The U.S. Treasury Department announced on Thursday that the federal government’s deficit for the first nine months of its 2012 fiscal year exceeded $900 billion and that the country is on target for another $1 trillion annual deficit for the fourth year in a row. And this was despite the fact that revenues for the same period actually increased by five percent.
In simple terms, government is growing more quickly than the economy can generate the revenues to feed it. And if the status remains quo, the economy will continue to stagnate. At present it is informally in recession, there is gridlock in Congress, elections are four months away, and Taxmageddon — the “fiscal cliff” — awaits taxpayers on January 1. All of this is sufficient to cause even the hardy to tremble.
What the president and a compliant Congress have managed to do over the last four years is to increase government spending, compared with what the economy generates — the gross domestic product, or GDP — to the highest level since WWII. James Glassman’s study of deficit spending under the last five presidents shows that President Obama’s ratio of deficit to GDP is 8.9 percent, compared to George Bush senior’s 4.2 percent, Ronald Reagan’s 4.2 percent, George Bush junior’s 2.7 percent, and Bill Clinton’s 0.5 percent. Putting that into perspective, Obama’s deficits are running between two and fifteen times greater than his predecessors, with no end in sight.
In fact, if the economy’s output declines as many economists are predicting, revenues will fall, resulting in even higher deficits. And yet there are voices of reason to be heard in the land. Anthony Gregory, a research editor at the Independent Institute, is persuaded that it’s not too late to turn things around. Current calls to tax the rich — the one percent — are exactly the opposite of what is needed, he says. In fact, he points out that even if all the income — a 100-percent income tax rate — were applied to the one-million-plus households currently in that top one percent, it would generate scarcely $1.3 trillion, slightly more than this year’s expected deficit. And that top one percent already pays 40 percent of the federal income tax!
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Photo: US Treasury Department building in Washington, D.C. via Shutterstock