Government Spending

Q for Those in Favor of "Balanced Approach" of Spending Cuts and Tax Hikes: How Many Times Has Real Spending Declined Since 1980?

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All the signs are pointing toward some sort of late-minute, ill-conceived deal to avoid the "fiscal cliff" at year's end.

This fiscal cliff is that dreaded Witching Hour come midnight on Jan. 1, 2013 at which the Bush tax rates expire (meaning a reversion to higher rates in place under Bill Clinton), Obama's payroll tax "holiday" ends, the debt ceiling might need upping (again), and "sequestration" kicks in, thereby cutting $110 billion in 2013's estimated spending tab (currently assumed to be about $3.8 trillion). The fiscal cliff, we're told, will be ruinous because our economy - not yet recovered from the recession that ended some time in 2009 - will not be able to withstand higher taxes on low- and middle-income earners (you know who you are) at the same time that the federal government will be forced into draconian "austerity" (also known as nearly 3 percent of anticipated federal spending for 2013).

Yet in the name of "fiscal responsibility," says the president who has overseen four consecutive years of trillion-dollar-plus deficits and a majority of adults, we should raise taxes on the wealthiest 2 percent of Americans because they alone don't respond to basic economic incentives (why should they - they've got money to burn). And yes, let us be clear that we will also work to cut spending sometime down the road when we can afford to, after we have even more debt than we do today.

Because lord knows that no other countries have ever addressed debt-to-GDP issues by actually cutting spending in the here and now. Except maybe for, well, the United States itself after World War II and the New Deal, and Canada in the long-ago 1990s. And some other places, all of which not only reduced expenditures but saw powerful economic growth as a result.  

Republican legislators such House Speaker John Boehner (Ohio) has already nudge-nudge-wink-winked and Sens. Lindsey Graham (S.C.), John McCain (Az.), and Saxby Chambliss (Ga.) are now signaling that, like President Obama, they are willing to adopt a "balanced approach" to fiscal responsibility. That means that more and more of them are willing to talk about hiking government revenues in the short term for promises of cutting government expenditures in the long run.

Here's a quick question for the folks earnestly in favor of such a trade-off: How many times between 1980 (when Ronald Reagan was elected) and 2011 (last year for which full data are in) have inflation-adjusted, year-over-year government expenditures declined? That strikes me as a decent indicator of just how serious the federal government can be about restraining spending in recent years. The answer, using constant 2005 dollars and relying on Office of Management and Budget (OMB) tables (see table 1.3)? Four times, in 1987, 1993, 2007, and 2010. At least two of those four years warrant asterisks, too: In 2007, spending was almost exactly flat, and the decline in 2010 mostly had to do with the inability of the federal government to get its shit together and pass a budget.

So why exactly would anyone expect Congress to really cut spending down the road if it has shown essentially no ability to rein in spending in the near term? This is like a variation on the old joke about losing money on every unit sold but making it up in volume. Except it's not like that at all. Or funny.