Sorry, Folks, We Don’t Just Have ‘A Spending Problem’

Federal spending and revenue as a per cent of GDP
Federal government spending (red) vs. tax revenue (blue)

[credit provider=”Business Insider, St. Louis Fed” url=”www.businessinsider.com/”]

Yesterday, I pointed out how, in a stubborn attempt to avoid raising taxes on the richest 2% of Americans, the Republicans in Congress have essentially agreed to raise taxes on everyone.The Republicans have done this by refusing to accept President Obama’s attempt at a compromise, which preserves low tax rates for 98% of the country while raising taxes modestly on the top 2%.

Well, you can’t assign blame to the formerly pragmatic and responsible Republican party without getting some flak.

So I received some notes explaining that the Republicans were absolutely right to reject Obama’s plan because “our problem is not a tax problem—it’s a spending problem.”

And you know what, Democrats? The writers of those notes were partially correct:

We DO have a spending problem.

If we are ever to get our budget deficit under control, we need to trim long-term spending growth.

But blaming the whole deficit problem on “spending” ignores the other half of the problem: Taxes.

Our federal tax revenue right now is historically low.

To begin to address our deficit problem, therefore, we need to trim spending growth and increase taxes.

Don’t believe it?

[slideshow]
[slide
permalink=”in-recent-years-the-federal-government-has-developed-a-huge-budget-deficit-this-is-because-federal-spending-red-has-surged-while-federal-tax-revenue-blue-has-stagnated-1″
title=”In recent years, the federal government has developed a huge budget deficit. This is because federal spending (red) has surged, while federal tax revenue (blue) has stagnated.”
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image=”http://static.businessinsider.com/image/4fe280b96bb3f7ff2f000009/image.jpg”
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[slide
permalink=”those-who-blame-spending-for-this-deficit-are-partially-right-federal-government-spending-is-now-running-at-24-of-gd-higher-than-almost-any-time-in-history-2″
title=”Those who blame “spending” for this deficit are partially right: Federal government spending is now running at 24% of GD; higher than almost any time in history.”
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[slide
permalink=”but-those-who-blame-taxes-for-this-deficit-are-also-partially-right-the-federal-government-is-only-collecting-17-of-gdp-as-tax-revenue-a-historically-low-level-3″
title=”But those who blame “taxes” for this deficit are also partially right: The federal government is only collecting 17% of GDP as tax revenue, a historically low level.”
content=””
image=”http://static.businessinsider.com/image/50dd88376bb3f7fa76000022/image.jpg”
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[slide
permalink=”put-those-two-together-and-its-no-mystery-why-weve-developed-such-a-budget-deficit-in-recent-years-4″
title=”Put those two together, and it’s no mystery why we’ve developed such a budget deficit in recent years.”
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image=”http://static.businessinsider.com/image/4fe280ba69beddab5600000c/image.jpg”
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[slide
permalink=”the-good-news-is-the-solution-is-obvious-we-have-to-raise-taxes-as-a-percent-of-gdp-blue-andor-cut-spending-as-a-percent-of-gdp-red-5″
title=”The good news is… the solution is obvious. We have to raise taxes as a per cent of GDP (blue) and/or cut spending as a per cent of GDP (red).”
content=””
image=”http://static.businessinsider.com/image/4fe33cab69bedd8f0700000a/image.jpg”
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[slide
permalink=”how-exactly-should-we-do-that-well-given-that-there-are-320-million-of-us-who-have-to-agree-we-should-probably-compromise-a-little-of-both-6″
title=”How, exactly, should we do that? Well, given that there are 320 million of us who have to agree, we should probably compromise: A little of both.”
content=””
image=”http://static.businessinsider.com/image/50abaee0ecad04ed23000007/image.jpg”
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[slide
permalink=”but-before-we-go-jacking-up-taxes-and-cutting-spending-willy-nilly-we-need-to-understand-that-there-are-two-kinds-of-government-spending-7″
title=”But, before we go jacking up taxes and cutting spending willy-nilly, we need to understand that there are two kinds of government spending…”
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image=”http://static.businessinsider.com/image/50b3716c69bedd3069000001/image.jpg”
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[slide
permalink=”the-first-kind-is-what-we-normally-think-of-as-government-spending-defense-highways-bridges-nasa-government-employee-salaries-etc-8″
title=”The first kind is what we normally think of as government spending: defence, highways, bridges, NASA, government employee salaries, etc.”
content=””
image=”http://static.businessinsider.com/image/4fe33da46bb3f7120f00000d/image.jpg”
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[slide
permalink=”the-second-kind-of-government-spending-is-what-is-euphemistically-called-personal-transfers-checks-handed-out-to-citizens-for-a-variety-of-social-programs-including-social-security-medicaremedicaid-and-unemployment-insurance-9″
title=”The second kind of government spending is what is euphemistically called “personal transfers” — checks handed out to citizens for a variety of social programs, including Social Security, Medicare/Medicaid, and Unemployment Insurance.”
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image=”http://static.businessinsider.com/image/4fe33dbfeab8eae81c00000c/image.jpg”
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[slide
permalink=”which-kind-of-government-spending-do-you-think-is-bigger-10″
title=”Which kind of government spending do you think is bigger?”
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[slide
permalink=”right-social-programs-blue-by-a-lot-importantly-though-this-social-program-spending-explosion-has-only-happened-recently-11″
title=”Right–social programs (blue). By a lot. Importantly, though, this “social program” spending explosion has only happened recently.”
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image=”http://static.businessinsider.com/image/4fe33debeab8eaf719000016/image.jpg”
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[slide
permalink=”over-the-past-50-years-social-program-spending-has-exploded-as-a-percentage-of-the-economy-12″
title=”Over the past 50 years, social-program spending has exploded as a percentage of the economy.”
content=””
image=”http://static.businessinsider.com/image/4fe280d3ecad04371200000e/image.jpg”
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[slide
permalink=”social-program-spending-red-has-grown-so-much-in-fact-that-it-now-consumes-almost-all-federal-tax-revenue-blue-13″
title=”Social program spending (red) has grown so much, in fact, that it now consumes almost all federal tax revenue (blue).”
content=””
image=”http://static.businessinsider.com/image/4fe280d46bb3f70b32000011/image.jpg”
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[slide
permalink=”meanwhile-the-other-kind-of-government-spending-highways-military-federal-salaries-etc-has-actually-been-shrinking-as-a-percent-of-the-economy-14″
title=”Meanwhile, the OTHER kind of government spending–highways, military, federal salaries, etc.–has actually been shrinking as a per cent of the economy.”
content=””
image=”http://static.businessinsider.com/image/4fe280d769bedd665e000004/image.jpg”
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[slide
permalink=”even-military-spending-the-other-big-federal-expenditure-behind-social-security-and-medicaremedicaid-has-been-shrinking-as-a-percent-of-the-economy-15″
title=”Even Military spending–the other big federal expenditure behind Social Security and Medicare/Medicaid–has been shrinking as a per cent of the economy.”
content=””
image=”http://static.businessinsider.com/image/4fe34250eab8ea5a24000016/image.jpg”
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[slide
permalink=”and-dont-forget-what-were-really-talking-about-when-we-talk-about-social-programs-its-not-unemployment-insurance-and-food-stamps-theyre-small-potatoes-below-is-unemployment-insurance-red-versus-defense-blue-16″
title=”And don’t forget what we’re really talking about when we talk about “social programs.” It’s not unemployment insurance and food stamps. They’re small potatoes (Below is Unemployment Insurance–red–versus defence–blue).”
content=””
image=”http://static.businessinsider.com/image/4fe280c9eab8ea1c06000010/image.jpg”
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[slide
permalink=”the-real-government-budget-busters-are-social-security-medicare-and-medicaid-17″
title=”The real government budget busters are Social Security, Medicare, and Medicaid.”
content=””
image=”http://static.businessinsider.com/image/4fe33dbfeab8eae81c00000c/image.jpg”
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[slide
permalink=”so-do-we-have-to-get-healthcare-and-social-security-spending-under-control-youd-better-believe-we-do-if-we-dont-were-toast-18″
title=”So, do we have to get Healthcare and Social Security spending under control? You’d better believe we do. If we don’t, we’re toast.”
content=””
image=”http://static.businessinsider.com/image/502aa687ecad04d93400000b/image.jpg”
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[slide
permalink=”but-before-you-cheer-on-congress-people-who-just-want-to-whack-social-security-and-medicaremedicaid-spending-remember-this-19″
title=”But! Before you cheer on Congress-people who just want to whack Social Security and Medicare/Medicaid spending, remember this…”
content=””
image=”http://static.businessinsider.com/image/4fcf9db86bb3f70a3100002e/image.jpg”
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[slide
permalink=”our-economy-has-become-highly-dependent-on-these-social-programs-they-now-amount-to-a-record-16-of-gdp-if-we-suddenly-slashed-them-especially-while-raising-taxes-we-would-give-the-economy-a-heart-attack-20″
title=”Our economy has become highly dependent on these social programs. They now amount to a record 16% of GDP. If we suddenly slashed them, especially while raising taxes, we would give the economy a heart attack.”
content=””
image=”http://static.businessinsider.com/image/4fe346f5ecad040172000011/image.jpg”
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[slide
permalink=”so-we-need-to-fix-our-social-programs-gradually-calmly-not-in-a-fit-of-panic-that-will-throw-us-into-a-depression-21″
title=”So we need to fix our social programs gradually, calmly–not in a fit of panic that will throw us into a Depression.”
content=””
image=”http://static.businessinsider.com/image/4e33181469bedd9e6d000036/image.jpg”
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[slide
permalink=”it-took-us-30-years-to-get-into-this-mess-debt–red-gdp–blue-it-will-probably-take-us-30-years-to-get-out-22″
title=”It took us 30 years to get into this mess. (Debt = red, GDP = blue). It will probably take us 30 years to get out.”
content=””
image=”http://static.businessinsider.com/image/4fe303ff6bb3f7cd1e000011/image.jpg”
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[slide
permalink=”this-is-why-most-americans-want-to-avoid-the-fiscal-cliff-the-sharp-cuts-in-spending-and-increases-in-taxes-that-will-tackle-the-deficit-problem-in-one-go-and-hit-the-economy-in-the-process-the-smarter-plan-is-a-compromise-an-alternative-fiscal-scenario-23″
title=”This is why most Americans want to avoid the “Fiscal Cliff”–the sharp cuts in spending and increases in taxes that will tackle the deficit problem in one go (and hit the economy in the process). The smarter plan is a compromise–an “alternative fiscal scenario.””
content=””
image=”http://static.businessinsider.com/image/50dd90c86bb3f71010000002/image.jpg”
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[slide
permalink=”so-now-you-know-the-truth-about-our-government-but-there-are-other-things-you-should-read-about-too-24″
title=”So now you know the truth about our government. But there are other things you should read about, too…”
content=”DEAR AMERICA: You Should Be Mad As Hell About This…
image=”http://static.businessinsider.com/image/4e56824069bedd217300002a/image.jpg”
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[/slideshow]