Budget Deficit Capitulation: Our Spending Problem

, Budget Deficit Capitulation: Our Spending Problem

During the week before Christmas, Congress rushed a spending bill into law.

Two spending bills were introduced that Monday, a flurry of political horse-trading ensued, numerous pork-barrel favors were hastily added, and–presto–by Friday Congress had approved $1.4 trillion in discretionary spending. Treasury and budget officials acknowledge that future deficits will now rise more than earlier anticipated.

The American people responded to the new spending bill with a collective yawn. A deep national apathy toward the national debt has settled in. Few people care anymore. President Trump may care on a personal level, but as a political pragmatist, deficit spending is one battle he has chosen not to fight. Even those of us ashamed of how our youth are being progressively swindled by federal deficit spending have resigned ourselves to the fact that our government has a debt addiction.

The signs that Uncle Sam would further enlarge fiscal deficits had been unmistakable. As I wrote in November, the GOP-sponsored “Prevent Government Shutdown Act of 2019” was a sign of capitulation by former deficit hawks. It was clear then, if it hadn’t been before, that an expansion of deficit spending was virtually a done deal.

Now that the spending increase has happened, I’m not here to howl or protest. I emphatically think it was wrong, but what’s done is done. However, there are a couple of very important numbers that I wish to call to your attention now. I hope that you will remember them the next time President Trump or some other non-socialist president calls for lower tax rates and the left argues against them.

I’ll give the numbers to you in two forms, only the second of which I hope you will commit to memory:

In Fiscal Year 2018, President Trump’s first full year in office, federal revenues were $3,329 billion. In Fiscal Year 2019, the first full year during which Trump’s corporate and personal income tax cuts were in effect, federal receipts totaled $3,462 billion. To be more specific, federal revenues from income taxes decreased; however, the lower tax burden on the private sector contributed to an increase in the number of Americans working. That, in turn, increased federal revenues from FICA payroll taxes. Furthermore, increased economic activity boosted federal revenue from excise taxes.

Critics were too hasty to claim that tax cuts inevitably shrink federal revenues. Receipts may decline from some taxes while still rising overall. And even if overall government revenues fall, so what? All that means is that people get to keep more of their own income.

Now here is the set of numbers I hope you can remember: Federal revenue increased four percent last year over the previous year, while federal spending rose eight percent. This points to a simple, irrefutable arithmetical truth: The reason the federal deficit is rising is not because tax revenues are falling–they are not–but because spending is rising at a faster rate.

Back in the 1980s, critics on the left claimed that President Reagan’s supply-side tax cuts caused deficits to rise. Not so. Then, as today, federal revenues actually increased substantially after the tax cuts (rising from roughly $600 billion to $1 trillion), but federal spending increased even more. Inevitably, then, deficits rose.

The bottom line remains: The federal deficit is a spending problem, not a revenue problem. Don’t ever let anyone tell you anything different.

, Budget Deficit Capitulation: Our Spending Problem

About Mark W. Hendrickson

Dr. Mark W. Hendrickson is a retired adjunct faculty member, economist, and fellow for economic and social policy with the Institute for Faith and Freedom at Grove City College.

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