Economics

Some interesting numbers that are pulled together from multiple sources today over at Hot Air.  The article supports the position that our “Fiscal Cliff” is not going to be solved by revenue increases.  Go read it, and then my comments make sense.

A couple of numbers that I found most telling:

Spending in the Clinton era was reduced to 18.2% of GDP.  With defense spending being reduced by 1.8% of GDP, and domestic discretionary spending and entitlements being reduced by 2.2% of GDP.

Barack Obama managed to hike it [spending] 3.5 points in just one term, with 3.2 points going to non-defense spending.  Under Obama, federal spending now exceeds 25 percent of GDP, and his has been the biggest increase of any of his predecessors over the last 60 years – even for two-term Presidents.

Hmm.  Combined with Bush’s spending increases we are spending a lot more than we were in 2000.

At the end of the Clinton administration, when the budget was balanced (largely by revenue generated by commercialization of the Internet), annual federal spending was $1.94 trillion and revenue was $2.10 trillion. “Adjusting for inflation and population growth since the start of 2001,” Dorfman writes, “today’s equivalents would be $2.77 trillion and $3.00 trillion,” and a $230 billion surplus.

What is to blame for today’s huge imbalance? The George W. Bush tax cuts? The recession? Obama’s spending? Dorfman answers yes, yes and yes — but that “spending is the main culprit” because: Today federal revenue is $2.67 trillion (slightly less than “the Clinton equivalent”) and spending is $3.76 trillion, so we are spending $987 billion more than we would be if we had just increased Bill Clinton’s last budget for inflation and population growth.

What it boils down to is what everyone is taught (or should be taught) in primary school.  You can only spend what you have in your pocket to spend.  You only earn so much money every pay period, and spending should not exceed income.  In the case of a government, your variables are much more complex but the biggest one that this administration seems to ignore is that the potential tax revenues of this country are limited AND that there is a point at which an increased tax rate will result in lower accumulated revenue.  If you tax the individual to the point of decreased consumer spending, then business will also have lower revenues and resulting in lower tax receipts.  The decreased business sales will result in excess capacity (sales, mfg, dist, etc.) which in turn leads to layoffs which cycles back to lower individual discretionary spending, which creates a greater demand on government entitlement spending which spurs a need for greater revenue, and the cycle continues to spiral down.

As many, many experts in the field have said over the past several years Keynesian Economics is not the way out of our current economic quagmire.  Government spending needs to be reined in.  While we may not be able to achieve the Clinton era spending levels anytime soon, a movement toward that goal would provide huge benefits to the economy as a whole.

If POTUS and his advisors were more in tune with history, they would lay out a budget plan for the next four years that expresses spending as a percentage of GDP with a target of reducing spending to 17.5% of GDP by 2016.  If they achieve 19% or even 20% our nation would be in much better shape than it is today.

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