Pulitzer Prize-winning tax beat reporter David Cay Johnston thinks that those who think that the government is spending too much have it wrong. The problem is that we aren’t paying enough taxes:
There is a simple, factual way to describe what is happening to our government: We have a revenue problem.
Maybe not. Yes, revenues have plunged in the recession — as you would expect from a system where taxes are collected overwhelmingly from corporations and a narrow base of high-income individuals — the ones with the most volatile taxable incomes. But this chart (charts courtesy Reason.com) shows that a revenue drop has been, oddly, accompanied by a spending binge:
It’s as if, when one member of a two-earner couple loses a job, the couple responds by taking a cruise.
The idea that the federal budget would be fine if we would just do a better job of collecting taxes looks even worse if you look ahead a few years:
The projected spending on medicare and social security will swamp any attempt to solve the problems by tax increases alone. But Mr. Johnston seems to think we have no choice:
Mitchell’s tax ideas are great if you want a government with no money to track al-Qaida’s money or under which our food-borne illness rate (now 21 times that of France) would make death by salmonella rank with cancer and heart disease in the mortality statistics. In Mitchell’s ideal America, we would not have a cent for scientific research, a foundation of wealth creation in the future, as the governments of China, India, Korea, and most of the rest of the civilized world understand.
Actually, around 60 percent of federal spending consists of payments to individuals — taxing some of us to write checks to everyone else. That doesn’t kill many salmonella bugs. Even if you think federal efforts are all that keeps food companies from killing all of their customers, there’s a lot of room to cut spending before you fire the food inspectors. Ethanol subsidies and farm payments alone amount to $20 – $40 billion in annual transfers to mostly-prosperous folks.
When a couple comes in for credit counseling, of course they need to think of ways to raise new revenue — but they’re doomed if they don’t control their spending. The government is no different.
UPDATE, 6/26/2011: Links to Junior Deputy Accountant’s posts mentioned in the comments:
Part 1
Part 2
Tags: David Cay Johnston, federal tax policy, Reason.com, tax.com
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
“It’s as if, when one member of a two-earner couple loses a job, the couple responds by taking a cruise.”
Not quite, it is more like one member of a ‘two-earner couple’ loses a job, the couple responds by spending money on an college education. It is an investment rather than just blind spending (arguments can be made whether the money was targeted properly, of course). It is not like the stimulus money just disappeared into the ether. It is put in the economy; it is what they call investment. For some reason the right sees investment as ‘wastful spending’.
First: Outstanding post, Joe! Clear-headed, great job of making it real and personal.
Second: Jason, your analogy falls flat for any number of reasons. Let’s explore a few:
A college education is, in fact, an expense. Wheteher or not there’s a benefit derived from it deoends, of course, on whether one completes the required courses (and, of course, passes on extra-curricular activities like those at Northwestern).
The so-called “stimulus” was likewise an expense; whether or not there were benefits derived from it can be seen in the U-16 (hint: that’s why it was wasteful).
The reality is that we’re spending money we don’t have, burdening our children (and their children) for very little real-time “benefit.”
Maybe I should have said they “invested” in a cruise.
A true “investment” buys an asset that at least holds its value and, one hopes, returns a profit. Most of the stimulus went out in salaries and payments to states, creating no income-producing assets. They were no more an investment in the way the term is normally used (outside of politics) than my fictional couple’s cruise, and much less fun.
If I am wrong, then it’s fair to ask you to identify the assets created and measure the return on investment.
So why the negative focus on farm subsidies and ethanol subsidies only?
How do you feel about the subsidies to the oil industry in the US? Any stats on that in your files?
At least the ethanol lessons our dependence on the middle east.
I’m against subsidies in any form.
The oil industry pays more in taxes (see http://tax.com/taxcom/taxblog.nsf/Permalink/MSUN-8DVR7U?OpenDocument) than it gets in subsidies. The oil business would exist without subsidies — oil industry-specific breaks are an insignificant part of that industry’s economics.
Without subsidies and protective tariffs, it’s hard to imagine a workable business model for corn ethanol.
I cite farm subsidies as just an obvious example of a do-able spending cut. There are plenty of others.
Oh ye of little faith, Joe. You don’t think an $89 million Health and Human Services building is an “investment”?
[Shameless self promotion] In early 2009, I sat down and listed the “investments” in ARRA and had to break it into two posts as there were too many to put into one.
See part 1 and part 2. (hopefully that html works)
Obviously I am not about to clutter up your comment section with a bazillion “investments” but here are a few good ones:
$1,000,000,000 for the 2010 Census.
$575,000,000 for NIST to do… some vague BS which is never really stated.
$218,000,000 MORE for NIST to do… whatever the f*** it wants.
$357,000,000 MORE for NIST, this time to renovate its facilities.
$9,048,000,000 for the Federal Buildings Fund including courthouses and Border Patrol stations.
$890,000,000 to limit the administrative costs of Social Security
$98,527,000 for the Comprehensive National Cybersecurity Initiative to prevent cyber crime
… need I continue? Think not, point made.
Unfortunately for the American taxpayer, there was no investment prospectus available nor was there any choice when it comes to where our money was “invested” (invested being a funny word since we had to borrow the money to invest in the first place and will likely default before it is ever paid back).
Oh, and great post