The myths of deficit hawks

What does “overspending” mean? Is spending the cause of every deficit?

Short answers: nothing and no.

Overspending is empty rhetoric that plays well at political rallies but is harmful to informed discussions about the fiscal problems of the federal government. It’s used too often as a drop-in replacement for “too much spending” or “out of control spending” but often employed when people are trying to appear as if they are making serious arguments about fiscal policy when they aren’t.

Those phrases are subjective. What’s too much to you is not too much to everyone else. If you want to base your vote on that, be my guest. That’s democracy. But it has no place in policy discussion where the bar for spending and taxes must include want, need, and effect — where effect has evidence to support it, not more rhetoric.

“Big Government” is rhetoric. How big is too big? What’s to stop you from deciding tomorrow that the smaller government you made is still too big? Why are you right that government at size 10 is too big but size 7 is OK, and the person that thinks even size 2 is too big is wrong? Why is someone automatically wrong who thinks it should be size 12?

That discussion, like one about “overspending”, is nonsense. It ignores practical considerations like a government serving 313 million citizens needing to be larger than one serving only 40 million. If you can acknowledge that a government sized to fit the needs of 40 million people probably can’t fit the needs of 313 million, then you’ve already conceded the point. From there on out, you don’t talk about “overspending”, which is easy and lazy, you have to start arguing in defense of program X and against program Y as necessary and/or beneficial, which is time consuming and difficult when there are a lot of people that disagree with you.

As for the cause of deficits, a lot of spending hawks insist that the cause of every deficit is too much spending. That’s the other side of the same coin that says no, the cause of every deficit is too little revenue.

Both arguments in a time-free context can be both proved and disproved by adjusting either one to meet the other to suit your bias. We could increase tax rates so that our estimated 2013 $2.9 trillion in revenue increases until it meets our 2013 $3.5 trillion budget. The deficit will vanish and yet spending has not changed — how is spending the problem? You can do the opposite to try to prove that spending is the problem, cut spending until it meets revenue.

You have to look at spending and tax policy in the context of non-policy adjustments due to economic changes, to understand what’s driving the deficit in any given year. We had $2.6 trillion in tax revenue right before the recession, $2.1 trillion at the bottom of it, and we’re up around $2.9 trillion this year. The drop began at the top of 2008, well before the election, perfectly in sync with the recession itself. The slow increase after the recession makes sense in light of growth in the job market, and the recent fast increase makes sense because of recent changes in tax policy (increases on the wealthy.)

Spending was on a linear increase from 2002 until the middle of the recession, jumped at the end of the recession, resumed a linear increase for about a year, then flattened in 2010. As with tax revenue, spending rates increased outside of the norm of the previous six years in perfect sync with the recession and growth, which is natural, actually halted in 2010. The initial jump during the recession matches with the Wall Street bailout and to a much smaller degree, the stimulus. (The stimulus cut $288 billion in taxes as well, which made it a double whammy.) The lack of spending growth since 2010 can be accounted for as fiscal restraint from Congress and the White House (I know, I laughed too) or from drops in spending on recession related things like unemployment insurance.

We saw a larger drop in tax revenue (18%) from the recession than we saw an increase in spending (15.2%). More importantly, the deficit is plummeting from a bigger increase in tax revenue (27%) than spending cuts (effectively 0%.)

If you try to account for the recession on the budget, what you would have ended up with in 2010 is $1 trillion of a $1.3T deficit, meaning only about $200-300 billion was structural, or “political”. Which is another way of saying that the 2010 deficit would have been $300 billion, not $1.3 trillion, if you could snap your fingers and magically make the recession vanish from history.

From there you’d have to look at new government expenditures and recent changes to tax law to find the cause. As an educated guess, Medicare Part D, the on-going wars in Iraq and Afghanistan, and the 2001/2003 Bush-era tax cuts probably account for the entire non-recession deficit. Even then it’s impossible to argue that spending is the cause of that deficit because of the temporary tax cuts.

So no, folks, spending is not always the cause of deficit and overspending is a meaningless term.

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Something that really deserves its own story: a ridiculous number of people have no idea that Medicare is a federal government program. This goes along with the stunning number of people that don’t know that the budget deficit is imploding. Conservatives rail on the media for being liberally biased, but its real problem is failing to inform the public about crucial facts that aren’t gloom/doom sexy.

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