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CNS News
Balancing
Budget at Current Spending Would Take Record High Taxation
By Terence
P. Jeffrey
July 10,
2012
(CNSNews.com)
- Both President Barack Obama and Republican presidential candidate
Mitt Romney
have recently said they would like to balance the federal budget.
However,
according to data published by Obama’s own White House Office of
Management and
Budget, accomplishing that goal at anywhere near the current level of
federal
spending would require imposing and sustaining a record level of
federal
taxation as a percentage of GDP.
“I want to
balance our budget,” Obama said in a July 5 speech at Sandusky, Ohio.
“I want
to reduce our deficit, deal with our debt, but I want to do it in a
balanced,
responsible way.
“I want to
get America strong again,” Romney said at Dewitt, Mich., on June 19.
“So we can
hold that torch high around the world. I’m going to do it. I’m going to
put
America to work. I’m going to make sure we get rid of Obamacare. That
we
balance our budget.”
Obama has
stressed that he does not want to cut what he believes are important
federal
programs for everything from local school teachers to the disabled. The
primary
tools he cites for closing the deficit are “eliminating waste” and
allowing the
lower tax rates enacted under President George W. Bush to expire for
the top 2
percent of American workers.
“You know,
it makes no sense for us to provide me a tax cut,” Obama said in
Sandusky. “I
don’t need it and then to cut teachers from our public schools or to
cut our
aid to education or to cut student loans and make them more expensive
for our
young people. I have had opportunities. I want to now give something
back, and
I think a lot of successful people out there want to give something
back.
“So we’ll
cut programs that don’t work and we’ll keep eliminating waste that
doesn’t
make, that doesn’t improve prospects for the middle class,” said Obama.
“But
I’m not going to balance the budget on the backs of the poor or the
disabled or
the vulnerable, or ask middle-class families to pay higher taxes to pay
for a
tax cut for me or Mr. Romney. That’s not how we’re going to balance our
budget;
that’s not how we’re going to deal with our deficit.”
Speaking in
Wolfeboro, N.H., on July 6, Romney said he wants to cut tax rates
across the
board and that the economic growth spurred by those tax cuts coupled
with his
spending plan would balance the federal budget---in 8 to 10 years,
after Romney
would be constitutionally required to leave office even if he were
elected to serve
two terms as president.
“I want to
bring down the corporate tax rate from 35 percent to 25 percent, and
the
individual marginal tax rate 20 percent across the board,” Romney said
of his
tax plan.
“Well, what
I described in my plan is a series of changes to programs and
eliminations of
programs which save more and more money over time,” Romney said of his
spending
plan. “So, we’re able to get America to a balanced budget in eight to
10 years,
not in the first year, but eight to 10 years.”
In Romney’s
59-point economic plan, Point No. 57 is: “Cap federal spending at 20
percent of
GDP.”
While 20
percent of GDP is significantly lower than federal spending has been in
the
past four years, it is nonetheless higher than federal tax revenues
have been
in any year since World War II except one.
The facts
are these:
In fiscal
2009, 2010 and 2011, according to the White House Office of Management
and
Budget, federal spending was 25.2 percent of Gross Domestic Product
(GDP), 24.1
percent of GDP, and 24.1 percent of GDP. In fiscal 2012, which will end
on
Sept. 30, the OMB estimates federal spending will hit 24.3 percent of
GDP.
Since the
Commerce Department started calculating GDP in calendar year 1929 (and
fiscal
year 1930), there has not been a single year that federal tax revenues
have
reached anywhere near 24 percent of GDP.
There have
been only three years when federal tax revenues went as high as 20
percent of
GDP. Those three years were 1944 and 1945, during World War II, and
2000.
In the
years since fiscal 1930--the first year for which the government has
published
figures for federal tax revenues as a percentage of GDP--federal tax
revenues
have averaged 15.7 percent of GDP.
Because tax
revenues remained relatively low during the 1930s--when the Great
Depression
occurred, when income tax withholding had not yet been enacted, and
when New
Deal programs such as Social Security had not yet come into
force—average
federal tax revenues for the years since the end of World War II are
somewhat
higher. In the
fiscal years since World
War II, those revenues have averaged 17.8 percent of GDP.
In the
post-World War II, moreover, the percentage of the nation’s wealth that
the
federal government has been able to pull in through taxation has
remained
remarkably steady.
Since 1960,
it has averaged 17.94 percent of GDP. Since 1970, it has averaged 17.96
percent
of GDP. And since 1980, it has averaged 17.97 percent of GDP.
Since World
War II, there have been only 12 fiscal years when federal tax revenues
exceeded
federal spending, thus yielding a balanced federal budget. Those years
were
1947, 1948, 1949, 1951, 1956, 1957, 1960, 1969, 1998, 1999, 2000, and
2001.
In those 12
post-World War II years when the federal budget was balanced, federal
spending
never reached as high as 20 percent of GDP. The highest spending ever
went in
those balanced-budget years was 1969, when it hit 19.4 percent.
In the
twelve years since World War II when the federal government balanced
its
budget, federal tax revenues averaged 17.98 percent of GDP and federal
spending
averaged 16.63 percent of GDP.
If the OMB
is right, and federal spending hits 24.3 percent of GDP this year, then
the
government will have spent an average of about 24.43 percent of GDP
over the
past four years. That is about 47 percent higher than the average 16.63
percent
of GDP that the federal government spent in the post-Word War II years
when it
balanced the budget.
It is also
about 36 percent than the average 17.98 percent of GDP that the federal
government took in in tax revenue in the post-World War II years when
it
balanced the budget.
It is also
about 37 percent higher than the average 17.8 percent of GDP the
federal
government has managed to take in in taxes in all of the years since
World War
II.
The bottomline:
For the federal government to balance the budget at 24.4 percent of GDP
spending it would have to increase federal tax revenue 37 percent above
the
17.8 percent of GDP post-World War II average.
For the
federal government to balance the budget at 24.4 percent of GDP it
would need
to raise federal tax revenues 14.3 percent above the 20.9 percent of
GDP the
federal government took in during fiscal 1944, in the midst of World
War II,
when federal revenues hit their post-1930 high water mark.
In short,
balancing the budget at the current level of spending would require
record
taxation.
How does
federal spending in this era compare to federal spending before fiscal
1930,
the earliest limit of Commerce Department GDP figures?
George
Mason University Law and Economics Prof. Gordon Tullock has charted
federal
spending as a percentage of Gross National Product going back to 1790.
(GNP
differs from GDP in that GNP is defined by the Commerce Department as
“the
market value of goods and services produced by labor and property
supplied by
U.S. residents regardless of where they are located,” while GDP is “the
market
value of goods and services produced by labor and property inside the
United
States, regardless of nationality.”)
Tullock’s
chart shows federal spending briefly spiking to about 20 percent of GNP
during
the Civil War and slightly over that during World War I. (His chart
also shows
spending spiking above 40 percent of GNP during World War II—just as
OMB’s data
shows spending spiking to 43.6 percent of GDP in 1943, 43.6 percent of
GDP in
1944 and 41.9 percent in 1945.)
Until now,
however, there has never been a period of American history when the
nation was
not involved in a civil or world war when federal spending was
maintained above
24 percent of GDP.
Read data
on this story plus other articles at CNS News
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