With only a couple of days left in the year, it seems more likely than ever that the U.S. will go over the Fiscal Cliff.Specifically, taxes will rise for all Americans, and spending will get sharply cut.
If the new laws aren’t modified with a deal early next year, the economy could then tip back into recession.
So, who should be blamed for this ridiculous state of affairs?
With most government dysfunction, both parties are to blame. In this case, however, only one of them is: The Republicans.
The Democrats have offered a compromise that includes both raising taxes and trimming spending growth.
The Republicans, meanwhile, refuse to sign any deal that includes taxes on the richest Americans going up.
This absurdly stubborn and impractical stance will hurt the entire country. And it’s based on a flawed premise: That the U.S. budget problem is just a spending problem.
As the chart below shows, the U.S. budget problem is not just a spending problem. It’s a spending problem and a tax problem.
Specifically, spending is too high and taxes are too low.
The chart shows U.S. federal spending (red) and tax revenue (blue) as a per cent of the economy for the last 60 years:
[credit provider=”Business Insider, St. Louis Fed”]
As you can see, spending is now running at 24% of GDP, which is very high relative to the ~22% average of the past few decades.
Tax revenue, meanwhile, is running at only 17% of GDP, which is low relative to the ~19% average of the past few decades.
A reasonable person cannot look at that chart and conclude that the problem is just spending. The problem is both spending and low taxes. So saying the problem is “just spending” is putting ideology ahead of reality–at the country’s expense.
The other problem we have right now is that economic growth is too slow to allow us to rapidly grow our way out of the problem. (See Joe Weisenthal’s charts about this). Suddenly slamming on the brakes to fix the deficit will make this part of the problem worse, not better. So the idea that we simply must cut spending right now is also based on ideology, not reality.
When 320 million people are trying to reconcile different priorities and philosophies, the only way to move forward is to compromise.
But the Republicans don’t care about that. And they don’t care about the country. It’s their way or nothing.
So if you’re looking for someone to blame for the government’s failure to reach a deal on the Cliff, look no further. You’ve found the problem.