While the press was distracted by the misnamed “fiscal cliff,” we began the New Year with a 13-figure deficit and a 14-figure national debt—the result of today’s Americans borrowing vast sums of money and putting it on future Americans’ tab. The two parties offer rather different explanations for the cause of this unsustainable transfer of wealth from the young (and the unborn) to the old, which the “fiscal cliff” deal—at least on paper—only made worse.
President Obama and the Democrats suggest that federal tax revenues have fallen, while federal spending has generally proceeded at reasonable levels. Republicans suggest that tax revenues have more or less flatlined, while spending has skyrocketed. Neither explanation is fully accurate. In truth, taxes have risen—substantially. Yet these substantial increases in federal taxation have been dwarfed by an explosion in federal spending.
According to White House, Congressional Budget Office (CBO), and U.S. Census tallies, when John F. Kennedy was in the White House in 1962, federal tax revenues were $534 per capita, or $4,178 in today’s dollars. Last year (according to those same sources), federal tax revenues were $7,793 per capita. So, from 1962 to 2012, taxes rose 87 percent even after accounting for inflation and population growth. In other words, across the past 50 years, real (inflation-adjusted) per-capita taxes have nearly doubled.
Of course, this 87 percent increase in per-capita taxation hasn’t remotely kept the federal government from racking up higher deficit spending. With JFK in the White House in 1962, the federal government spent 7 percent more than it had available to spend—$1.07 going out for every $1 coming in. With Obama in the White House, it has spent $1.56 for every $1 available.
All other things being equal, if the federal government had taken its 1962 spending levels, increased them by 68 percent to reflect the population growth from 1962 to 2012, then increased them by another 682 percent to reflect inflation over that 50-year span, and then given itself a 70 percent increase in its spending allowance on top of that, it would have spent $2.392 trillion last year—and we would have run a surplus of $57 billion. But rather than settling for a 70 percent raise on top of inflation and population growth, the federal government gave itself a 151 percent raise on top of inflation and population growth. As a result, rather than running a surplus of $57 billion in 2012, we ran a deficit of $1.089 trillion.
The chart above illustrates what has happened. Despite the recent decline in tax revenues (a result of Americans’ decline in income) during the Bush-Obama economic slump, the federal government now has 87 percent more money available to spend—per person, after adjusting for inflation—than it had during the Kennedy years. Yet while real per-capita taxation has nearly doubled over the past 50 years, real per-capita spending has come closer to tripling.
In short, we’re on the fast track toward insolvency as a nation for one simple reason: Our federal government has been spending far, far more than even our hefty tax increases have been able to cover. Yet House speaker John Boehner reports that Obama told him during their predictably fruitless “fiscal cliff” negotiations, “We don’t have a spending problem.”
Liberals generally try to mask our rising levels of federal taxation—and our far greater increases in federal spending—by reporting them in relation to the gross domestic product (GDP), rather than in relation to inflation and population growth. That way, if Americans’ taxes are doubled, but the economy doubles in size over that same span, it doesn’t count as a tax increase. The same goes for spending. The underlying assumption is that any increase in economic growth should be matched by a corresponding increase in the size and scope of government. But there’s nothing that says our government has to grow every bit as fast as our economy—especially when we’re already $16,000,000,000,000 in debt and plainly can’t afford to keep borrowing.
What are we spending such colossal sums of borrowed money on? Well, we’re clearly not spending them on defense. According to official White House and CBO tallies, from 1962 to 2012, the share of total federal spending that went to national defense fell from nearly half (49 percent) to less than a fifth (19 percent). Where, then, is all of the borrowed money going? Here’s a hint: Medicare and Medicaid—and now Obamacare—didn’t exist in 1962.
In fact, from 1962 to 2012, real per-capita defense spending actually dropped—by 1.5 percent (from $2,194 in 1962 to $2,161 in 2012). If all federal spending had followed the same trajectory as defense spending, then total federal spending in 2012 would have been $1.385 trillion, and we would have run a surplus of more than a trillion dollars—$1.064 trillion, to be exact. Unfortunately, while real per-capita defense spending fell by 1.5 percent, real per-capita federal spending aside from defense rose by a whopping 298 percent (from $2,284 in 1962 to $9,098 in 2012). Thus, instead of a $1 trillion surplus, we ran a $1 trillion deficit.
The chart below shows how much the federal government has spent, in real per-capita dollars, on defense programs and on nondefense programs—from Kennedy to Obama. Over the past 50 years, defense spending has essentially flatlined, taxation has nearly doubled, total federal spending has far more than doubled, and nondefense spending has quadrupled. In that light, only the most stubborn ideologue could blame our mind-boggling deficits on insufficient taxation or excessive defense spending.
Just days after the 40th-anniversary celebration of the Declaration of Independence, Thomas Jefferson wrote that “private fortunes are destroyed by public as well as private extravagance.” He warned that “public debt” is the “fore horse” of the “frightful team” of public mismanagement that leads to the “misery,” “suffering,” “wretchedness,” and “oppression” of private citizens. As we begin 2013, we would do well to start heeding Jefferson’s warning. The only way to escape our worsening fiscal calamity is by substantially reforming Medicare and Medicaid to make them affordable, replacing Obamacare (which will require having a 2016 Republican presidential candidate who can persuasively advance a replacement), enacting pro-growth policies, and—most simply—cutting federal spending almost across the board. A half-century during which we’ve nearly doubled our taxes and quadrupled our nondefense spending is a sufficiently lengthy experiment in gross fiscal mismanagement. It’s time for overdue leadership and meaningful reform.