America doesn’t have a spending problem. It has a tax problem.

There’s been some discussion on Newsvine this afternoon about the various federal agencies and programs people would like to cutto solve our supposed spending problem. Only none of those ideas would work even if you ignore the strong public opposition to cutting programs like Medicare and Social Security that make such cuts politically impossible.

The thing is, this country hasn’t really increased spending that much over the past three years. Rather the tax revenue base has collapsed as a result of millions of people losing their jobs. Not only do those people not have income to pay taxes on anymore, their lost income isn’t going back into the economy to buy goods and services, lowering demand at companies that usually pay taxes on those sales – unless you’re GE – in a self feeding cycle that results in stagnation.

Would it surprise you to know that without any substantive change in tax policy in the past three years, that federal government revenue has fallen by $530 billion dollars? Revenue as late as 2009 was $2.7 trillion. This year it’s closer to $2.17 trillion. The government didn’t cause that, the recession did.

Nearly half a trillion from this year’s budget deficit can be accounted for by the jobs lost in the recession, and the tax revenue that go with them.

But that’s actually misleading. That’s only counting how much tax revenue has dropped from where it was in 2009. It doesn’t account for what it would be today if it had continued to grow. Tax revenue had been increasing every year from 2003-2008. Although that pace began to slow in 2008 as the recession approached, tax revenue averaged an increase of $182 billion per year over that span.

With the recession and future growth accounted for, 2011 revenue should have been close to $3.24 trillion instead of $2.17, where it is right now.

That means a $554 billion budget deficit instead of $1.6 trillion. Without the Bush-era tax cuts that the Obama administration renewed last year (for 12 months), it’d be $316 billion. Without the wars in Afghanistan and Iraq, it’d be $178 billion.

Excluding the wars that a majority of Americans oppose, that’s a revenue problem. Not a spending problem.

Yet people are still obsessed with cuts. So here’s a splash of cold water for you. (These are rough estimates):

2011 revenue: $2,170 billion.
2011 budget: $3,800 billion. (-$1,600 billion)

2011 Medicare: $700 billion.
2011 Social Security: $700 billion.
2011 Defense: $700 billion.
2011 Entire rest of federal government: $1,700 billion.

What would you cut to close that gap? Polls routinely show strong public opposition to cutting Medicare and Social Security, the only two programs with dedicated taxes that for the most part are responsibly paid for.

Eliminating the entire federal government other than Social Security, Medicare, and Defense would just barely balance the budget. But then it wouldn’t exist in the first place. Eliminating two of those three programs would balance the budget, but it would mean either leaving America completely defenseless (as in no standing military, intelligence services, satellites, tanks/planes/ships) and completely repealing one of the two most popular government programs in history, or repealing both of them.

Many suggestions for cuts have been made by people who don’t seem to realize the magnitude of the issue. Some want to stop funding NASA, but we’ve spent almost as much bailing out AIG ($182 billion) as we have the entire space shuttle program in the past 30 years ($196 billion).

One suggestion contained the following list: CIA, FDA, TSA, FCC, IRS, Medicare, “Welfare”, and FEMA. Excluding Medicare, those cuts amount to just $84.9 billion. With Medicare it’s only $784.9 billion, well short of the $1.63 trillion needed to balance the budget.

Not to mention that it would cripple our ability to respond to natural disasters like Hurricane Irene, blind us to coming terrorist attacks, increase the mortality rate from contaminated food, and make all radio communication (satellite, over-the-air television, and cell phones) impossible.

Without the IRS there would be no national government and the “United” States of America would be much closer to the European Union.

And it wouldn’t come anywhere close to denting the deficit anyway.

The best things we can do to address this problem, in order of importance:

1. Stimulate the economy.

Tax revenue this year is supposed to be about $2.17 trillion. It was $2.7 trillion in 2009 and projected to be north of $3.2 trillion this year without the recession. $1 trillion of the current budget deficit can be accounted for from lost tax revenue due to job loss alone.

Stimulating the economy would get people back to work, increasing tax revenue and shrinking the budget deficit.

Yes, that would temporarily increase the debt, but borrowing money to spend on this issue is cheaper now than it has been in decades due to low interest rates. Adding $1 trillion to the national debt today to stimulate the economy would add less than $3 billion per year in interest on that debt.

For those of you fond of the credit card analogy, the federal government’s credit card carries an interest rate of 0.03% on ten year notes today, and it’s likely to stay that low for a decade the way things are going. The sooner we accept reality and stimulate the economy, the sooner that budget deficit will start shrinking and the sooner we can balance the budget and pay off that debt.

2. Let the Bush-era tax cuts expire.

That would peal about $238 billion off the deficit this year alone. Since 2001, these cuts have added $1.7 trillion to the national debt and are predicted to add another $5.4 trillion through 2019. Without these tax cuts, our national debt wouldn’t be around $12 trillion today, it’d be closer to $10.3 trillion.

3. Get health care cost growth under control

By not repealing the Affordable Care Act, and by implementing President Obama’s suggestions for Medicare reform. The best idea I’ve seen from that proposal is to create an executive agency board that would have the authority to make cuts to waste, fraud, and abuse in Medicare based on a yearly budget. Mind you, this board would be made up of existing Medicare experts. These people understand America’s health care system better than anyone in the world.

Anything the cost control board does could be overridden by Congress (in their mandate, but also via Congress’ inherent Constitutional powers to make law.)

Allowing Medicare to negotiate with drug companies for prices would also reduce costs. The Veteran’s Administration is allowed to do this and pays 40% less for drugs than Medicare does.

4. Increase or get rid of the payroll tax cap.

This would make Social Security solvent probably forever.

In summary, America doesn’t have a spending problem. It has a revenue problem. And the solutions are as numerous as they are easy to enact.

Paul Tenny

Paul Tenny

I'm not a journalist but I do it anyway. I cover elections and have interviewed television writers and producers.
Paul Tenny

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