The Deficit: AAK STATISTICS!

A couple of facts before we dig in. There are three numbers when we look at government deficits. There is the annual deficit. The amount of money the government must borrow each year to pay its bills. There is the total deficit which is the total debt the government owes based on what it has borrowed over time. Finally, there is the percentage of Gross Domestic Product it would require to pay off the debt.

Right now, the total deficit sits at 34 trillion dollars. It would take 123% of annual gross domestic product to pay it off. It was just announced the first quarter deficit for this fiscal year is half a trillion dollars. Which means at that run rate this year’s annual deficit will add two trillion dollars to the total deficit. NOT GOOD.

Well kind of.  Countries are not like families. A family has a reasonable expectation that during their life they will pay all their debts and end their lives debt free or with a surplus they can pass on to their heirs. Governments have no such timeline. Their fiscal future extends indefinitely. They can postpone paying off debt for as long as they like. It is rumored that the British Empire is still paying off its debt from the Napoleonic War. Wouldn’t it be nice if consumers could extend their car payments for a century. Don’t hold your breath.

So why do we have deficits. Easy, the government spends more money than it collects. Over the past 40 years with one brief exception the corporate elites have convinced the government that if you give us tax cuts, economic growth will make up for the loss in tax revenue. If they are right, tax cuts should result in lower deficits and most importantly a lower percentage of GDP required to pay off the total government debt.

In 1980 the deficit was less than a trillion dollars and it would take 32% of GDP to pay it off.

By 1989 after two tax cuts the deficit tripled to 2.8 trillion and the percentage of GDP to pay if off increased to 50%. Hmmmm. . . Not Good.  When the Clinton administration takes over in 1993 the total deficit has increased to 4 trillion and represents 61% of GDP to pay it off.  They pass an Omnibus Economic Package that increases taxes. It passes by a single vote. Over the next 8 years the deficit increases to 5.6 trillion but for the first time since the 1980’s the percentage of GDP required to pay it off is reduced to 55%. In their last fiscal budget, the government shows a slight budget surplus. . . This is good.  Keep it up and over time the deficit will be reduced and the percentage of GDP to pay it off will be lowered as well.

Alas, Gore loses (thanks Florida) and tax cuts are reimposed for the first time in our history in time of war. Despite inheriting a robust economy, the Bush administration tax cuts result in (you guessed it) an increase in deficits from 5.8 trillion to 9 trillion and an increase in percentage of GDP from 55% to 61%. Which means the economy is not growing fast enough to pay off the tax cuts. . .

Then in late 2007 and 2008 the proverbial sxxt hits the fan. We can have a long debate about what should have been done during that crisis, but any solution was going to involve significant government spending.  Obama was handed an economy in free fall and during his first year the annual deficit soared to 1.4 trillion.  It is often quoted that the Obama administration oversaw the largest increase in the deficit of any president. That is a fact. However, there are lies, damned lies and statistics. During Obama’s administration the annual deficit was reduced from 1.4 trillion to 700 billion. An admirable trend in difficult circumstances.

So, let’s review. Yes, tax cuts result in economic growth, but they do not and have never generated tax revenue equal to the lost revenue. In fact, they cause significant increases in government deficits, and they do not sponsor sufficient economic growth to reduce the percentage of GDP required to pay off the debt.

Profits from the reduced tax burden go into corporate coffers and increased net worth of those in the highest income brackets. The government, our government is staring at a 34 trillion-dollar deficit.  A deficit is nothing more than a tax deferred. Who will pay those deferred taxes is up for grabs. There are only two ways.

Reduced government services, cuts in Medicare, Social Security, infrastructure investments or increased taxes. It seems to me that if the corporate elites benefitted most from the generous tax cuts in the past, they ought to bear the burden of paying down the debt that they incurred with the false promise of tax cuts for the rich mean lower deficits for the government.