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You are here: Home / Economics / In the 8 Years Since the Bush Tax Cuts, Tax Revenues Increased 21.42% but Government Spending Increased 72.27%.

In the 8 Years Since the Bush Tax Cuts, Tax Revenues Increased 21.42% but Government Spending Increased 72.27%.

December 8, 2010 By 17 Comments

Over the past 8 years since the Bush tax cuts went into effect, even with the recession, Federal revenues increased 21.42%.  But during that same time period, Congress increased spending by 72.27%. The United States Government doesn’t have a tax receipt problem, it has an out-of-control spending problem.

The so-called “Bush Tax Cuts” were effective fiscal tax year 2003.  In that year, government tax receipts stood at $1,783 billion.  In 2010, government tax receipts are estimated to be at $2,165 billion, an increase of 21.42% despite the worst recession in 70 years.  Had we not run into the recession, receipts were much higher in each year following the tax cuts, rising to a peak of $2,568 billion in 2007 before the proverbial *ahem* hit the fan in 2008.

If you adjust for the recession, a truly once-in-a-few-generation event, the results of the Bush tax cuts are even more impressive because they caused government tax receipts, or revenue, to increase a staggering 26.34% in only five short tax years.  That is stellar performance for the largest economy on the planet.

Over that time period, what did Congress do with all of this fresh cash flowing into Washington, D.C.?  Did it pay down the debt so we could strengthen programs such as Social Security over the long-term?  No.  It increased spending from $2,160 billion to $3,721 billion, or 72.27%.

Take  a look for yourself (the amounts in the chart are in billions of U.S. dollars):

Government Spending and Tax Revenues

Since the Bush tax cuts, people spent more money and so more taxes were paid resulting in an increase of tax receipts of 21.42% despite the worst recession in 70 years. Instead of using all of this fresh cash flowing into the capitol to pay down the national debt, Congress blew it and increased spending by 72.27% putting the balance on the nation's credit card. Now, they are complaining that the rich just aren't paying their "fair share" even though lower taxes results in more money flowing through the economy and more absolute tax receipts (call it the "Walmart Model").

This is why I have no sympathy for people who say they want to increase taxes on the rich. If it were necessary, like in World War II, that would be one thing. But instead the government merely wants to confiscate money from productive doctors, lawyers and accountants and shove it into their pet projects, defense department, and other expenditures with absolutely no accountability.

Oh, and these same politicians kept their gilt-edged health care benefits, compensation increases, and generous pension benefits as they charged them to our kids and grandkids, who will have to pay the interest with their tax dollars instead of seeing the money invested in better schools or programs.

Related posts:

  1. The Generation Skipping Transfer Tax Is Evidence of How Perverse the American Tax System Has Become
  2. Venture Capitalist Nick Hanauer at TED on Tax Rates in the United States
  3. President Obama Proposes 50% Payroll Tax Cut for Workers and Small Businesses
  4. Obama Has Overseen the Slowest Federal Spending Increase Since Eisenhower in the 1950′s
  5. States Surrounding Illinois React “with Glee” at Folly of Massive Tax Increase
  6. The Laffer Curve for Beginners
  7. The Top 14 Federal Income Tax Payers of 1924
  8. Tax Returns in Norway are Public
  9. Illinois Considers Raising Income Tax Rates by 75% to Deal with Massive Debt
  10. The Real National Debt Figures

Filed Under: Economics, Taxes
  • cullinaire

    This is hugely frustrating – if I do something like this to my own finances, I am held accountable. Who is going to hold the government accountable?

    • Joshua Kennon

      1. The voters. If they don’t, then
      2. The debt market. The moment investors stop buying Treasury bonds on a big enough basis, the government must drastically increase the interest rate to serve as a “sweetener” to entice people to part with cash. This ripples through the economy and requires all interest rates to rise since they are based on the so-called risk-free rate. If the politicians then vote to print money instead of cutting expenses, inflation serves as a backdoor tax to raise the necessary funds.

      It really is that simple. Those are our options.

  • the curious porpoise

    Joshua,

    Speaking of the gov’t and its debt problems, what is your opinion of Dave Ramsey and his approach to debt, credit cards, and personal finance in general? Is he a solid adviser, or just a hack?

    • Joshua Kennon

      From the little I’ve seen, it sounds like his advice would work for 90%+ of people who just want to live a good life, avoid financial stress, and avoid the paycheck-to-paycheck existence. I’ve also seen him tell some people, “You just don’t make enough money” which is sometimes true.

      My impression has always been the Dave Ramsey focuses on the psychology of money and helping people emotionally recover and gain freedom, whereas Suze Orman seems more coldly rational about money. Dave might tell someone to pay off their smallest credit card debt first so they use the payment to add to the next lowest credit card balance (this has been taught for decades in financial planning circles and is called “snowballing payments” since the effect is like a snowball rolling down a hill so by time you get the biggest debt, you have tons of cash from all your smaller payments going to attack the debt).

      Suze, on the other hand, would probably tell someone to send money into the highest interest rate card to cut the interest expense. From a purely mathematical perspective, Suze results in more money in your pocket but for emotional, rather than rational people, Dave might keep them from giving up because it “feels” like you are making more progress.

      They both seem sound. Personally, I’m all about absolute bottom-line results so I adore Suze Orman. I really do. I gave copies of “Young, Fabulous and Broke” to my family members a few years ago. But Dave Ramsey’s approach might be better if you need psychological victories and feel financially beat up. Just my general impressions; others may know more.

  • HighlySkeptical

    Interesting thoughts, but without citations to your source data, that’s all they are. To me it is just another example of how easily we accept marginal research and opinions as fact. Shame on us if we do.

    Though I don’t know enough to say you’re wrong, I question your representations and conclusions because
    1) does “government income” (per the graph’s legend) include other fees and excise taxes which may have quietly gone up. accounting for the increased revenue?
    2) What is the composition of the “tax” revenue – personal, corporate, other?
    3) It’s well known that income subject to employment taxes are capped (at VERY low levels for state portions), so how is tax revenue truly distributed between low, mid and high earners?

    However, we do agree on one point. Any serious spending cuts must be in military and Social Security. Otherwise it’s like putting a band-aid on a broken leg.

    • Joshua Kennon

      Two reasons for the no citations:

      1. I forget that most of my audience isn’t pulling from the same mental file cabinet of back data and resources I am as a result of my day-to-day responsibilities. As a result, I just take it for granted, even though I try not to, that people know where this stuff is. Some places to start: The 2011 Statistical Abstract for the Federal Government of the United States (Census Bureau) – it even gets down into real estate owned by the government by state. Specifically, you are interested in Table 473, which can skip to here. The data only goes back a few years so you have to pull an earlier statistical abstract (2005 would be ideal) and put the combined data set into a spreadsheet. You might prefer to browse the table of contents.

      On a somewhat related note, you can even learn about your state level taxation here.

      Also useful is data sets sometimes released and packaged by the Bureau of Labor statistics such as This one, which was published in the November 2009 Monthly Labor Review.

      For example, that last one shows that in 1988, 42% of governmental receipts came from personal taxes but in2008, that figure was 43.7%. Taxes on production and imports as a percentage have fallen from 5.2% to 3.2% of receipts.

      It’s a very large picture but those two agencies have almost everything you need. The most important supplement to that would be the Federal Reserve’s data services, which allow you to develop a very broad picture of how individual households are adjusting over time as part of the economy since everything is built upon, and starts with, the individual family unit. One of my favorites is the Household Debt and Service Obligation Ratios, which will tell you the financial obligations as a percentage of household income throughout America, giving you an idea of how vulnerable people are. All of these can be found here.

      You might also want to get the actual Federal Government budget from the CBO.

      2. I’m not a journalist and am too busy to write detailed academic papers relative to my opportunity cost (my time is better spent looking for new ideas and investments). I’m just a successful young guy who shares my thoughts as I go through my day by taking out an iPad then pressing “publish”. I’m not trying to convince anyone of anything, but rather to communicate my observations and get others to think for themselves.

      On a somewhat related note, I think most of the societal unrest is the result of switching from pension plans to 401(k) funds. The average person doesn’t realize that it takes a ton of capital invested in stocks, bonds, and real estate to generate enough income to provide a pension check. They don’t understand that a company was saving for them all the years they worked. When the 401(k) plans went into place, people like me thrive. In fact, if I could opt out of social security, I would because I could put the money to far better use. But most people can’t. They are irrational and undereducated about finance and money.

      The solution, I think, is that the financial service industry needs to work with congress to create a sort of “portable pension” where you can buy a set of benefits for each contribution and it moves with you. Upon your death, your pension assets get left to your estate.

      You would have to set a maximum return assumption statutorily … come to think of it, I’ve mapped most of this out over the past few years and I should just write an article about it. I think it is workable because it gets the tax payer off the hook, helps companies cap their liabilities, and removes individual investors from their money so they can’t access it during recessions and depressions just like in the old pension days. Wall Street would still be able to earn significant management fees, just like for 401(k) plans.

      • Ryan Marks

        only problem, with your portable pension Idea and opting of out social security is there actually isn’t any money. It is a giant ponzi scheme, I am paying for people who are retired, and people who were just born will be paying for me. THIS IS THE PROBLEM. I would rather pay 2% SS tax and never see any of that money, Have my employer pay nothing in that case and give me the money difference in a raise. I bet 90% of america would then opt out, which would leave the last 10% who actually need it to collect it. Then we would have a system that rewards responsibility instead of punishing success.

        • Joshua Kennon

          True, you would need to introduce some sort of adjustment transition mechanism; maybe start with 10% of payroll taxes going into the portable pensions system and increasing that by 2% per year until you had reached 100%.  You would have a generation in there that would get split checks, some from the government and some from the private system, but it wouldn’t be very disruptive at all.  As long as the life expectancy tables were reasonable, you could make the shift.  It would take some logistical work but we’ve been to the moon and discovered nuclear power; a little paperwork shouldn’t beat us.

    • Joshua Kennon

      I should point out the biggest problem with the discussion on taxation is that it ignores that becoming rich for the 90% of millionaires who are self-made (versus the 10% who inherited their money) is the by-product of specific behavior. Even if the entire tax system changed overnight, it would only take a year or two for intelligent, high earners to find a way to minimize their payments under the law. Bluntly, the far left ignores human nature on this topic, just like the far right ignores human nature when discussing sex education in schools.

      Here is an example: Imagine that it is during the depths of the recession, the Dow is at 6,000, and you are 55 years old. You have $50 million in net worth and want to find a way to buy as much stock as you can in the most tax-advantageous way possible. You could have done any number of things including approaching a major financial house and negotiated a privately placed equity-linked variable annuity contract that invested entirely in a mirror index to the Dow. It’s complicated but in the end, it doesn’t matter if you made a $100 million profit over the subsequent 20 years, you wouldn’t have paid a single penny in taxes on the gain, dividends, and interest earned within the contract. When you hit 90 years old, you could begin withdrawing the minimum amounts required in the form of an annuity stream and paying income taxes at that time. But you’re probably going to die before the principal is fully distributed, there will be some inheritance exclusions … it’s just not that hard.

      Alternatively, if you had $100 million in net worth you could just borrow against your money and live off the loaned funds, never triggering the capital gains taxes on your income. You could go through life earning millions of dollars a year and not pay a penny into the Treasury as long as you maintained a very safe loan-to-asset ratio of, say, 5% to 10%. As your holdings grew each year, you’d borrow a little more.

      The point is, there are always ways around taxes that are middle-of-the-road. Congress cannot keep up with millions of motivated, rich, intelligent, driven people, each of whom is working on finding the most advantageous application of the laws. The only way to fix it would be to be an across-the-board flat tax in the form of a national sales tax with no other taxes. To avoid making it regressive, you could either offer some sort of rebate to low income earners or prohibit taxes on essentials such as clothing, food, and shelter.

      But raising the income tax rate? Capital is mobile today. It won’t work; we need a fundamental restructuring of our tax receipt policies.

  • HighlySkeptical

    For those of you responding emotionally before getting to know the facts, I suggest you be accountable for yourself: UNDERSTAND what you’re talking about before spouting off.

    Here’s the simplified finding:

    MATHEMATICALLY THERE IS NO POSSIBLE WAY ONE DOLLAR OF TAX REVENUE GIVEN UP, REGARDLESS OF THE REASON, CAN GENERATE MORE THAN ONE DOLLAR OF TAX REVENUE – NO MATTER HOW WE SPEND THE MONEY! If you don’t believe me, go to your own math wiz and let them figure it out.

    This is true because tax rates never exceed 100%. Each time the added money in our pockets is spent in a taxable transaction, the amount available less the tax = the amount available for the next use, and on down the line. If you factor in the effect of taxes – no matter which rates apply in any one transaction – you will find that the accumulated tax revenue will never exceed the amount the government gave up in the first place. Inflation only affects the buying power of the dollar, not the reality of the math.

    Last week I was simply disappointed. Now I am outright angry that an “expert” could issue this kind of nonsense. I am pretty good at math and worked through multiple scenarios in the last week. I also know something about taxes (I’ve been a CPA over twenty years), but talked to people who know much more about taxes than I just to be sure.

    The government spend is part of the economy, too. So when the government spends a dollar on goods and services it has the same effect as a dollar you spend. So I don’t know why tax revenues are up, but it cannot be because of lower tax rates.

    • Joshua Kennon

      1.) There’s no need to shout and, 2.) Your conclusions are wrong because you are missing two enormous variables of the overall mathematical model.

      Based upon your earlier posts, you seem intelligent and thoughtful so I am going to take the time to explain the underlying problem with your mathematical framework. I’m taking it on faith you really want to understand so I hope I’m not wasting my time.

      The biggest mistake you make is you are assuming that gross domestic product (GDP) is a fixed figure and won’t expand or contract with the velocity of money (VOM). That is outright, demonstrably false. The VOM will have enormous effect on the total cash revenue collected by a government agency and is just as important as the effective tax rate. This is related to mathematics and human nature. You cannot understand and economic system without taking it into consideration any more than you can ignore red blood cells in human anatomy.

      Let me explain. It might help to use an extreme example to lay out the parameters.

      At some point – let’s use the extreme 100% of current gross domestic product – you reach a level where biology comes into play; human nature kicks in and says, “If a force (government) is going to take my entire paycheck so there is no incentive to work harder, longer hours, I’m going to either stop working, go to the beach and enjoy my life or I am going to work illegally in some sort of under-the-table arrangement.” In addition, for those who did continue to work, you’d have black market economies open in small towns that worked on a barter system or that used gold and silver as an alternative.

      That means that actual tax receipts would plummet because the velocity of money going through the system would grind to a halt. If there hadn’t been the promise of $500 shoes and $300 cologne in the early days, Aaron and I wouldn’t have established our online businesses and worked around the clock to launch them. All of the productivity caused by our work would have dissipated because all of our time would have been spent on a beach on an island somewhere (that isn’t an exaggeration; I mean that quite literally). With no payout, our competitors would have also stopped working so there would be no industry – why would we waste our time doing something for which there was no payoff? It would be the economic equivalent of digging holes, then filling them back in, simply to kill time.

      On the opposite extreme, you have a system of 0% tax rates. In this case, every worker gets to keep 100% of his or her paycheck. Most people, due to human nature, are going to spend their money on toys, gadgets, nicer cars, clothing, houses, etc. This will drastically and exponentially increase the velocity of money in the system so that it is flying through the system and GDP skyrockets.

      This presents its own problems, though. A significant enough portion of humans are irresponsible or unlucky enough they will retire broke. Meanwhile, those who invested their money in successful products and services, will grow much richer because money is flying through the system. In 2 or 3 generations, you’d have a two-class system of super-rich and dirt-poor. If there were no transfer tax mechanism, the money would end up in the hands of those who didn’t earn it or enjoy it through inheritance, resulting in the exact opposite of a meritocracy.

      That is, both 0% tax rates and 100% tax rates effect the velocity of money to such an extent that, when combined with human nature, you end up in a tyranny either way where meritocracy dies. This isn’t true if there existed a 100% inheritance tax in a 0% tax system to prohibit passing money on to anyone who hadn’t earned it or some other comparable hybrid system.

      Those are the extremes. The solution lies somewhere in the middle.

      In economics, you hear talk about the so-called “Laffer Curve”, which is a theoretical line plot representing the point at which government tax revenues begin to decline because they are hitting against the human nature component of biology that causes people to work less or go to a black market system.

      Either way, the goal of a government should be to responsibly increase the velocity of money to raise per person GDP so the standard of living increases for most citizens.

      In a tax scheme, lowering tax rates can have the same influence as Wal-Mart lowering prices. It generates far higher asset turns (in this case, “revenue” could be replaced for tax receipts and “asset base” could be replaced for a nation’s total net worth), driving tax receipts through the roof. But only if it is done correctly because this is not true for all taxes.

      That is, not all taxes equally effect human biology incentive systems. If the tax to get a license to drive a car were to be $200, most people are still going to pay it. Very few people are going to walk or bike as a result. It doesn’t have a huge incentive system effect on the velocity of money.

      In contrast, taking another 10% of someone’s paycheck changes the calculation at which they decide working an overtime shift is worth the benefit compared to staying home, sleeping in, and watching movies with their kids.

      (Side note: A free economic system does have some sort of corrective measure but it isn’t perfect. The more people stay home, the higher wages would be required to attract overtime workers, which would increase end-prices. At some point, consumers aren’t willing to pay the higher end price so demand falls along the supply and demand curve.)

      As a result, you typically see income tax cash receipts increase as tax rates fall, but there is a point at which that is no longer true because there is no utility difference between paying 12% of income in taxes and 13% of income in taxes. The big breakpoints are even numbers (e.g., 20%, 25%, 30%, 35%, 40%, etc.) In a 40% tax system, someone may say, “For every 10 hours I work, I only get to keep 6 and the government steals the rest.”

      It doesn’t matter if that belief is rational or irrational. It only matters that it will shift the incentive system so that person is less willing to work, contributing to GDP growth.

      Personally, I subscribe to a “trickle up” taxation theory after going through all of the data over the past 10 or 15 years. I think the economy is best served by drastically cutting the percentage of paycheck income people making less than $100,000 pay because those households are likely to spend the excess cash, increasing the velocity of money and tax revenues.

      In other words, I’d slash a self-employed plumber’s payroll taxes from 15.3% to 2% or 3% and raise taxes on incomes of $1 million or more somewhat significantly. The reason? Increased velocity of money should also benefit the millionaire in the form of higher sales and profits. He (the millionaire) should be giving up a bigger percentage of profits but on a higher absolute profit base; e.g., the plumber is going to spend his extra cash on electronics, clothes, carpets, and cars … the millionaire, by definition, owns stocks in those types of companies and benefits.

      This also is the reason your second statement, “when the government spends a dollar on goods and services it has the same effect as a dollar you spend” is incorrect. Incentive systems are very different for the government, which isn’t accountable to free market forces (which is just a fancy way of saying individual men and women “voting” with their dollars, which represent money they earned in exchange for their time, on the things they want to succeed and fail). Governments, unlike individual households, often exist on budgetary frameworks based upon objectives very different than the maximization of human happiness.

      Read everything you can about the velocity of money. When you understand how that variable influences overall tax receipts (e.g., the cash collected by a government) you will understand how mistaken your closing line is (“I don’t know why tax revenues are up, but it cannot be because of lower tax rates.”).

      • Joshua Kennon

        P.S. I should point out that in a 100% taxation system where all money is “owned” by the government, you might counter “well, the government count decide to require individual agencies to spend their budget 10x over each year” and artificially create whatever velocity of money figure they desired.

        This is true but lacks one important detail: The problem is the allocation decisions made by a centralized power would be suboptimal and result in GDP per capita no longer serving as a sufficient indicator of individual financial prosperity and standard of living. The government sometimes creates very important, vital technologies but they are far less successful for every dollar spent than the private market. North Korea has a model comparable to this and they have beautiful, stunning train stations and occasionally, shiny new skyscrapers but because individual citizens don’t have the resources to “vote” with their money, it only takes a few years to degenerate into slums. Then, you get into the political reality of money being owned by whoever controls the guns and military, which is the natural end of such an economic system.

        What we call “money” is really just a real-time voting system wherein individual decide how they want to allocate the points or chips they collect in exchange for selling their time. Someone who gives people something they want, such as Steve Jobs having Apple launch an awesome handheld device called the iPad to read, play games, listen to music, or browse the web, can trade that discovery for a giant pile of his own chips or points. Centralized economic planning is too far removed from Main Street level desires to sufficiently respond to supply and demand curves in a manner that matters to humans.

        In plain English: A decentralized, non-governmental incentive system is like a sudden rainstorm in New York. Within 10 minutes, the sidewalks are filled with street vendors selling umbrellas at high profit margins. In communist Russia, the state planning agency would have to fill out an order and the guy who ran the umbrella shop had no incentive to go out into the rain to sell his wares since he was paid the same amount as the government allocated tax dollars to individual men and women based upon occupation without significant regard to productivity.

        You cannot explain or create a taxation system without factoring in mental models from biology, psychology, economics, and political science. To do so ignores the way our world operates; just like a multi-ton hunk of metal called shouldn’t be able to fly through the sky at hundreds of miles an hours based upon the law of gravity. You have to understand how the law of lift in physics overrides the law of gravity to plan a complex system that we call an airplane. To quote Charlie Munger, one of my favorite thinkers, “it’s all one interconnected damn mess”.

  • HighlySkeptical

    Joshua – thanks, though for your response. But please be careful about posting what you “observe” while making conclusions at the same time. The observation is that tax rates went down and tax revenue went up. The conclusion that they are connected is not an observation. Once you post a conclusion, people will accept it as “expert”. Whenever you get paid to post your ideas, people automatically accept that you have some expertise.

    I just hope to wake a few people up to the fact that what they read on the internet is not necessarily true. A contributing factor in the trouble we all face right now is the lack of rational thinking. Many people have knee-jerk reactions and don’t bother to verify whether what they read is true or not. All I ask of you is to be more thoughtful about what you post. You impact many people. Wouldn’t you kike it to be a positive, honest impact?

    • Joshua Kennon

      Once you post a conclusion, people will accept it as “expert”.

      That’s a very good point and duly noted. I think you’ve inadvertently stumbled onto two of my biggest blind spots that I still struggle to correct. They are proving more stubborn than I’d like.

      The first of these involves the automatic assumption that everyone is like you or me – 1. wants to know the data, 2. will search until they find it, and 3. will draw their own conclusions based upon the evidence rather than dogma or others’ opinions (e.g., even though I greatly admire Warren Buffett, I flat out disagree with him on a handful of issues and think his thinking is incorrect). I strive to always check my assumptions but still find it difficult because it’s hard to understand that not everyone sees the world through the same rational framework you do. Imagine trying to describe the color “red” or “blue” to someone who only sees in black and white.

      This blind spot is so powerful that I still feel genuine surprise and bewilderment when I hear people say thinks like “stocks are a Ponzi scheme” or “President Obama is a secret muslim who is plotting to destroy America from within.” My first temptation, to chalk it up to laziness, doesn’t square well when you consider that these same people are willing to use their vacation time to travel across the continent to attend rallies, donate time at phone banks, and lobby their representatives. It’s like a German lost in Shanghai – the languages aren’t even remotely compatible. Once you begin operating from a framework of rationality, it is hard to remember that many people still grope in intellectual darkness.

      Second, most of my writings happen so casually and seamlessly throughout my day, I grossly underestimate how many people actually care what I think or what I say. This is strongly related to the first blind spot but I’m still amazed at the sheer quantity of letters I get with statements like, “I learned more from reading you the last year than my entire undergraduate finance degree taught me,” or “You have no idea how you changed my life.” It seems completely unreal, honestly. Just like an actor is unable to see the audience in the darkness during a performance, I’ll start thinking about an idea, topic, or event, and want to organize my thoughts on it. The blog lets me do that. It seems so bizarre to me that so many people read my posts religiously, just as they would a philosopher or a preacher, when I’m just working through several of these ideas on my own, albeit in the form of a public journal of sorts.

      But again, your point is very much appreciated and well taken. One of these days, I’ll accept the fact that the whole world isn’t as rational as many of the readers of this blog are. But before acceptance comes denial … I’m still early up in the five stages of grief ;)

    • Joshua Kennon

      I should note, just in case you are wondering, that I unequivocally stand by my earlier conclusion: Tax receipts increased, in part, due to lower tax rates. Looking at the raw data would support my thesis. The current deficits and national debt are the result of spending levels rising at unsustainable rates, not tax cuts.

  • steveiii

    Debt-hawks tell us that by reducing the federal deficit, they protect our children and grandchildren. But in fact, they condemn our children, grandchildren and us to more costly medical services, fewer doctors, nurses and hospitals, as well as to lower paying Social Security, poorer roads and bridges, a less-equipped military, worse schools and indeed less of every benefit our monetarily sovereign government easily is able to pay for.

    Yes, the EU nations were foolish to surrender their ability to control their money supply. That control is one of the prime duties of any government. But we are even more foolish not to understand that we have that control, yet we neglect to use it.

    Our leaders fear deficits, not realizing that “federal deficit” merely is a synonym for “money created this year.” Rather than being a negative, it’s a positive; it’s an absolute necessity.

    Our leaders fear “federal debt” (which contrary to popular belief is not the total of deficits, but rather the total of outstanding T-securities). Federal debt could be eliminated by the simple act of no longer creating and selling T-securities. They became obsolete in 1971, the end of the gold standard. It is difficult to understand why Congress believes we must borrow the dollars we previously created and have the unlimited ability to create.

    Our leaders fear ” uncontrollable inflation.” They do not understand we are so far from uncontrollable inflation that since we went of the gold standard, there has been no relationship between federal spending and inflation, . Further, our leaders don’t realize inflation easily can be controlled by raising interest rates, which is exactly how the Fed has controlled inflation all these years.

    By what logic could these fears and the resultant actions, be considered “prudent” or “protecting our grandchildren”?

  • Wilcox

    I don’t see any problem with pointing out the problem with increasing government expenditures without any attachment to revenues. Increasing the size of government in all of its forms takes resources out of the private economy. It’s that simple. Are you guys really going to argue that government spending increases the productivity or GDP? How? While I am willing to listen to whether Bush’s tax cuts didn’t increase GDP, I don’t know how he doesn’t get credit for the revenue increases to the federal government. BTW, those tax cuts were not major cuts, so their supply-side benefits may not really be there. We can obviously blame Bush for increasing spending – he tripled the budget in 8 years. The fact is the economy was growing pretty weakly under his administration. Had there been big cuts and real tax simplification and reform, the economy would have taken off. But, people arguing that these deficits are inconsensequential are all wet.