debt fight.
The change in tack represented a retreat for House Republicans, who were increasingly isolated in their refusal to lift the debt ceiling. Speaker John A. Boehner of Ohio had previously said he would raise it only if it were paired with immediate spending cuts of equivalent value. The new strategy is designed to start a more orderly negotiation with President Obama and Senate Democrats on ways to shrink the trillion-dollar deficit.
On Meet the Press, where he appeared with the impressive Ted Cruz, Chuck Schumer portrayed this as a big victory for Democrats. I guess it is. You already know my view. I don’t think we should be using the debt ceiling as a negotiation point, because I think Obama would love to play hardball on that, and I think it makes more sense for us to play hardball on the budget than the debt ceiling. I think requiring the Senate to pass a budget makes sense; but Democrats have to be honest about spending. Schumer was incredibly arrogant as he pronounced that the budget will have revenues, and that people like Ted Cruz are just going to have to get used to it. Watch at 12:25 and especially at 13:12
We’re gonna do a budget this year and it’s gonna have revenues in it, and our Republican colleagues better get used to that fact.
He can’t talk about spending cuts. It’s revenues, revenues, revenues. As if that’s the problem.
Well, it’s NOT. Schumer is not being honest. Obama (who makes the same arguments) is not being honest.
The problem is spending. Let’s look at the facts. The chart shows federal revenues over the years. The blue part is what we get from income taxes:
As it says at the link: “Federal revenue has remained relatively steady, holding between 15 and 20 percent of GDP.” This is true regardless of the top tax rates, which are shown in the next chart:
So, historically, you can raise that top rate to 90%, and you can’t get more than 20% of GDP — likely because raising taxes generally impedes economic growth, which is a critical determinant of how much revenue the government takes in.
Meanwhile, federal spending as a percentage of GDP improved under Clinton, got worse under Bush, and then became catastrophic under Obama:
Again, because revenue never gets above 20%, we need the points on that chart to be between the bottom (15% of GDP) and about where that first point is (a bit less than 20% of GDP).
And when we talk about the spending problem, we are talking about entitlements.
I have blamed the electorate for killing any candidate who wants to talk about entitlement reform, but a friend suggests that maybe it’s not the electorate’s fault, because they don’t really understand what is causing the problem.
I hope she is right — because if she is, we have a chance to turn this around. (I have to admit I am skeptical.)
I’m going to keep publishing these charts, hoping that my friend is right and we simply need to educate people about the problem. Then again, we’re talking about an electorate where most voters in the 18-to-29 set don’t even know what issue was decided in Roe v. Wade. I really worry that people who are that ignorant cannot be educated.
But I’ll keep trying. We all have to try.