Monday, February 11, 2013

Obama Says we Don't have a Spending Problem

All the conservative news outlets and the blogs have picked up on an alleged comment made by Obama to Boehner during their debt negotiations.  Boehner reports that Obama told him that America does not have a spending problem.  This claim has considerable traction because an overwhelming number of Americans believe government has a spending problem as reported in a December 2012 Fox News Poll.

Giving Obama the benefit of the doubt, I thought I would check out the facts.  The following graph shows revenues verses spending of the federal government. 

It’s what we expected to see spending and revenues lost control at the end of the GW Bush administration, which ushered in the great recession.  It is interesting to note the spending did NOT increase during Obama’s first term – a fact that is often overlooked during the political battling.

However, the issue is what has spending and revenues done in reference to the GDP. 

While revenue will surpass its historical average of 18.1 percent of GDP by 2018, spending remains above its historical average of 20.2 percent, reaching 22.1 percent by 2022, even after $2.1 trillion in spending cuts in the Budget Control Act.

The problem is NOT that Congress has increased spending during Obama administration; the problem is Congress that not provided for revenues to cover the spending it has ALREADY committed.  It is reasonable to argue then that we don’t have a spending problem we have a revenue problem.  Congress doesn’t want to pay the bill for programs it has been placing on lay-away.  It is reasonable for Obama to say “You wanted it. Now it’s time to pay for it.”  But, that doesn’t sit well with Americans or Congress.  They are so used to putting everything on the “charge card” or expecting someone else to pay the bill.  If we are unwilling to pay, then we must cut and cut deep.

The heart of the spending problem can be seen on the next graph 

The problem is the Patient Protection and Affordable Care Act was supposed to work toward a way to cap the runaway entitlement costs.  It didn’t and the fiscal disaster is imminent.

The obvious question is what happens if we let the Bush tax cuts of 2001 and 2003 expires.  Would that solve the problem?  The following graph tells the sad tale. NO, it won’t.

Obama is wrong. We have a spending problem.  Yes, Congress put in these entitlement programs and has not planned to pay for them. Technically, he might irresponsibly argue that it’s a revenue problem, but mealy mouth words and that’s ducking his job.  Then on top it all, we have all the unfunded government pension plans both at State and Federal levels.  That too is about to explode on top of these entitlements.

So what's the solution if even returning to pre-Bush tax collections can't solve the problem? If we don't have a spending problem then it must be a revenue problem.  All the politicians say we aren't going to increase RATES, we are going to increase THE BASE.  The is just a euphemism in the average American's ear that is equivalent to SOMEBODY ELSE pays.  That suggests a tax burden greater than anything in recent American history.

In order to put it all into perspective, consider our position relative to the financial problems other notable European countries are facing. In Greece the tax burden has become so high that they can't collect it.  In other European countries their economies are facing a third dip in the great recession. 

A Government Accountability Office report concluded that spending is "on an unsustainable long-term fiscal path" and blamed entitlements. Countless Congressional Budget Office reports have documented how, left unchecked, federal entitlement programs will soon swamp the entire budget.
Apparently Obama didn't read any of those. says, "When it comes to federal spending, Obama is like the alcoholic who says that the only drinking problem he has is when he can't get a drink."

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