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U.S. Debt Dilemma: Caused by Excessive Spending or Not Enough Revenue?

Wednesday July 27th, 2011   •   Posted by Craig Eyermann at 2:45pm PDT   •   9 Comments

Assuming that the current U.S. debt crisis began in 2008, which is more responsible for the current U.S. government debt crisis: excessive government spending or too big a fall in government tax receipts?

We present the answer using data from 1967 through 2010, graphically, below:

Is the U.S. Debt Crisis a Revenue Problem or a Spending Problem?

At its peak in 2009, we find that the gap between the federal government’s spending and its tax collections is much more heavily weighted toward the side of excessive spending. With spending accounting for approximately 62% of the pre-crisis gap, we find that excessive spending by the U.S. federal government in the years since 2007 is primarily responsible for the current debt crisis.

But that may be a moot issue. The key point to understand in the current debate is that while the federal government is not capable of precisely controlling the amount of its tax receipts from year to year, it is more than fully capable of controlling the amount of its spending. But only if there are enough people elected to the government who make that objective a priority!

Closeup of the Answer!



9 Responses to “U.S. Debt Dilemma: Caused by Excessive Spending or Not Enough Revenue?”

  1. Bill Scheurer says:
    July 28, 2011 at 8:02 am

    “Assuming that the current U.S. debt crisis began in 2008 ... ”

    This is really silly. How about “assuming that the current U.S. debt crisis began in” 2000 — which is when it really began (again).

    Also, do these spending figures include the so-called stimulus package or any of the bailout moneys? If so, of course it will be from spending in that time window — especially since all the tax cuts were already in place.

    This falls so far short of what we would hope for from a watchdog group.

  2. Doug says:
    July 28, 2011 at 8:06 am

    Yeah... as if the real revenues are paid out by those earning the median income. How disingenuous of you.

    We both know that top tax rates have plummeted dramatically for the last 50+ years. Cut revenues, then use Medicare and Social Security income taxes to make up the difference in the spending (which wasn’t decreased) that continues... throw in two unfunded wars, more tax cuts, and a prescription drug plan (which prohibits the government from negotiating drug prices) and you have yourself a recipe to kill the New Deal.

    Since a significantly number of Americans are dumb and ignorant and not likely to exercise critical thinking you can then sell them a ridiculous narrative using “liberals” as scapegoats in your campaign to return the country to the Gilded Age.

    And all of these trusting and well-meaning Tea Partiers and conservatives will be won over... and education budgets will be slashed, police/fire/teacher’s salaries will be cut, women will lose their reproductive rights, minority voters will have more trouble voting, etc.

    All of this is anti-American (to use Bachmann’s words).

  3. MG says:
    July 31, 2011 at 7:12 am

    Your chart surprised me. This representation actually understates how how much is excessive spending the culprit relative to spending. If you pick the late 1990′s (say 1997, before the bubble began to inflate revenues and a point which sort of represents an average for the 1994 to 2000 period of fiscal sanity) as the anchor benchmark, you would see by how much current spending exceeds the benchmark, and how federal receipts are actually still above the benchmark. In the final analysis, what your chart shows is that Federal receipts per household grew sharply during the 2000′s, so that even post crises they are still at levels that exceed even the good old fiscal days of the 1990′s.

  4. Joyce Cordi says:
    August 2, 2011 at 10:26 am

    The delta between federal spending (on auto-pilot) grows as tax revenues decline –
    Three reasons: fewer workers paying taxes (unemployment)
    More importantly: more workers finding jobs that pay less than the jobs they lost (the under-employed)
    – Lastly, service industries have lower wage levels than manufacturing etc.
    And a note: illegal immigration, particularly in the construction and construction-related trades, has depressed wages and displaced unionized labor –

  5. Tesfatadelle says:
    August 3, 2011 at 1:08 pm

    Such show and tell has become the norm to explain away the real problem. It’s true that due to structural changes necessitated after 9/11 and the 2008 institutional failures erroneous corrective action, we are where we are. The remedy we should look then should be a shared sacrifice by all citizens and not burden the portion of our society that is already in crisis: namely the old, the poor and the struggling middle class. They are in the forefront of the wars we fight, and the images that the world sees of our beloved country. And that such an idea I espouse is not socialism (for I came here fleeing socialism), but compassionate capitalism that made the US the envy of the world so far.

  6. David Theroux says:
    August 8, 2011 at 9:01 pm

    Bill, Yes indeed, we can use 2000 as a benchmark year, or we could use any year. The results are the same as federal spending and debt have piled up. And these figures do indeed include the TARP, bailouts, stimuli, ad nauseum. Incidentally, we don’t see how your “progressive” (i.e., authoritarian) campaign of “trickle-down” statism holds any water.

  7. David Theroux says:
    August 8, 2011 at 9:12 pm

    Doug, Given your patronizing dismissal of views that question runaway government power, I guess that for you we should just all submit to total authoritarian rule because without such statism, we would all perish. For you, command-and-control government is by definition enlightened and just plain benevolent. The problem is not just that statism is tyranny but that it is economically unsustainable and indeed crackpot. But since you worship state power, perhaps you would be happier with a system akin to that supported by the Italian fascists who championed the view of “Nothing Outside the State” (see here and here).

  8. Observant says:
    August 9, 2011 at 6:26 am

    But if you CAN use any year as the benchmark, why did you CHOOSE to only use the last year, where the TARP and second stimulus money was the big added government expenditure? Seems odd.

    What would have happened if the Bush tax cuts to the wealthy never were enacted. That would be an interesting chart.

  9. David Theroux says:
    August 11, 2011 at 6:49 pm

    Observant, What if the tax cuts were expanded even more and indeed, what if we abolished the income tax itself? The issue would remain because of runaway federal spending. Here incidentally is a budget that could be adopted and would end the crisis, but to do so requires actually cutting down the gigantic federal Leviathan itself, not stealing more from the rich, middle class or the poor.

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