Archive for Deficit and Debt

Few subjects are the source of such controversy as the growing US debt and deficit. We break down the facts behind the growing disparity between tax revenues and spending in order to come up with a clearer picture behind the cause.

What causes the rising debt and deficit?

How much is due to increased spending as opposed to slashed revenues due to tax rate decreases or an economic downturn?  What policies have led to the increased debt and deficit? How to we split the blame between the Democrats and Republicans?  Is it all Obama or Bush’s fault?  And what’s the right way to measure the US debt and deficit?

Obama Raised the Debt more than all Presidents Combined

US Federal Debt Reasons

Claim: Obama has raised the debt more than all previous presidents combined.

Variation: Obama has spent more than all previous presidents combined.

Fact: The second claim is absurdly false since it attributes rising debt to spending as opposed to lowered revenues (the real cause). This first claim is almost “true” if you start the clock at the beginning of President Bush’s last year in office, as opposed to when he left office (or more properly, starting the clock at the beginning of 2010, since the first budget under President Obama would have been set in October of 2009) AND attribute all causes of debt increases to a president’s actions, as opposed to things (s)he can’t control (like inherited recessions, wars and tax cuts). In reality, the fiscal year begins the year prior, and the rising debt has mostly to due with lowered revenues from tax cuts and the 2008 recession, as opposed to increased spending. The claim also avoids any adjustment for inflation or GDP, which any honest comparison would do. Read more

The Politics of Bad Analogies: It’s the Drain Stupid

democrat vs republican debt

What happens when you mix clever but simple ‘sound byte’ cartoons with somewhat complicated political issues?  Sometimes you get bad analogies.  And these bad analogies often just serve to confuse and misinform viewers.  In the cartoon below, the elephant (Republican) and donkey (Democrat) argue over whether to reduce he leakage by one or two drops, and it makes them both appear out of touch.  If this analogy were based on reality, it would include the fact that there exists a drain that can lower the water, not just the option to turn off or lower the water faucet.  In other words, cutting spending isn’t the only option.  There is the potential to raise tax revenue (for example, by rolling back the Bush tax cuts, and certainly by NOT passing further tax cuts Republicans would like to enact).  And it’s the elephant that wants clog the drain even more (cut tax revenue) while the donkey wants to open it a bit.  But of course, the caricature isn’t intended to actually inform us.  It is entertainment.

democrat vs republican debt
Less entertaining and less appealing to our limbic system (but more informative), here is the breakdown of what’s causing our current and projected future debt.

Bush Tax Cuts - Effect of Debt / Deficit

In fact, the era of deficit spending began under Reagan as he reduced taxes on the wealthiest Americans.

Taxes top 1 percent and wealth disparity

One little known fact is that tax burden as a percentage of GDP has largely fallen for the US overall, especially compared to the OECD average.

united states tax burden
Unfortunately, middle and lower class wages have fallen as more wealth has coagulated at the top.  So to many Americans taxes seem high because their incomes haven’t risen the way it has for those at the top.

Wealth disparity in America

The Tea Party’s Take on Tax Rates and Size of Government

tea party racism

For some time now, the Tea Party has been making a ruckus over the size of government, tax rates and the alleged debt/deficit ‘crisis.’   Rather than understanding that; our tax rates and government as a percentage of GDP are lower than virtually any other nation in the industrialized world; or that the current deficit/debt crisis has more to do with a loss of revenues from tax cuts and a recession than any increased spending; or that the wealthiest Americans pay the lowest in top marginal tax rates since the great depression; or that the in drop these tax rates on the wealthy have coincided with more wealth going to the top and a loss of real income for the middle and lower classes, they would prefer to rally under the mistaken notion that our government is treading on Orwellian waters. Read more

The DOW Plummet and S&P Downgrade

dow-drop-debt-ceiling-arra-budget

The recent DOW Index plummet and the S&P downgrading of U.S. debt from AAA to AA+ has been followed by much finger pointing.  The DOW has clearly been on an upward trajectory since just after the passage of the ARRA (stimulus package).  The DOW plummets after weeks of infighting the two parties where Republicans refuse to budge on allowing taxes on the top earners to rise.


Republicans would like everyone to believe that S&P’s downgrade reflects “reckless spending” and absolve their policies of any wrongdoing.  But it’s clear from S&P’s own statement that a disagreement on raising revenues is part of the problem. Read more

Cutting Entitlement Spending and Slashing Medicare & Social Security

[Opt7_Microdata_Review_1781107129]Quick Fact 1: Senate Republicans are filibustering the bill Senate Democrats have crafted
Quick Fact 2: John Boehner uses the excuse that the Senate has yet to provide a bill
Quick Fact 3: The White House’s alternative budget is on the WH website (and has been for some time).

As the budget debate heats up the GOP will continually throw around phrases like “entitlement spending.” As always, they are masters at crafting their message in a convenient and misleading manner. The uninformed reader/listener/viewer is left with the notion that the GOP simply wants to cut funding to junkies who refuse to work and instead, sit home collecting welfare and food stamps.

In reality, what they are referring to is Medicare, Medicaid and Social Security. These programs are the bulk of ‘entitlement spending,’ which Republicans are adamant about slashing in order to balance the budget.

Cutting Spending or Raising Revenues?

The GOP continually mentions cutting spending and is entirely reticent to President Obama’s idea of raising anymore taxes on the wealthy or closing tax loopholes for them. There is just one problem.

Compared to the early 1980’s…

1-Federal Spending as a percentage of the economy is only slightly higher
2-Wealthy Americans (and corporations) have seen major tax cuts
3-Wealthy Americans (and corporations) have become far richer while working Americans have seen their real income fall

Context matters. These basic facts are important to keep in mind as Read more

The Deficit/Debt Problem & Federal Revenue – Obama vs Bush

Updates:

The US federal debt and budget deficit debate is one of the more politically contentious issues and has been for several years.  Trying to make sense of it all can certainly be a daunting task for those new to the debate.  But there are some fundamental points that help paint a clearer picture:


The Deficit/Debt Debate

While there is a general agreement that spending must be curtailed in certain areas, Democrats would like to see the Bush tax cuts on the top earners rolled back while Republicans disagree and see spending cuts (spending cuts that are far more significant than what Democrats offer) as the only option for paying down the deficit.

The Cause of the increased debt/deficit: What the Data shows

While it’s true that spending has increased over the last few years, data from the non-partisan Congressional Budget Office clearly shows that reduced revenues (from the Bush tax cuts and the lowered revenues that accompanied the economic recession Obama inherited) have done more to widen the gap between federal revenues and spending, leaving the government to borrow more and more, which has widened the deficit gap and increased our debt. Read more