We need a “balanced” approach to deficit reduction. That is the cornerstone of the left’s arguments for dramatic tax hikes on American taxpayers including the expiration of the Bush tax cuts which, among other things, would mean a big hike in taxes on capital gains (investment income).
But is balance truly warranted? It’s not, if we take a look at what has actually caused our debt and deficit problems.
For one thing, federal spending has increased significantly. In fiscal year 2008, total US spending was $2.982 trillion. That jumped dramatically dramatically in President Obama’s first year in office (thanks mostly to the “stimulus” spending spree), increasing almost 18% to $3.517 trillion in 2009.
In fiscal year 2012, ending in October, federal spending was $3.796 trillion, another roughly 8% increase which happened even with Congress split between the two parties.
From the last fiscal year under President Bush to fiscal year 2012 the total increase in federal spending was 27.3%.
So, clearly, a big part of the problem is spending. But the “balanced” approach supporters are right about one thing. During this same time period total direct federal tax revenues (a figure that includes Social Security revenues which don’t directly apply to the deficit equation) have declined, though since FY2009 they’ve been rising after tanking thanks to the economic collapse.
Our “balanced approach” friends would tell us that this decline in revenues proves their case for tax hikes. But does it really? The decline in revenue didn’t have anything to do with tax cuts and everything to do with an economic collapse the nation has been slow to recover from. We’re going to fix that with dramatic increases in taxes, including taxes on investment income specifically?
Here’s the reality: tax revenues in FY2012 were only 2.17% lower than FY2008, but spending is more than 27% higher.
Now, again, our friends on the left insist that we must have a “balanced” deficit reduction package that incorporates both spending cuts and tax increases. But the budget problem isn’t balanced. The budget problem is almost entirely a spending problem.