The Futility of Budget Cuts
Tweet Digg Reddit Facebook StumbleUpon Yahoo! Buzz By Annie Lowrey 4/8/10 12:52 PM
Today, an Economist/YouGov poll making the rounds shows that Americans would vastly prefer budget cuts to new taxes — by 62 percent to 5 percent. The poll goes on to ask Americans which government spending programs they would choose to cut: “If government spending is reduced in order to balance the budget, which of the following government programs should receive lower federal funding than they currently do?” (Respondents could pick more than one thing to axe.)
The figure above shows the results of a poll asking Americans which government programs should be cut in order to reduce the Federal budget. Foreign aid came in 1st, with over 70% saying it should be cut to balance the budget. Nothing else even got to 30% of the respondents.
Then the article had this figure, showing how the very parts of the government that people least want to cut are also the ones that cost the most. Blue is from the first figure – the percentage of people who think it should be cut – and red is the percentage of the Federal budget that area consists of:
Foreign aid is less than 1% of the budget. No way will balancing the budget ever happen simply by cutting the things people want to cut. They are too small a portion of the overall budget. And those things that would make a dent are too popular to cut. How about this, as shown in another blog?
As Tea Party favorite Karl Marx once said, historical events occur twice, first as tragedy, then as farce. And so it is with the Tea Party “Contract from America.” But rather than following Newt Gingrich’s gimmicky 1994 path to retaking control of Congress, the Tea Partiers sound more like Ronald Reagan circa 1980. After all, the Gipper, too, promised to cut taxes, raise defense spending and balance the budget. Of course, what Reagan produced instead during his eight years in office was a tripling of the national debt and red ink as far as the eye can see.
What is rapidly becoming the biggest reason for the deficits we are seeing? The Bush tax cuts that are due to expire in 2011. Without them, and without the wars in Afghanistan and Iran, the deficit would be substantially smaller over the next decade; in some cases, over two-thirds less.
Crooks and Liars then has this nice graph which shows the continuing effects on the budget if the Bush tax cuts are allowed to expire:
So, extending the Bush tax cuts for the wealthiest amongst us results in ever increasing Federal deficits with Federal debt reaching 100% of our total GDP. If they are allowed to expire, in the same time period, we could see a drop to the same levels as was seen in the 90s.
(As an interesting aside, look at the timeframe of this graph. The lowest percentage since the Depression of Federal debt compared to GDP was following a Democrat. There was a significant increase in this debt through two Republican Presidents. Then, during another Democrat, this amount was brought under control and actually reduced. Then another 8 years of a Republican President and the numbers take off again. It would seem that having a Republican President is is a sure sign the budget will get out of control.)
In a reality-based world, it would be an easy to see that simply allowing the Bush tax cuts to expire, which requires no new legislation at all, would be an easy and wonderful first step to bringing our debt down. No action and the taxes go up for the wealthiest 5% of the population to the same levels they were in 2000.
Let’s see, return them to the same tax rates as the 90s, time of the greatest market expansion in a generation, or keep the tax rates at the same level as the last several years, marked by the worst economy in 70 years? Does anyone really think that returning to the tax levels of the 90s will destroy the economy any more than it has been destroyed by the policies of the last decade?
To review, allowing the Bush tax cuts to expire sets us very strongly on the path to better fiscal policy. Actually voting to retain these tax cuts results in every increasing deficits that can hobble the economy quite rapidly.
So, guess which side the people who are behind the Tea Party movement are on? Not a reality-based one.