For all those who think that our deficit is caused by a dearth of revenue, consider this thought experiment. In 2012, the federal government will spend $3.56 trillion. Last week’s Powerball jackpot was a reported $587.5 million, the largest winning Powerball payout ever. In order to finance current spending, the federal government would have to hit that jackpot 6,570 times.
As recently as fiscal year 2001, President Clinton’s last budget, federal spending amounted to just $1.9 trillion. If spending since 2000 had simply increased at the rate of inflation plus population growth, spending this year would have been less than $2.69 trillion. Our budget deficit this year, despite those Bush tax cuts and a recession-driven decline in revenue, would have been just $241 billion, compared with an actual deficit of more than $1.1 trillion.
To continue this thought experiment, if this inflation- and population-adjusted spending path from 2001 continued to 2022, spending in 2022 would be only $3.61 trillion, compared with the $5.51 trillion the current baseline predicts. This spending path would have seen budget deficits top out at a little less than $400 billion in 2009 and then return to surplus by 2014.
In fact, even starting from today’s spending levels, if future spending grew at inflation plus population, it would be only $4.8 trillion in 2022. The budget deficit in that year would be $199 billion, with deficits decreasing each year.
Compare this to President Obama’s proposed fiscal-cliff deal, which would increase spending to $5.5 trillion in 2022, the same as the current baseline. That’s right: The president’s proposal does not reduce spending at all. There are no net cuts, not even in the Washington sense of reductions from the baseline. The few programmatic cuts he recommends, most of which lack specifics, are offset by other spending increases. All that spending means that, if the president gets every bit of the $1.6 trillion in new taxes he has asked for, we would still add $6 trillion to the national debt over the next ten years, and run a $661 billion deficit in 2022. Moreover, since there are so few specifics in the president’s proposal, these estimates likely underestimate the amount of spending, debt, and deficits it would incur.
Republicans have countered with an offer that is better — but not by much. Their plan would increase taxes by $800 billion over ten years, half as much as President Obama’s plan but still a major tax hike, regardless of whether they would accomplish this through closing loopholes rather than raising rates. On the spending side, once all the gimmicks are stripped away, Republicans suggest spending $1.4 trillion less than the current baseline over ten years. Federal spending would thus total $5.27 trillion in 2022, about $900 billion more than if it had simply grown at the rate of inflation plus population. This would add an additional $5.14 trillion in debt by 2022, and the deficit in that year would be $540 billion.
It’s hardly worth surrendering on tax revenues for that kind of reduction.