Diary

The really unpleasant truth about the deficit

So with a little research courtesy of the CBO prompted by a front-page article, I am now truly astonished.

Everybody knows that the deficit is about $1.4 trillion. But did you know that total federal spending was only $3.5 trillion? Which means that we as a federal government borrowed or invented nearly 40% of the money we spent last year.

If you earn $2100 after taxes every month and you spend $3500 and charge the difference on your credit cards, you have a heck of a problem really, really soon. Even if your credit cards have wonderful interest rates. And they won’t have those great rates for long, because your creditors will notice.

But wait – it gets better. For all those “fiscally responsible” Democrats (and not a few Republicans) who think we should tax our way out of this, you have the grim specter that you would have to more than double both individual and corporate income tax receipts in order to balance this budget. Every single person, and every single corporation, would have to pay twice as much money as they do right now. How many of us can even imagine what that would do to the economy as a whole?

And it’s the economy that matters, because it’s the economy that produces this problem. Even as federal spending rose massively last year, tax receipts dropped almost 17%. Corporate income taxes dropped more than 50%, and the Obama administration’s hostility to business makes one wonder if they noticed that business is hurting badly. Personal income taxes dropped more than 20%, and given that personal income taxes are the largest single segment of tracked revenue, this one hurts more than the corporate loss. And with record-setting unemployment projected (with a palpable sense of “who cares?”) by the Obama administration to continue at 10% stated (and more than 20% actual), this number isn’t moving any time soon.

New taxes to try to accomplish a $1.4 trillion revenue increase (that’s a 40% increase in total revenues, for those of you keeping track at home) would have the actual effect of destroying anything they touched. It’s simply too large of a load to place on an economy barely getting by, and trying to carry it would worsen the deficit and contract the economy further.

Spending cuts would be a lot more useful. Spinning off, privatizing, or shutting down large sections of wasteful and often counterproductive government bureaucracy would be a great thing. Simply stopping the madness with things like TARP and the “stimulus” would seem to make sense.

Which makes the current items of controversy – increasing tax rates through cap-and-trade and massively increasing spending through health insurance reform – seem utterly insane. Par for the current course, but insane.

Or is it just me?