Tag archives: Federal budget

What an Overview of the President’s Budget can Tell Us about our Country

by Henry Potrykus

April 10, 2013

The chart above gives the change in federal outlays (spending) and receipts (taxation in normal times) in constant dollars. The use of constant (i.e. not-inflated) dollars allows us to compare these fiscal changes to realGDP growth.

GDP growth gives the overall baseline for where we are going economically - including, relative to the overall economy, where we are going fiscally. GDP growth gives an absolute marker for the above trends: Grow outlays faster than GDP growth and you are guaranteeing to the outlays’ recipients (federal program participants) a larger and larger part of the economy’s produce. Grow receipts faster than GDP growth and you are banking on taxes (or other mechanisms for transferring a monetary share to the government; in the past governments used seigniorage) taking in a larger and larger part of the economy.

For these cases, outlays or receipts grow faster than the overall economy itself sustains.

GDP growth was 3 percent in the past; in our new economy it is now 2 percent. See our recent paper for why.

Now let us prove our bottom line – that things are not getting better for the United States.

Here’s how to know: First, the hoped-for receipts are: A) calling for a lot more taxes, B) based in wishful thinking, or C) some of both.

For (A), see the chart for tax growth over 2013 to 2014: 15 percent + 10 percent = 25 percent total growth in taxes.

On (B), the “longer term” numbers (2015 et seq.) – 5 percent increases in revenue – are not anywhere near what our new economy can deliver from its growth (2 percent increase per year).

Combining the periods 2013 to 2014 and 2015 et seq., we notice some of both the phenomena we listed: Massive tax growth (A; 25 percent) is hoped to begin to put us back into fiscal alignment (that is, tighten down our massive deficit), but (B) longer term calibrations (5 percent growth in receipts) are not aligned with the anemic economic reality the United States now finds itself in (because of the “second demographic transition” – see, again, the hyperlink above and here). Thus, taxes or other means (like seigniorage) must continue to grow and grow and all the while our fiscal picture must continue to degrade and degrade. This signals calamity.

Second, the [weak] receipts recovery seen in 2010 and 2011 (the “real,” not estimated numbers of the chart) is in actuality worse than presented. In the wake of fiscal 2009, the Federal Reserve has been buying up and claiming interest payments on a few trillion dollars in US government debt (through “quantitative easing,” “twists,” and buying other securities). Yes, interest payment [to the Fed] is an outlay. But this payment is remitted back to the Treasury, so it is also a receipt. This has been explained in congressional testimony. Interest that the Fed is paid goes back to the Treasury, after a dividend is paid to certain banks. If this weren’t enough, there is plenty of ambiguity as to who may claim what (this is called “exposure” or “delta” and is a consequence of complicated derivative agreements on this debt – including repos and swaps – between the Reserve and its primary trading partners). Anyway, call this debt $3 trillion Fed-owned paper at 2 percent interest (our Treasury has been paying exceptionally low interest rates), or a $60 billion outlay-receipt per year. This $60 billion is a large share of the receipt growth seen in 2010 and 2011. Receipts are right around $2 trillion. The charted receipt growth of 2 percent in 2010 is $40 billion; the receipt growth of 4 percent in 2011 is $80 billion. Over those years the Fed has been buying more government debt hence claiming more interest payments hence remitting more interest payments. Splitting this growth in remittance, $60 billion, as $20 billion (2010) + $40 billion (2011), it is not hard to see half of the growth in receipts (the “recovery” in receipts) as coming through an act involving money movements (Fed buys debt, remits interest).

Receipts from the economy have not recovered. They cannot reach the levels hoped-for through growth of the economy. Massive (and increasing) taxation is how the current proposal hopes to close an ever-widening chasm in the fiscal landscape. It is, however, the opening of this chasm that exposes the real problem, the weakness of the State: http://marri.us/fiscal.

Two paths diverge in a partisan town

by Family Research Council

April 11, 2012

The poet Robert Frost once wrote of two paths diverging in a yellow wood. After pondering the merits of each way, he makes a choice.

While our Federal city isnt much of a yellow wood, there are two fiscal paths that diverge in front of our lawmakers. Based on projections from the Congressional Budget Office, President Obama’s budgetary path would substantially increase Federal social benefits as a share of GDPfrom about 16.7 in 2010 to 23.1 percent of GDP in 2085.

In contrast, the path proposed by House Budget Chairman Paul Ryan (R-WI) would prevent such an increase by fundamentally reforming Federal health care programs.

In a recent interview with the Christian Broadcasting Networks David Brody, Chairman Ryan articulated the differences:

We want to restore the American dream for everybody in American society so that every person has a chance at equal opportunity to make the most of their lives. The presidents vision, I believe, is to equalize the outcome of peoples lives - not to promote natural rights and equal opportunity, but new government granted rights and equality of outcome. Its a very different vision of what it used to be, and I really think thats where the president is trying to take this country.

While we can assume that the President intends no personal malice towards the American dream, his budget threatens to curtail and redefine it.

Economist and author, John D. Mueller has crunched the numbers on the Presidents budget and compared it to Chairman Ryans alternative. He projects that the U.S. birth rate will fall significantly under current law, from about 2.1 to about 1.75 children per couple in 2085. He further projects that would remain almost exactly at the replacement rate of 2.1 under the proposed Ryan budget, approximating the Social Security Trustees’ Intermediate Assumptions.

Join us today for a lunchtime lecture as Mueller releases his original research and why these birthrate projections even matter.

Two budgetary paths diverge in a partisan town. Taking the one less traveled by might make all the difference.

Register here for the live event, or to attend by webcast.