Conservatives and liberals often look at the federal budget deficit and see two different things: a spending problem or a revenue problem. The chart above makes multiple points affirming that federal spending is driving the deficit, not lackluster revenues.
Compared to historical averages from 1965 to 2014, spending is rising much faster than revenues. Spending is projected to rise almost 6 percentage points higher than its historical average, whereas revenue is projected to rise only 2 percentage points above average revenue.
Furthermore, revenue is not projected to rise enough to meet the historical average from 1965 to 2039, let alone the much higher spending projected in 2039.
From 1965 to 2014, federal spending averaged 20.1 percent of GDP. Revenues never once reached that level, averaging 17.4 percent of GDP over the same time period.
Tax rates weren’t constant over that time period. Whether taxes were relatively high, as in the 1960s, or low, as in the early 2000s, revenue levels were fairly constant with some swings for economic booms and busts. From 1965 to 2014, there was only a 5.4 percent of GDP difference between maximum and minimum revenue levels. Spending was more volatile, with a 9.3 percent of GDP difference.
Now, with the economy projected to slowly recover, revenue is projected to slowly grow. However, spending is projected to grow even faster. This is contrary to the precedent seen in the 1990s, when spending fell as the economy grew.
This is partially due to mandatory spending taking up a greater portion of the federal budget. In 1990, mandatory spending was 25 percent higher than discretionary spending. In 2014, mandatory spending was more than double discretionary spending, and the ratio is only expected to rise.
“With increasing debt, we are less free,” said House Budget Chairman Tom Price, R-Ga., at the Conservative Political Action Conference on Saturday. Price went on to note that President Obama’s budget would add another $8.5 trillion in debt over the next 10 years. “The president doesn’t believe that we have a spending problem, doesn’t believe we have a debt problem,” Price would later tell the Washington Examiner.
Getting the budget to balance is not simply a question of getting more revenue. The tax system should be designed to improve the economy, through simplification and rate cuts. Fiscal policy alone does not determine economic growth, but it can be a powerful tool. Other policy changes, especially regulation, deserve a dynamic scoring analysis that measures a change’s effect on the economy and tax revenue.
