What Spending Cuts?
We constantly hear about the age of austerity and painful spending cuts that are being enacted in Washington. The only problem is that they don’t exist.
Earlier this week, the CBO published a report on the budget deficit for the first 9 months of Fiscal Year 2012 (October 2011-June 2012). The headline figure of the report shows that the 9-month deficit stands at $905 billion, down from $971 billion this time last year. But here’s the kicker: the entirety of that $66 billion “shrinkage” in the deficit came from the $90 billion increase in revenues. The lion’s share of that comes from an increase in corporate tax receipts, due to new rules governing how quickly firms may deduct the cost of their investments in equipment.
After revenues are factored in, spending actually increased by $24 billion relative to the same period in FY 2011. The main increase in spending came from TARP. Spending on TARP grew by $62 billion through June. Outlays for Social Security payments increased by $30 billion, while net spending on Medicare increased by $14 billion. Spending on Medicaid decreased, but that was only the result of expiring mandated increases from the stimulus. Spending on the largest two programs alone will top $1.33 trillion ($770 billion for Social Security and $560 billion for Medicare).
It is clear as day that we have a spending problem, or more precisely, a big-government dependency problem. We see how just a slight (very slight) uptick in economic activity has resulted in higher revenues. Obviously, a real economic boom, engendered by pro-growth non-interventionist policies, would net even greater revenue without raising taxes. It’s the spending that’s the problem. Despite the increase in revenues, we have added almost $1.6 trillion to the debt since the passage of the Budget [Out of] Control Act almost a year ago. The debt now stands at $15.88 trillion.
Outside of Washington, this is not rocket science.