The Deficit and National Debt

What is the deficit?

The deficit is the fiscal year difference between what the United States Government takes in from taxes and other revenues, called receipts, and the amount of money the Government spends, called outlays. The items included in the deficit are considered either on-budget or off-budget.

What is the national debt?

The national debt are the accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the Government operating. Money is borrowed by selling securities such as Treasury bills, notes, bonds and savings bonds to the public.

Source: U.S. Treasury Website

Historical Debt Outstanding – Annual 2000 – 2014

National Debt by Fiscal YearSource: U.S. Treasury Website

 

Congressional Business Office Reports

“The Budget and Economic Outlook: 2015 to 2025”

Congressional Budget Office, January 26,2015

The federal budget deficit, which has fallen sharply during the past few years, is projected to hold steady relative to the size of the economy through 2018. Beyond that point, however, the gap between spending and revenues is projected to grow, further increasing federal debt relative to the size of the economy—which is already historically high.”

Read more at: “The Budget and Economic Outlook: 2015 to 2025”

“The Budget and Economic Outlook: 2014 to 2024”

Congressional Budget Office, February 4, 2014

“The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. CBO estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009. At that level, this year’s deficit would equal 3.0 percent of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years.”

Read more at “The Budget and Economic Outlook: 2014 to 2024”

“The Budget and Economic Outlook: Fiscal Years 2013 to 2023”

Congressional Budget Office, February 5, 2013

“Economic growth will remain slow this year, CBO anticipates, as gradual improvement in many of the forces that drive the economy is offset by the effects of budgetary changes that are scheduled to occur under current law. After this year, economic growth will speed up, CBO projects, causing the unemployment rate to decline and inflation and interest rates to eventually rise from their current low levels. Nevertheless, the unemployment rate is expected to remain above 7½ percent through next year; if that happens, 2014 will be the sixth consecutive year with unemployment exceeding 7½ percent of the labor force—the longest such period in the past 70 years.”

Read more at “The Budget and Economic Outlook: Fiscal Years 2013 to 2023”

“Changes in CBO’s Baseline Projections Since January 2001”

Congressional Budget Office, June 7, 2012

“In January 2001, CBO’s baseline projections showed a cumulative surplus of $5.6 trillion for the 2002–2011 period. The actual results have differed from those projections because of subsequent policy changes, economic developments that differed from CBO’s forecast, and other factors. As a result, the federal government ran deficits from 2002 through 2011. The cumulative deficit over the 10-year period amounted to $6.1 trillion—a swing of $11.7 trillion from the January 2001 projections.”

Read more at “Changes in CBO’s Baseline Projections Since January 2001”

 

Offshore Tax Havens

The Hidden Cost of Offshore Tax Havens | U.S. PIRG Education Fund

Read more at: The Hidden Cost of Offshore Tax Havens

Top Corporate Tax Dodgers
…a group of 80 CEOs are lecturing Congress about the need to cut Social Security,
Medicare, and Medicaid, while lowering tax rates for millionaires, billionaires, and the largest corporations in America.These are some of the same CEOs who head corporations that:
  • received a total taxpayer bailout of more than $2.5 trillion from the Federal Reserve and the Treasury Department and nearly caused the economy to collapse just four years ago;
  • outsourced hundreds of thousands of American jobs to China and other low wage countries, forcing their workers to receive unemployment insurance and other federal benefits;
  • avoided at least $34.5 billion in taxes by setting up more than 600 subsidiaries in the Cayman Islands, Bermuda, and other offshore tax havens since 2008; and
  • a dozen of these companies paid no corporate income taxes in at least one year since 2008, while receiving more than $6.4 billion in tax refunds from the IRS, after making billions in profits.

Starve the Beast

A political strategy employed by American conservatives in order to limit government spending by cutting taxes in order to deprive the government of revenue in a deliberate effort to force the federal government to reduce spending.

Source: Wikipedia

“…what has been called the “starve the beast” theory: the theory, that is, that depriving the government of revenues will restrain spending. That idea was associated with the libertarian economist Milton Friedman, who argued that spending amounted to the sum of available revenues and the maximum politically acceptable deficit. That equation made controlling revenue seem to be the key to controlling spending.”

“The last few decades have not been kind to the theory. Taxes have fallen without much in the way of spending restraint.”

Ramesh Ponnuru is a senior editor at National Review, columnist for Bloomberg View, and visiting fellow at the American Enterprise Institute.

Read more at Starve the Beast…

The New Republican Tax Policy

By Bruce Bartlett – New York Times

 “…traced the origins of Republican starve-the-beast theory to testimony by Alan Greenspan before the Senate Finance Committee on July 14, 1978 – just weeks after the passage of Proposition 13 on June 6. In explaining why he supported the Kemp-Roth tax bill, which proposed an across-the-board tax rate reduction of 30 percent, while also supporting deficit reduction, Mr. Greenspan said:

Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenues available and trust that there is a political limit to deficit spending.

“In short, we have tested starve-the-beast theory in the laboratory, and it has failed miserably”

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Read more at The New Republican Tax Policy

Tax Cuts And ‘Starving The Beast’

By Bruce Bartlett – 05/07/2010; Forbes

“On Aug. 7, 1978, economist Milton Friedman added his powerful voice to the discussion. Writing in Newsweek magazine, he said, “the only effective way to restrain government spending is by limiting government’s explicit tax revenue–just as a limited income is the only effective restraint on any individual’s or family’s spending.”

“Unfortunately there is no evidence that the big 1981 tax cut enacted by Reagan did anything whatsoever to restrain spending. Federal outlays rose from 21.7% of GDP in 1980 to 23.5% in 1983, before falling back to 21.3% of GDP by the time he left office.

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Read more at – Tax Cuts And ‘Starving The Beast

 

The ‘Laffer Curve’

Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve:

 

Laffer Curve

The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.

Governments would like to be at point T*, because it is the point at which the government collects maximum amount of tax revenue while people continue to work hard.

Source: Investopedia

Dynamic Scoring

A method which scores budgets under the assumption that tax cuts generate economic growth and make up for lost revenue.

A Short Guide to Dynamic Scoring

Center on Budget and Policy Priorities, August 24, 2006

“The Congressional Budget Office, the Joint Committee on Taxation (JCT), and academic researchers have all have found that tax cuts that are not accompanied by offsetting revenue increases or spending reductions — and are financed by borrowing instead — can harm the economy over the long term.  … also indicates that even if tax cuts are paid for, the economic benefits generally are relatively modest, with any increased revenues that result from stronger economic growth offsetting only a small fraction of what conventional cost estimates indicate the tax cuts will cost.”

Read more at A Short Guide to Dynamic Scoring

 

The Best Case Against Dynamic Scoring? These Guys

“The argument from some Republican lawmakers and activists is that if the CBO (along with its counterpart, the Joint Committee on Taxation) would incorporate how bills affect gross domestic product and employment in their cost estimates, then tax cuts would pay for themselves. To conservatives, that’s the key to “reality-based scoring”; to liberals, it’s a recipe for shenanigans.”

Read more at The Best Case Against Dynamic Scoring? These Guys

 

InfoGraph: Debt Outstanding

debt_chart_wh2Source: White House

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