Our federal financial nightmares revealed … and how to fix them

During this week’s GOP presidential debate, Michele Bachmann twice said the federal government is spending about “40 percent more” than what it takes in. If only we were in such good shape. The federal government has actually been spending about 75 percent more than what it takes in. For every $4 the government brought in during fiscal year 2011, it spent that plus another $3, for a total of $7 plus change — according to President Barack Obama’s own budgetary tables for fiscal year 2011.

This is not the result of insufficiently high tax rates — despite what anyone might think. Our tax rates are plenty high enough. Whether you start the clock at the end of World War II, in 1970 or in 1990, the share of the gross domestic product that Americans have historically paid in federal taxes is 18 percent. (Prior to WWII, it was less than half of that.)

As late as 2005 through 2008 — after the 2001 and 2003 tax cuts — the average amount that Americans paid in federal taxes was still 18 percent of GDP. The only reason we’ve paid less during the Obama years is that we’ve had less income to tax — thanks to by far the worst economic “recovery” from a lengthy recession in the past six decades.

So our problem is profligate spending and meager growth, not insufficient taxation. How bad is the spending? According to the president’s own budgetary tables ,mandatory (autopilot) spending alone exceeded total federal
revenues for the recently completed fiscal year. In other words, we could have eliminated all money spent on everything that people usually think of when they think of government spending — the Army, Navy, Air Force, Marines, National Parks, interstate highways, the State Department, the FBI, CIA, NASA, etc. — and we would still have run a deficit and therefore added to our nearly unfathomable existing debt.

With entitlement spending already accounting for such a colossal share of total federal spending, the only way to come even close to balancing our budget is to drastically reduce the costs of Obamacare — the newest entitlement program — and to reform the existing entitlements, especially Medicare.

While the Republican presidential field is generally committed to this approach — and while Herman Cain has offered an ambitious, if imperfect, tax reform proposal — no one in the field has yet to offer anything in the way of serious, sensible reforms of all entitlements. Until they do so, any show of support for a balanced budget amendment, or other things of that ilk, is rather pointless and looks like little more than showmanship.

You can’t ultimately get from $3.7 trillion to $2.1 trillion, or come anywhere close to it, without sensibly reforming other entitlements — namely, by raising the eligibility age for Medicare and Social Security and by injecting long-overdue competition and choice into Medicare.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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