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July 3rd, 2022

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Tax-and-spend myths and facts

Jeff Jacoby

By Jeff Jacoby

Published Nov. 11, 2020

Tax-and-spend myths and facts


Brian Riedl, a senior fellow at the Manhattan Institute, is a walking compendium of federal tax and spending data, much of which he compiles each year into a big “Book of Charts.” The most recent annual edition was released last month, and its contents are a budget geek’s nirvana. They lay out a pretty incontestable picture of relentlessly soaring spending, steadily increasing national debt, and budget deficits ( to coin a phrase) as far as the eye can see. They also bust a number of popular myths about the causes of Washington’s profligacy.

As of 2020, one of Riedl’s charts shows, America’s national debt surpassed $200,000 per household. Another chart makes clear that it is government spending, not lower revenues, that is driving the long-term deficit. Still another confirms that the lion’s share of that spending goes to Social Security, Medicare, Medicaid, and interest on the national debt. Government outlays on antipoverty programs are almost entirely unaffected by which party is in power: It has inexorably risen under Republicans and Democrats alike — from just one-half of 1% of GDP in the early 1960s to 4% of GDP today.


Indeed, antipoverty spending has continued to skyrocket at a far faster rate than the population of people with incomes below the poverty line. From 2001 through 2019, the number of Americans living in poverty rose by about 1 million, or 3%. During the same period, the SNAP (food stamp) caseload increased by 18 million, or 106%.
  Americans are up to their nostrils in government debt — and there is no end in sight.


Many of Riedl’s data compilations dismantle common talking points, as he explains in a related essay for National Review. It is untrue, for instance, that surging defense spending — the costs of the much-decried “trillion-dollar wars” — are largely responsible for the government’s reliance on deficit spending. On the contrary,
 
the general trend has been declining defense spending as a share of the economy. Defense spending averaged 5.7% of GDP in the 1970s and 1980s, and was still 4.6% of GDP as late as 2010. It has since fallen to 3.2% of GDP and is projected to continue falling to 2.9 percent in a decade – matching its smallest share of the economy since the 1930s, and not far above the 2% of GDP target for our NATO allies. Since 2017, defense has comprised a record low of 15% of federal spending.


Another popular myth is that America has been drowning in red ink because of the 2017 Trump tax cuts. Fact-check: False.

“Even if the tax cuts are renewed,” observes Riedl, “their $200 billion annual cost cannot explain more than a fraction of the budget deficit’s [projected] expansion from $600 billion to $2 trillion between 2016 and 2030.” By far the largest driver of the yearly budget deficit is the chunk of money annually withdrawn from the Treasury to pay for Social Security and Medicare benefits. Over the same 14-year period, as the Baby Boom generation retires, that chunk of money is expected to rise from $350 billion to $1.5 trillion.

More than any single government program, it is Social Security that is crushing the federal budget under an unsustainable debt load. “Over the next 30 years, the Social Security system will collect $52 trillion in payroll taxes and other . . . revenues and spend $74 trillion on benefits,” Riedl writes. “The resulting $22 trillion deficit must be financed by outside revenues or borrowing.” A $22 trillion shortfall for Social Security alone — that, right there, is the budget crisis in a nutshell. The crisis was in view long before the pandemic came along, and, absent a radical change in policy, it will remain a threat long after the coronavirus is behind us.

Soaking the rich cannot eliminate that threat. As yet another of Riedl’s charts shows, even if Congress could impose a 100% tax rate on small businesses and upper-income households, it wouldn’t raise nearly enough revenue to balance the budget. Add to the mix the progressive fantasy programs that Joe Biden endorsed in his presidential campaign — such as expanding Obamacare, reducing Medicare eligibility to 60, and a new economic stimulus package — and the budget would be even more lopsidedly imbalanced.

As a presidential candidate, Barack Obama condemned George W. Bush for “driving up our national debt from $5 trillion . . . [to] over $9 trillion.” Such a sea of red ink was “irresponsible” and “unpatriotic,” Obama said, promising that as president he would shrink it.


But if Bush’s fiscal record had been “irresponsible,” Obama’s was off the charts. On his watch, annual budget deficits surged past $1 trillion. The national debt streaked upward, reaching nearly $20 trillion by the time he left office. Entitlements metastasized, consuming two-thirds of the federal government’s outlays.

Yet today, with federal outlays and the national debt more out of control than ever, no one seems to care. Certainly not President Trump, though he disparaged the growth in debt when Obama was president and claimed he would have no trouble eliminating the “U.S. Debt Deficit”  [sic] if he were president. Not Congress, which was setting new spending records even before the coronavirus outbreak. And definitely not voters, who worry much less about federal spending and the deficit than they used to.

So the madness persists. Through their government, Americans are up to their nostrils in accounts payable, yet all the political class wants to talk about is how much more money the government can spend. Our most pressing domestic issue isn’t health care or housing or abortion; it is the colossal national debt that is slowly strangling America’s future. We can avert our eyes and pretend not to see what lies ahead. But whether we look or not, it’s coming.



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