Let me get this straight. After increasing federal spending by almost 25 percent, exploding the national debt and pushing annual deficits past the trillion-dollar mark, President Obama is demanding that Congress make “progress on the deficit and debt.” Rumors are swirling about a “grand bargain” that will raise the debt limit, cut the deficit and increase revenues (Washington-speak for raising taxes). “The wealthiest Americans,” Obama recently declared, must “pay their fair share.” White House adviser David Plouffe says any deal must put Washington in “a revenue-positive situation.” Translation: perhaps trillions in new taxes.
Here’s a simple way to make progress on deficit and debt reduction: Cut 25 percent from the federal budget over the next two years. Given that Washington, with Obama leading the charge, found a way to increase federal spending by about 25 percent over the past two years, spending cuts of equal size seem exceedingly achievable and sensible.
Consider the numbers: Federal spending mushroomed from $2.98 trillion in 2008 to $3.72 trillion by the end of 2010. The spending was unprecedented and, contrary to those who promised that these “emergency measures” would jumpstart the economy, appears to have been unnecessary.
Again, consider the numbers: On the unprecedented side of the equation, in 2008—President Bush’s last year in office—the national debt was $10 trillion. The budget deficit was $407 billion. This year, the national debt is $14.5 trillion, and Washington will add another $1.6 trillion to the debt in deficit spending. Federal spending represents about 25 percent of GDP this year. In 2008, by contrast, it was 20 percent of GDP, which was very much in line with the previous 30 years: 19.9 percent in 2005, 20.49 percent in 1995, 21.59 percent in 1990; 22 percent in 1985, and 20.28 percent in 1975.
This helps explain Sen. Orrin Hatch’s push to cap federal spending at 20 percent of GDP. He didn’t just pull that figure out of thin air. It’s what the American people have come to accept and expect as an appropriate amount. In other words, the American people have concluded that 20 percent of their money is enough for the government to live on. And as Stephen Moore explains, the wealthy already contribute more than their share to the cause: “The wealthiest 1 percent of the population earn 19 percent of the income but pay 37 percent of the income tax. The top 10 percent pay 68 percent of the tab.”
On the unnecessary side of the equation, the $862-billion stimulus package didn’t have much of an impact on unemployment, which remains above 9 percent. The Congressional Budget Office estimates that the stimulus package “increased the number of people employed by between 1.2 million and 2.8 million.” At $278,000 per hire, that’s not a very good return on investment.
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