Government Spending

The 7 Percent Solution or, Debt By 1,000 Non-Cuts

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Writing in Politico, former Clinton hand and Center for American Progress (CAP) head John Podesta throws down this challenge to those crazy-eyed dreamers who think that bringing federal budgets into the black might include semi-serious spending cuts:

Even making the Herculean assumption that all the deficit reduction measures included in the president's most recent budget plan are adopted by Congress, the gap between primary spending and revenue in 2015 is projected to be $255 billion. To put that into perspective, President George W. Bush's 2005 Deficit Reduction Act included deficit reductions of $100 billion over a decade. We need to achieve two and half times as much as that bill did – but in one year, instead of 10.

And just why are persistent, gigantic deficits a problem? (And note that OMB's deficit projection for 2015 is about $400 billion).

As recently as 2000, during President Bill Clinton's last year in office, the Congressional Budget Office predicted budget surpluses as far as the eye could see. But the Bush administration's deep tax cuts, unfunded spending and mismanagement of the economy left us with long-term deficits stretching far into the future. They pose a real risk to future growth and economic stability.

Got it. But what would $255 billion in cuts look like? And remember, these are the ones the CAP folks picked. Here we go:

The suggested cuts come out to $95 billion from the Pentagon, $35 billion from mandatory programs, $50 billion from mandatory spending administered through the tax code and $75 billion from non-defense discretionary programs—all in one year. Cuts this severe – even if they are the ones we ourselves have chosen – would eviscerate the foundation for future growth and do lasting harm to the health of the American middle class….

The reality is that there simply isn't that much low-hanging fruit left. Contrary to conventional wisdom, most of what the federal government does is necessary, beneficial and, yes, popular.

Podesta's whole thing, including a link to the CAP report, here.

His main point is that it's sheer folly to suggest that we get a balanced budget in 2015 by cutting spending rather than some cuts in spending and a bunch of increases in revenue. Podesta doesn't mention what the estimated outlays are for 2015, but they appear to be about $4.4 trillion. The CAP report also doesn't give a 2015 budget number (though its estimate must be lower than $4.4 trillion), but notes that a 7 percent reduction in outlays would do the trick of balancing the budget, while stating how draconian such a reduction would be to all that is good and decent in the world.

In terms of low-hanging revenue fruit, Podesta trots out $83 billion in year that would be gained by letting the "Bush tax cuts" expire on high-income Americans. The more bounced-around number is $70 billion a year on average over the next decade. Whichever figure you use, you gotta wonder why somebody looking to squeeze more revenue out of the country would leave the vast majority of dollars sitting in the pocketbooks of citizens. CBO estimates letting all the Bush tax rates expire at year's end would generate $390 billion a year; looking at those below $200,000 for individuals and $250,000 for households nets $320 billion a year. 

But whatever. Here's a couple of other things to consider:

1. Does Podesta seriously believe that cutting $255 billion from the budget in 2015 would do "lasting harm to the health of the American middle class?" And if so, can I have some of whatever he's smoking? Podesta is right to be proud of Bill Clinton's record as a deficit hawk. Clinton balanced the budget by slowing down spending to historic lows and goosing revenue up. When Clinton left office, however, his last budget spent about $1.9 trillion in total. Is Podesta really going to go to the mat to say that all off the massive, 100+ percent increases in total outlays under eight years of George W. Bush are so necessary that to trim that at all five years from now would crush the middle class?

2. Since World War II, average federal revenue has held pretty steady around 18 percent of GDP. Doesn't really matter who was president and whether they jacked taxes or cut taxes. There are times when revenue is a bit better—Roosevelt, Truman, Johnson, even Reagan, and Clinton all topped that (Slick Willie even strayed into 20 percent range)—but that never holds up over time. So banking on raising revenue above that is the real pipe dream.

3. Here's some quick stuff that gets us almost to CAP's $255 billion figure without eviscerating much of anything. According to Pro Publica, there's $69 billion in unspent stimulus funds and $65 billion in stimulus tax cuts remaining (let's forget about the $144 billion in "process" but not yet flushed down the toilet paving gravel roads). And according to Jon Chait of The New Republic, there's $78 billion in unspent TARP funds and a 10 percent pay freeze on federal workers would net about $26 billion. Do all that and you get to $238 billion. Park that in a CD somewhere and you'll be well past the $255 billion mark come 2015.

Hat tip: Reason columnist and Mercatus Center economist Veronique de Rugy, who pointed out Podesta's implied defense of Bush's spending binge and whose take on austerity is here.

NEXT: Way Too Easy

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  1. The Jacket’s cat has a tinfoil hat! How ’bout that!

    1. I would definitely do it’s evil bidding.

  2. Only the welfare class would be hurt, and then only marginally, by such a cut in the projected rate of increase in leviathan’s expenditures.

    1. Whatever they say about you, at least you’re not prejudiced against hatless people.

  3. Isn’t the seven-percent solution a reference to Sherlock Holmes preferred cocaine recipe?

    1. You mean Sir Arthur Conan Doyle’s preferred recipe?

      1. One and the same, I’m sure.

  4. Even making the Herculean assumption that all the deficit reduction measures included in the president’s most recent budget plan are adopted by Congress, the gap between primary spending and revenue in 2015 is projected to be $255 billion.

    Which merely shows how bad the situation is, and how pathetic the President’s plan is.

    Does Podesta seriously believe that cutting $255 billion from the budget in 2015 would do “lasting harm to the health of the American middle class?”

    Utter horseshit. The budget would balance next year if spending were cut all the way back to what it was in, I believe, 2005. You remember 2005, right? Not exactly a howling radioactive wasteland, was it?

    1. T-shirt: I Survived 2005.

  5. It’s a kitty! Wearing a helmet! Squeeeeeeee!!!1

    1. The sad thing is that I can’t tell if you’re joking.

      1. Good. I’ll retain my aura of mystery, you ugly fiend.

    2. I think you left out “Pew!Pew!Pew!” to make the meme complete.

  6. …and we could save at least another $100 billion by cancelling Obama’s security detail for his secret Hajj.

    What? Too soon?

    1. I have no reasonable doubt that Obama is a nominal Christian (nominal only in the sense that he may not take it seriously, not that he’s a Muslim) and an American citizen, but man, oh, man, would it be great if those crazy theories were true. We need a scandal of Biblical proportions right about now.

      1. A scandal would be SO wonderful; entertainment, and it would bring DC to a screeching halt (in terms of fucking us all more).

        1. Just think, in some alternative universe, we’re commenting on a thread about the breaking news that Obama is not only a secret, alien Muslim but that he’s actually Osama bin Laden in disguise. Damn I envy us!

          You have a beard in that universe, and Sulu isn’t gay. That and the scandals aside, everything else is exactly the same.

          1. Is it a neckbeard? Please let it be a neckbeard! No, even better, an Amish beard to go with a sideways mohawk. Right?

            1. How would I know? Asymmetrical? Ask Episiarch.

          2. Amiga won the PC wars in that world. Also ray casting is light years ahead of rasterization due to discoveries in algebraic geometry.

            Most importantly the human penis is spongier meaning you can fuck yourself in the butt without it hurting until you actually get it in.

        2. I hope one of the ugly white women he’s fucking sells the story to the National Enquirer. You know they exist.

          1. I vote more fat than ugly. That seems to be the way presidents run.

        3. Adam Corolla, is that you?

      2. a scandal of Biblical proportions

        Obama & Rev. Wright & Pat Robertson in a menage-a-trois?

        [BTW: Does anyone know what they did in Gomorrah?]

        1. They were all Gomos.

          I endorse that scandal. Hope it comes true!

        2. They answered their cell phones on the crapper. Thus, God took cell phones away from humanity for millennia.

          1. Don’t be silly. They didn’t have cellphones in Gomorrah. They had those big walkie-talkie phones.

        3. BTW: Does anyone know what they did in Gomorrah?

          Or why Admah, Zeboim, and Bela (aka Zoar) were destroyed along with Sodom and Gomorrah.

          1. Errr, Bela (Zoar) was spared.

            1. You mean, Pre-eminent Domain?

  7. “As recently as 2000, during President Bill Clinton’s last year in office, the Congressional Budget Office predicted budget surpluses as far as the eye could see.”

    Yeah, John, because your idiot lapdogs in the media were projecting stock market increases and a 2% U3 as far as the eye could see.

    You’d think this Einstein figured out for the first time that “projections” and “reality” don’t always square up.

    1. I should add that Podesta, and the CBO, are likely making projections based on what the administration is predicting will be the unemployment rate by that time. I’m sure we’ve all seen the chart that shows how poor their track record is there.

      Let’s just say you wouldn’t want someone from the Obama administration making a bet for you in Vegas.

  8. Since World War II, average federal revenue has held pretty steady around 18 percent of GDP. Doesn’t really matter who was president and whether they jacked taxes or cut taxes. There are times when revenue is a bit better – Roosevelt, Truman, Johnson, even Reagan, and Clinton all topped that (Slick Willie even strayed into 20 percent range) – but that never holds up over time. So banking on raising revenue above that is the real pipe dream.

    The other side of that coin is that (raising taxes/letting tax cuts expire/acting in such a way that tax rates are higher from one moment to the next/floobergalling) doesn’t appear to hurt the economy much (if it did, the ratio would go up as GDP shrank).

  9. I see that list as a starting point for what to cut. If someone came out and said, I will make all of the cuts on this list, you have my vote. If you do it, I’ll vote for your reelection.

    Here’s some quick stuff that gets us almost to CAP’s $255 billion figure without eviscerating much of anything. According to Pro Publica, there’s $69 billion in unspent stimulus funds and $65 billion in stimulus tax cuts remaining (let’s forget about the $144 billion in “process” but not yet flushed down the toilet paving gravel roads). And according to Jon Chait of The New Republic, there’s $78 billion in unspent TARP funds and a 10 percent pay freeze on federal workers would net about $26 billion.

    The problem with the $69 billion in unspent stimulus funds, $65 billion in stimulus tax cuts and the $78 billion in unspent TARP funds is that they’re one shot deals. By all means cut them, but they don’t effect the structural deficit. Killing these thing is like telling someone with $4,000 in monthly income with $4,200 in monthly expenses to not buy a new laptop. That’s sound advice, but you need to do something about the monthly deficit that’s going to bury them.

  10. One thought on the 18% figure: this looks at federal revenue only, and fails to note that state and local tax revenue have been steadily rising over the same period. One wonders whether the feds could have breached the 18% (or 20%) barrier in days of yore since the state and local burden was so much lower.

    Or to ask another question: if, for whatever reason, the federal govt. has an effective revenue limit of 18% GDP, why do state and local governments not seem to have such a limit? Or have they just not reached it yet? If they haven’t yet reached it, how high do we think their revenue can go?

    In 1950 local revenue was 4% GDP; in 2010 it’s about 7.5% GDP.

    In 1950 state revenue was 4% GDP; throughout the 2000s it hovered around 10% GDP before falling to 8% GDP in 2010 (presumably due to the economic downturn).

    So while federal revenue has remained relatively constant in the 15-20% GDP range, state and local have both doubled over the last 60 years. This site is handy for looking at the trends:

    http://www.usgovernmentrevenue.com/charts

  11. Podesta is right to be proud of Bill Clinton’s record as a deficit hawk. Clinton balanced the budget by slowing down spending to historic lows and goosing revenue up.

    WTF?!?!

    Clinton was no deficit hawk. Gridlock and the “Contract with America Republican controlled house” were the deficit hawks.

    When did Clinton ever run on reduced deficits?

    If he was a deficit hawk then why is he on the record for screaming against pay-as-you-go house rules?

    If he was a deficit hawk then why did he threaten to veto the house budget and literally shut down the federal government because it cut to much spending?

    Where is one shred of evidence that he did anything to reduce spending?

    1. Not to mention that he “goosed revenue” by happening to be president just after the Cold War ended and during the dot-com boom.

      1. Brilliant timing!

    2. The mere fact that spending ballooned quickly once Bush was president.

  12. AP Poll: Health care law making us muddle-minded

    Accurate knowledge of the law made no difference in overwhelming opposition from Republicans.

    Michael Cagnina, 33, a web developer from Powhatan, Va., summed it up: “It just doesn’t make me feel comfortable that the government is going to give people free health care but ultimately the government’s money is my money.”

    However, for Democrats and independents, the more accurate knowledge people had of the bill, the more they liked it.

    “Among Democrats and independents, the lack of knowledge is suppressing public approval of the bill,” said Stanford political science professor Jon Krosnick, who directed the university’s participation. “Although the president and others have done a great deal to educate people about what is in this bill, the process has not been particularly successful.”

    The poll shows Obama has yet to find the right wavelength for communicating even information that’s relatively straightforward. One question stood out as an example:

    People were asked whether the Congressional Budget Office had ruled that the legislation would probably increase the government’s debt, or whether the nonpartisan budget analysts found that the health law would reduce red ink. (Correct answer: CBO found it would reduce the federal deficit over time.)

    But 81 percent in the survey got the wrong answer, including a majorities of both supporters and opponents ? even though Obama seldom misses a chance to remind audiences of CBO’s favorable report.

    1. “(Correct answer: CBO found it would reduce the federal deficit over time)”

      Yeah, mainly because of the ridiculous assumptions that the CBO was fed to plunk and crank by the Democrats. Funny how history repeats itself.

  13. As recently as 2000, during President Bill Clinton’s last year in office, the Congressional Budget Office predicted budget surpluses as far as the eye could see. But the Bush administration’s deep tax cuts, unfunded spending and mismanagement of the economy left us with long-term deficits stretching far into the future.

    Uh, Bush’s tax cuts and funding a neverending war may have added a lot to the deficit later, but I seem to recall something else that happened at the end of 2000… called the bursting of the dot-com bubble. What, no mention of it, John? You know, that five-year-plus spree where investors threw dumptrucks of money at anything that had ‘world wide web’ in the business plan? And lots of those businesses pissed it away? And then most of it came crashing down? Wasn’t the continued boom the main assumption of the CBO’s rosy predictions in 2000?

    In early 2001 I did a temp assignment helping to literally dismantle a failed dot-com. I think it was an online drugstore. Real nice downtown Seattle location with a great view. Big breakroom that had been stocked with free pop and goodies for the employees. A custom ping pong table. Every chair in the place was an $800 Aeron. Sweet. Our job as $10/hour temps was to dismantle all the servers, load them onto pallets, cover them with shrinkwrap and ship ’em out of there. The party was over.

  14. But the Bush administration’s deep tax cuts, unfunded spending and mismanagement of the economy…

    Cause it’s all managed by the gov of course.

  15. What’s the story on all the dudes in bunny suits if you do a google:image on ‘podesta’?

    1. Those are business suits in the alternative universe mentioned earlier in thread.

  16. As long as GDP is computed by adding government spending to investment and consumption, then any cut in government spending is going to look like it’s going to hurt the economy.

    Moreover, stimulus spending effectively results in double counting, since it’s main goal (at least to today’s Democrats) is to increase “consumption”. Any dollar spent by the government gets counted in GDP both as government spending, and as consumer spending.

  17. How about we just close Washington. That’ll do it.

  18. A seven-per-cent solution, you say?

    This is going to be a three-pipe problem.

  19. We still have a DOA, DEA, NEH, NEA, DOE, and other agencies that, while maybe “popular”, could be completely eliminated and few people not on the payroll would notice. Podesta is a shameless liar.

  20. Contrary to conventional wisdom, most of what the federal government does is necessary, beneficial and, yes, popular.

    Don’t forget “Unconstitutional”!

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