A Terrible Chart

OK, to go along with the bad study in the last chart, I will offer up a terrible chart.  From Kevin Drum:

Drum uses this chart to hammer home the point that the current deficit is Bush's, rather than Obama's fault.  I have absolutely no problem with blaming Bush for all variety of stupid spending and handing him a share of the blame for the Federal debt.   Even using this bad chart (more in a moment), I think Obama gets a lot of the blame, though.  The highlighted bars don't really substantially move the debt until 2009 and after, on Obama's watch.   His complete lack of any effort to take on the rising debt, to pare back past spending programs (or wars, or whatever) has been unparalleled.  In fact, I think it is his absolute indifference to deficit spending and the debt levels that saddles him with a lot of the blame.

Anyway, back to the chart.  Notice that these are just a few of the many components of Federal spending, all of which are increasing in this period.  Picking out which ones "caused the debt" is not a neutral procedure.  Money is fungible.  One could just as easily substitute rising Medicare and Social Security costs (or education funding or transportation funding or government employee salaries) for any of the bars above and be just as correct.  Even if one wanted to just look at Bush actions, one would reasonably need to include the debt associated with the costs of Medicare part D, something left off this chart presumably because Drum supports that particular spending.    All this chart does is demonstrate the biases or preferences of the author, showing us which categories of spending the author most opposes (or which the author feels Obama can't be blamed for, like the down economy).

By the way, the chart's construction actually worse than this, because the chart is only "public debt" rather than total debt (for example debt bought in QE is no longer public debt).  If one looks at public debt, the total number should have crossed 100% some time in the last year, rather than the 70% or so in the chart.   So there are a lot of other things, presumably that the author likes, that are also causing total debt to rise.  But these are hidden, because presumably the Fed only buys debt created by the good spending, and the public buys all the debt created by the bad spending.

Finally, my suspicion is that some of these numbers are just plain wrong.  The chart implies Fannie, Freddie, and Tarp are only going to cause a total of 1% of GDP in debt, or about $160 billion.  That is WAY below the loss numbers that Fannie and Freddie have already acknowledged, with more to come.

  • David Neylon

    Figures never lie. But liars figure.

  • LarryGross

    You're expecting Obama to "undo" what Congress appropriated before he became President. How could he do that?

    here's a chart that shows what policies contributed what to the deficit:
    http://www.nytimes.com/imagepages/2011/07/24/opinion/sunday/24editorial_graph2.html?ref=sunday

    here's another one that shows the same thing - both are based on CBO numbers:

    http://www.washingtonpost.com/business/economy/adding-to-the-deficit-bush-vs-obama/2012/01/31/gIQAQ0kFgQ_graphic.html

    The GOP has approved more than doubling the DOD budget. Obama has proposed making it part of across the board cuts in the sequester.

    What do the Republicans say? They say they will only cut entitlements,not DOD and not increase taxes back to where they were under Clinton (when we had a surplus).

    How would you fix this? The sequester proposes a trillion in cuts over 10 years - a 100 billion per year equally shared by agencies including DOD.

    Remember, the 16 trillion debt? Even with paying down the DEFICIT, we continue to ADD to the longer term debt UNTIL we balance the budget 10 years from now - which the Republicans will not support.

    There is blame to go around but there is not much Obama can do except sign whatever legislation the Congress sends him and they refuse to send him sequester cuts.

  • Incunabulum

    I do not get this idea that debt can be caused by tax cuts. Debt is, at its core, spending more than you take in. As the only variable you have control of in this situation it would seem (to me) that the "cause" of debt is always spending too much.

  • DavidB

    This graph demonstrates F-quality analysis and lack of in-depth thinking. It assumes that reported income does not depend upon the tax rate. In other words if reported income is $1 million and the tax rate is 40%, we collect 400,000; but if we tax @ 30%, then we collect $300,000. That is so wrong. If the tax rate us 30%, there is much more reported income -- such as realized capital gains. So if reported income rises to $1.4 million, we actually collect $420,000. This phenomenon is what actually happened with the Reagan, Clinton and Bush tax cuts: tax collections from the rich rose as they positioned their assets into more taxable income. (To be sure, tax collections from the poor and the middle class went down under the Reagan and Bush tax cuts as their income position has less flexibility.)

  • LarryGross

    if you CUT Taxes but don't cut spending you get deficit and debt. Bush and company CUT TAXES but did not cut spending ...worse than that - they spent MORE... on two wars and Medicare part D and they claimed that by cutting taxes they would get MORE revenue but the opposite happened. and if you look at the charts you'll see exactly where the deficits did come from - and they continue - because from the beginning we were spending more but cut taxes.

    So right now - you have DOD that has more than doubled in spending since taxes were originally cut - but no one wants to cut DOD back to what it was before we cut taxes.

    We got into this bad habit when we were attacked on 911 and our response was that we had "no choice" but to ramp up DOD and because we had "no choice", we did not have to pay for it - remember Dick Cheney saying "deficits do not matter"?

  • randian

    Stimulus 1 was what, about 700 billion? That's legitimately assigned to Bush. The thing is, Obama's budget should then have been 700 billion less than Bush's, since S1 was a one-time appropriation. What Obama supporters never talk about is that Obama simply raised baseline permanent spending by 700 billion, and then claims he didn't raise spending by lying about the one-time nature of S1. Then Obama basically did the same thing after the stimulus bills on his watch: raise baseline spending again by acting as if the stimulus bills weren't one-time items. That's why we're running 1.4 trillion dollar deficits. We don't have a deficit if we just reduce spending to Bush's last baseline budget.

  • LarryGross

    re: "
    Obama simply raised baseline permanent spending by 700 billion:

    can you show that in these charts or provide something that shows what he spent it on? Are we talking about something Obama advocated, sent to Congress and got it approved by both houses? for what?

  • Mark

    How can anyone with a straight face claim that the costs of the Bush Tax Cuts and the Iraq War are increasing into the future? That alone makes the data very wrong.

    Regardless, the blame Bush meme is completely ridiculous. Ask a Democrat to explain how Bush's fiscal policy created the collapse of the financial system and you will not get an answer or at least a truthful answer (most Democrats claim that Bush eliminated regulations on financial institutions that never existed, when in fact, the Bush Administration wanted tougher regulations and accounting practices on Fannie and Freddie but the Democrats opposed such measures, but I digress).

    The real truth is that the financial crisis was caused by systemic problems in the financial sector itself spurred by terrible decisions made by AMERICANS THEMSELVES. Americans and their institutions simply borrowed too much money. They over borrowed for grandiose homes betting on appreciation that never materialized. THey borrowed on the equity of those homes for cars, boats, and fancy vacations. They borrowed to attend colleges in sums that could not be justified by financial realities. They borrowed to create and expand business that could not be serviced with any degree of economic slowdown. Municipalities and schools borrowed to build extravagant infrastructures and pay their employees wages and benefits that could not be sustained. And, states and the federal government borrowed to prop up and expand entitlements creating unfunded liabilities with no realistic economic foundation.

    We are all to blame, and the road ahead requires an administration that believes in the growth of the private sector. And, that is not Barrack Obama.

  • LarryGross

    the deficit actually dropped from 1.5 trillion to about 1 trillion because, in part, the winding down of the Iraq War but the Afghanistan war is still spending money, as is the doubling of the DOD budget as is Medicare Part D and the tax cuts continue to starve revenues that would pay for these increased spending.

    It's not that hard to actually look at what happened if you keep an open mind about it. the DOD budget WAS more than doubled, the Medicare Part D program WAS created - at the same time, instead of increasing taxes to pay for these (and keep the budget balanced), we CUT taxes. This is not rocket science, it's simple common sense we increased spending and we cut taxes - ergo - deficit spending.

    and it continues ... unless and until the excess spending for DOD and Medicare are CUT OR taxes are increased to pay for them.

    to be fair - there are some things in the budget that automatically increase - like Medicare and MedicAid but Medicare is about 210 billion and MedicAid about 250 billion - (these amounts are about twice as much as was in the 2000 budget - so we added about 200 billion in these entitlements). DOD spending went from about 300 billion to almost 900 billion...

    the thing is - there is no way to balance the budget by ONLY cutting entitlements. The numbers simply do not work but the folks who say "cut" don't want DOD cut so even Paul Ryans budget that DOES cut entitlements - does not actually reach balanced until 2030 and even then it does not cut DOD and once again, operates on the theory that if you cut taxes more, you'll get more revenues...to pay for DOD.

    remember, we already did that and it did not work?

  • http://www.facebook.com/jimmy.msteacher Jimmy MSteacher

    The Bush tax cuts should have expired already anyway. The future tax cut numbers are Obama's because he chose to not veto an extension of the Bush Cuts.At that point in my book they became the Obama tax cuts.

  • randian

    The Feds have been illegally running without a budget for basically the entire Obama presidency. So no, he doesn't have "approval" and neither does Congress, since it passed no law authorizing current appropriations.

    That said, are you seriously disputing that Obama's budgets didn't drop like they should after one-time spending? Take this year's budget. Why isn't it much smaller than the previous two years budgets, which contained the various stimulus packages? What authorizes such a continued level of spending after the stimulus money was appropriated and spent?

  • Quincy

    Tax revenue as a percentage of GDP consistently fluctuates between 15% and 20% of GDP, regardless of marginal tax rates. For the Bush tax cut band to grow like that, there's got to be spending above 20% of GDP consistently through 2019. Given the last half century of history, that's money they were never going to get anyway.

  • Kevin Dick

    I thought this was a pretty detailed and at least superficially plausible analysis of what happened:

    http://www.economics21.org/commentary/how-did-federal-surpluses-become-huge-deficits

    Basically, poor economy, spending on wars, and spending on bailout and stimulus did most of the damage. Tax cuts played a modest role

  • Mark

    WHen did it not work? How is it possible, then, that we cut the tax rates in the 1980's and then again in the 2000's and income tax revenues never drastically changed, and in fact, increased after the rate cuts? Looking at the actual data, in 1981 the US government had 285.9 billion in income tax revenue. Reagan passed significant tax "cuts" that over time totaled 30%, yet the income tax revenues in the remaining years of his presidency were 297, 288, 298, 334, 349, 392, 401 billion. Economic growth, whether caused directly by the tax cuts or otherwise, caused the tax revenues to grow while tax rates were cut. End of story.

  • LarryGross

    Nope.they are passing what is known as continuing resolutions which is continuing the budget at the same spending levels. The stimulus took place over 2+ years and the budget IS smaller now..the deficit is 1 trillion, before it was 1.5 trillion. Again I ask what exactly has Obama ADDED to permanent spending because that is the claim being made right? I understand people either like or dislike Obama but certainly we should all see the truth and not just propagate lies because we do not like him.

  • LarryGross

    if you are running a deficit - you are spending more than you are taking in - in revenues and tax cuts ARE central to that issue if the premise of the tax cuts originally was to generate enough additional revenues to prevent a deficit - to maintain a balanced budget or even produce a surplus.

    it's totally irresponsible to pass tax cuts that are supposed to keep the budget balanced and then when it doesn't work -to blame other things - and worse - walk away from it leaving the govt not only in deficit but with a structural deficit that adds more to the debt each year that it continues.

    It's feckless and hypocritical to claim fiscal conservative credentials and then walk away from a deficit of your own making and make excuses or blame others for it.

    Obama did not create this deficit. He did not fix it either but how could he? But he gets the blame for something he did not create and cannot fix on his own. It's totally reprehensible and calls into question the motives of those who refuse to admit what has happened and choose instead to blame someone else.

  • dwbuller

    It has gotten more than frustrating to hear this ruse that cutting tax rates did not increase tax collections. When implemented, the Reagan tax cuts led to more tax revenues from the rich which more than offset reduced tax collections from the middle class. Likewise for Bush's tax cuts. Clinton's tax cut was aimed at the rich so it had little tax impact on the poor, but it did increases tax revenues.
    However, it is a legitimate question further tax rate cuts would again increase tax revenues; neverthelss, Romney is suggesting something that neither Kennedy, nor Bush, nor Clinton advanced: that idea is to couple reduced tax rates with closure of tax breaks. Such a move would eliminate the incentive for creative positioning for tax purposes and put more resources into productive activities.

  • dwbuller

    The wars have been expensive, and Medical Part D also costs a good bit of money. But there was no serious move in either party to increase tax rates because of these developments. (There were a few speeches about increasing tax rates, but those speeches were for poltical posturing, not sincere legislative efforts.) There were two key reasons not to be concerned about raising tax rates: government spending as a % of GDP was stable, and debt as a % of GDP was at acceptable levels. That is not the situation now.
    You excuse Obama too easily. Yes, he came in with the government already facing a deficit, but he increased the 2009 deficit, and has kept deficits above 1 trillion since then. For two years, Congress did his bidding. He had unprecedented contol of government, strastopheric levels of popular support, and a media eager to endorse his moves. I do not know of another president who had more control of government decisions. Contrast his control to that of Bush's. When the Bush admnistration tried to limit the excesses in housing market, the Democrats and media led a firestorm of opposition (howling that these limitations were racist and bigoted), and these initiatives went nowhere.

  • Kevin Dick

    I will fan the flames here. The total deficit attributable to Obama's first term is _twice_ that of Bush Jr's second term. I agree he inherited irresponsible policies. But then he doubled down.

    Here's how to calculate. Download the budget spreadshseet from the OMB (http://www.whitehouse.gov/omb/budget/historicals). It's in billions of 2005 dollars. I
    attribute a year to a president if they were in office when the budget
    for a given fiscal year was submitted to Congress (e.g., Obama's first
    budget was for FY 2010). Note that the Republicans in general are _at least_ as bad as Democrats, but Obama is a real anomaly:

    -4,152 Obama
    -2,081 Bush II-2
    -1,777 FDR-3
    -1,423 Bush I
    -1,32
    3 Reagan-1
    -1,321 Bush II-1
    -1,081 Reagan-2
    -624 Clinton-1
    -605 Carter
    -603 Nixon-2
    -287 Nixon-1
    -199 Johnson-2
    -128 Eisenhower-2
    -123 Kennedy/Johnson-1
    -43 Truman-2
    -19 FDR-4/Truman-1

  • LarryGross

    re: it "worked" with Reagan. As I recall the man had to raise taxes but that's probably beside the point.

    It does not matter about the "theory". What counts is what you do if the cuts don't work and you end up with a deficit.

    that's the problem.

    the folks who cut the taxes walked away when the deficit appeared and NOW they refuse to restore the taxes even partially AND they refuse the cut the things they increased when they cut taxes.

    so how can you actually balance the budget when they essentially refuse to take responsibility for the tax cuts to not produce ENOUGH increased revenues to compensate for the increased spending.

    that's the big problem... it's a lack of taking responsibility for the actions and compounding it by blaming it on the new President.

    re: Romney - it's bogus because the man is not saying what he will cut - he's saying "trust me". Now I ask is that any way to gain the trust of people who would elect you?

    are we so far off the trolley that those who run for Prez refuse to actually tell you what they will do and instead say "trust me"?

    At the VERY LEAST - Romney should lay out EXACTLY HOW he would cut the deficit and balance the budget. I have heard that he would tax employer-provided health care. Would he actually say that to prove he is serious about cuts? Nope.

  • Mark

    AS I pointed out, there was little or no loss of revenues from the income tax cuts in the 1980s and 2000s, and in fact income tax revenues increased over time. We can debate the causes of this, but that is the fact. Even though from 1981 the tax rates were reduced 30% and (maybe a more significant achievement) tax brackets were indexed. So, the increases in the deficit were caused by higher spending.

    Now, even though I am a Republican, I agree with you that defense spending needs to be reduced. But, it is also clear that Republican Administrations can reduce defense spending. Much of the reduction that occurred in the 1990's, when defense spending was reduced from 5% of GDP to 3% of GDP was the work of Bush41 and his administration. In my opinion, we need to reduce defense spending from its current 4.7% of GDP back to 3% of GDP over the next decade, and from there target additional reductions until we spend less than 2% of GDP on defense. What this would require, though, is a significant change in strategic doctrine and also the willingness to have the military be more lethal if they are conducting operations. In other words, our current strategic doctrine is based on strategic, operational, and tactical offensive operations and our military is designed to conduct these operations in two theatres simultaneously. Further, our political leaders reduce the lethality of our military forces when engaged by restrictive ROE (rules of engagement) that minimizes collateral damage.

    With reduced military spending the military will need to adapt to a strategic focus that includes defensive and delaying operations in certain theaters, and with reduced or eliminated margin of error, the ROE will have to allow more lethal defense. That is, if our enemy is hiding in a mosque we might not have the ability to wait for another day to kill them like we do today. There is no backup, there is no second line, and there is no time when your forces are more hard pressed.

    But, overall, this is very conceivable. Lets take one particular example. Much of the ability of the United States to project force is based on the fact that we alone have the nuclear aircraft carriers that can create air supremacy just about anyplace on the globe we desire. No other nation has such a force. Currently, we have 12 aircraft carrier battle groups and these are deployed across the worlds oceans. Lets say we cut this force down to 8 aircraft carrier battle groups. with 2 deployed in the Pacific, 2 in the Atlantic, and another in the Indian Ocean at all times (the other 3 in transit or maintenance). For a country to challenge the US at sea, such as China, for offensive operations against our fleet they would need 2 times the numbers. So, in the Pacific, the Chinese would need 4 aircraft carriers at sea, meaning they would need (given their reliance on conscript forces) 8 total aircraft carriers to challenge the 2 carriers we deploy in the Pacific. This is not going to happen, at least over the near term. That is an investment of hundreds of billions of dollars that they simply do not have. So, as long as we are willing to fight some of the operations defensively, it will be almost impossible for any other nation to ever acquire the military force to defeat us.

  • LarryGross

    the percent of GDP and other metrics like whether or not tax cuts generated revenues or not are subordinate to the simple concept that if the tax cuts did not generate ENOUGH additional revenues to OFFSET the increased spending THEN responsible leadership acknowledges the deficit and takes actions to deal with it.

    Just as we leave the details as to what to cut in entitlements, we do the same for DOD - bottom line - execute what needs to be done to balance the budget.

    And that is what did NOT happen in the 2000-2008 timeframe and NOW that structural deficit is being blamed on this President when he had nothing what-so-ever to do with it - he's blamed for not doing what Bush and the GOP themselves refused to do when they walked away from the deficit they created by cutting taxes and increasing spending.

    As far as DOD goes - we will NEVER have the armed forces we really want - we simply cannot afford it but when we, as a country, spend MORE than the next 10 countries COMBINED on defense INCLUDING Britain, Russia, China,etc... and at the same time we are spending a trillion more than we are taking in - every year - and at the same time we are going to cut MedicAid for the weakest and most vulnerable of our population - we are screwing up big time.

    We have a responsibility like any homeowner to not spend more than we can afford.

  • Alice

    There are only three things one can do to balance a budget: Increase income (increase taxes, closing loopholes at the same time), cut spending or a combination of both. Increasing taxation only works if people who earn money don't mind giving it to the government. Short of a flat tax, and probably not even then, people will use every loophole out there to decrease their tax burden. People will even leave the country. Cutting is equally difficult since politicians routinely buy elections buy bringing home the biggest share of redistributed wealth. They are not going to stop this easily. A combination of both has proven to be impossible in the past. Raising taxes seems to result in increased spending. Since those who make these decisions change constantly, it's very difficult to control the whole mess.
    Note: Obama NEVER had a budget. He will be the first president in history to not have passed a budget if he is defeated in November ( or maybe even if he is re-elected). He pretty much just uses the national credit card and money keeps going out. There is no budget.

  • LarryGross

    oh geeze. People did not leave under Clinton and Reagan when taxes were higher for both of them. You're making excusing for having a deficit and that's inexcusable in my book for anyone who claims to be a fiscal conservative. You either cut your spending or you fund your spending. When you walk away from a deficit, you are irresponsible. Remember also - "fixing" loopholes IS a TAX INCREASE ALSO and the majority of people affected by those loopholes are the same ones who do not like taxes to start with but I doubt seriously they will "leave". Where would they go? Most every other country has similar or higher taxes unless you go to some 3rd world place like Haiti.

    Obama is not the reason we have a deficit. the deficit was created in the prior Presidency when people voted higher spending and cut taxes and now that deficit just continues.

    He does not have a budget because Congress cannot agree on cuts so they pass what is known as Continuing Resolutions which continue the same level of spending established before he became President - DEFICIT spending.

    Obama spends nothing. The Congress does that and they have not agreed on a balanced budget to send to him. Obama supports the Sequester - across the board cuts. What does the GOP support? They are opposed to across-the-board cuts even though they say we need to cut?

  • Alice

    Yes, Congress spends. Obama could not get a budget passed when Democrats controlled all of Congress. That would mean his own party would not buy his reckless budget ideas.
    As for taxes, the tax rates were technically higher, but there were far more levels within the marginal tax rates and people were able to take advantage of this. Capital gains have always been a way to avoid taxes. People did not leave en masse, but I do remember people I worked with and knew who stopped working as many hours because they hit the level where they felt the government was taking too much of their income.
    I have no idea why you think the GOP does not support across-the-board cuts. They do NOT support tax increases, which the Dems keep tacking onto all such spending cuts, but that is a separate issue.
    The deficit did increase during Obama's term, and he is responsible for that. Yes, Congress spends, but when your own party won't back you.....I also blame Republicans who just love to bring home as much of other people's money for their states as possible. I agree it is not just Obama. It's just that he did nothing to help and a lot to hurt.
    (Yes, if we close loopholes, it does increase rates. Maybe no one leaves, but as noted above, they stop earning so much they are taxed at a higher rate. People on Social Security do this all the time. They only earn up to the point they have to "give back" one dollar for every two they make, or something to that effect. When it costs them too much to work, they just stop doing it.)

  • Mark

    I don't totally disagree with you, but the problem with your argument is that in the American system there is no such think as a "responsible" leader. We are not a totalitarian system that the glorious, all knowing leader can simply have their own way. Our system necessitates compromises that sometimes are not efficient. And, that is the innate origin of deficit spending. THere are several changes that we The People can make that can improve this. One very important tool would be a federal line item veto which would force spending bills that cannot stand on their own to fail.

    Next, the current President is certainly responsible for his share of the "structural" deficit. Here is a fact of life, since 1971 the US government has run an "on-budget"(not counting social security surplus) surplus twice and a total budget surplus (counting social security surpluses) four times. All of these occurred in the CLinton Administration (1998-2001), but had little to do with his policies. The Clinton surpluses were created by two events, a) the "victory" in the Cold War which created the defense dividend as defense spending was reduced to 3% of GDP and b) massive increases in capital gain tax revenues from realization of capital gains responded to lower rates and the massive (but deflating) Internet Stock bubble.

    Federal bugdet deficits are the rule, not the exception.

    Further, Barrack Obama has lots to do with the current deficit spending. His priorities were "stimulus" and expanding the health care entitlements. The $800 billion "stimulus" package certainly expanded the deficit significant. More importantly, this massive deficit spending was mostly financed by the Federal Reserve (60%), meaning that this will have significant inflation impacts going forward and also most of the remainder of the deficit was financed with debt instruments of very short maturities. These short maturities on the debt allowed the Obama Administration to push much of its impact down the road. But, this also means that there will have to be significant debt refinancing very soon that will pile on to the already large deficits. This is the fiscal cliff that everyone is projecting. THe cycle of a government running up high deficits being financed by short term loans and printing money. That is simply unsustainable.

    Lastly, although the deficit is important, the concept of looking at government spending like a "responsible" homeowner is wrong. Government debt is not the same as personal debt, and most likely the "responsible" homeowner ran a huge deficit (spending way more than his income) the year he bought a house. What is the major difference is that government debt only has to be serviced. Unlike an individual, a government does not die. So, it can finance deficit spending forever and ever, as long as it has the capabilities of servicing that debt. The problem with our current debt situation, as it is with several of the Euro nations, is that servicing it will be unsustainable if current trends continue.

  • Mark

    Sorry Larry, tax rates do matter, almost to everyone who makes decisions on the margins that will be taxed. Lower tax rates, you will get more economic activity.

    When this is discussed, most of the focus is on the upper brackets and upper income people. This is rightfully so because wealthy people, on the margin, have more flexibility in their incomes. They have many opportunities to modify their current income because of taxation. Amongst the ways they can do this is to defer their income, move their money geographically, or simply spend their capital instead of investing it. One of the best examples of this type of behavior was John Kerry's $8 million yacht purchase. I do not begrudge John Kerry his yacht, nor do I begrudge his machinations in the purchase of his yacht to avoid paying taxes. He is truly a hypocrite but that is of small consequence. It just demonstrates that economic activity will go to were it is taxed the least.

    But, it is not just the trickle down effects marginal tax rates that impact the economy. Work is incredibly impacted by how it is taxed as is measurable economic activity. One example of the latter is that people work for the net benefits, not the gross. So, in a high marginal tax environment prices are necessarily higher and that means consumers will forgo, defer, or substitute economic purchases lowering total welfare. To get a specific example, consider wanting to have your house painted. You call a contractor and that contractor wants $100 NET to paint your house. If the tax rate is 50% to achieve the $100 net, the painter needs to charge $200 to you. If that is too expensive you can paint your house yourself or defer painting your house. Your total "utility" from that scenario is the value you gain by your alternative expenditures less the utility value you lose in time in painting your house.

    But, if a lower tax rate allowed the painter to obtain the $100 net at a lower price, lets say 33% tax rate and a $150 price, that might induce you to have your house painted. You gain utility because you would prefer to spend the $150 on the paint job and prevent the time utility loss of doing yourself. In addition, the painter gains significantly because he now has $100 in NET income, something that he values much more than his time. Multiply these microeconomic impacts across the entire macroeconomy and that is how the supply side works.

  • Larry Gross

    the deficit is the last budget done by Congress and signed by Bush. The only thing that Obama added - with the approval of Congress was the stimulus and tarp - which started under Bush - Bush supported as did folks like Ryan. Both did not add to structural deficit but instead where one shot deals. When people claim that Obama has ADDED 5 trillion more.. the truth is it was added while he was President but he did not add it and Congress has chosen to not make a trillion in cuts and send it to him. The GOP is opposed to the sequester cuts that include DOD - you should read up on this. They are, as they have been all along, in favor of cuts to entitlements, opposed to cuts to DOD,and opposed to tax increases - and that approach does not balance the budget. The GOP refuses to provide a balanced budget because they are opposed to the same tax rates that existed under Reagan and Clinton but they won't make the cuts necessary if there are not tax increases. In other words, they simply fail to deal with the realities and continue to hold positions that will not work - and in the meantime blame Obama for the continuing deficit - which they refuse to deal with.

    When people are paying LESS taxes than they did under Reagan or Clinton and people say it's too high and at the same time they won't cut spending to balance the budget, you have a totally bizarre situation IMHO and blaming Obama is just a diversion from that.

    If Romney is elected, he will face the same exact situation. Sooner or later the GOP has to deal with the reality that the tax rate they like does not generate enough money to pay for the DOD they want.

  • LarryGross

    that's the main thing that I feel is totally misrepresented when people say that Obama has added 5 trillion in debt. He had nothing to do with it. It was built in to the budget that was in place when he became President - and he, as President does not have a line item budget veto so he is stuck with whatever is the last budget that Congress passed. he cannot change it and if that last budget is a trillion in deficit, he still cannot change it. All he can do is advocate for a balanced budget which he has done by advocating cuts + revenues and the GOP refuses any approach that involves taxes - even at Clinton/Reagan levels and they refuse to cut DOD so what are you going to do? Well.. if you are the GOP - you then demagogue the 5 trillion in debt added while Obama has been President.

    Think about this - think about how this would work under Romney. They STILL would have to balance the budget but how would they do it if they won't increase taxes and/or cut DOD? It's impossible. How can you say you want to be a leader when you refuse to deal with fundamental fiscal realities?

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Incorrect Larry,
    Reagan did not raise taxes. He lowered tax RATES, which resulted in
    increased revenues (confirmation of the Laffer thesis).

    Reagan did raise payroll taxes - that was the only tax increase on his watch.

    http://money.cnn.com/2010/09/08/news/economy/reagan_years_taxes/index.htm

    http://www.jec.senate.gov/republicans/public/?a=Files.Serve&File_id=9576a929-37b4-497c-9b06-4bf3481f9f0a

    Stop listening to crap leftist history (redundant).

  • http://devilish-details.blogspot.com/ mesaeconoguy

    As I’ve stated on several hundred occasions, Kevin Dumb is
    dumb.

    Which explains his political affiliation.

  • Larryg

    "
    President Reagan, has remained popular as an antitax hero despite raising taxes eleven times over the course of his presidency, all in the name of fiscal responsibility.[20] Reagan ultimately raised taxes more times than he cut them"

    these are facts:

    http://www.nytimes.com/2011/11/19/business/economy/tax-pledge-may-scuttle-deal-to-cut-deficit-economic-memo.html?_r=1

    " In 1981, Reagan's first year, the top tax rate was 70 percent, hitting individuals earning $108,300 and couples earning $215,400. The top rate dropped immediately to 50 percent in 1982 and stayed there through 1986. In 1987, the top rate fell again to 38.5 percent, and in 1988, it fell to 28 percent, kicking in at $17,850 for married individuals and $29,750 for married couples. (The 1988 incomes would be equivalent to $33,229 and $55,382 today.)
    So, for one year of the Reagan presidency, the top rate was lower than it is now under Obama. For the other seven years, it was higher."

    http://www.politifact.com/truth-o-meter/statements/2010/sep/22/barack-obama/barack-obama-says-taxes-are-lower-today-under-reag/

    The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.By this measure, federal taxes are at their lowest level in more than 60 years.
    http://economix.blogs.nytimes.com/2011/05/31/are-taxes-in-the-u-s-high-or-low/

    The Reagan deal is a myth. easily shown.
    but the more important truth here is that deficits were created in the 2000-2008 timeframe by Congress and have not been reduced - by Congress and the accumulating deficits and debt cannot be altered by Obama unless Congress sends him a balanced budget to sign.

  • Jlkinsella

    Alice and others,
    The 2009 budget was passed by a Democratic House and Senate and signed by Obama in March 2009. Democrats in Congress refused to pass Bush's 2009 budget preferring to put it off until after the November 2008 elections.

  • LarryGross

    This is true but there are some realities here.First, it did take Republican votes to pass it. Second, the Dems have never promised to be fiscal conservatives as the GOP claims - all the time, Third -the budget was the same budget that carried forward from the Bush years - a deficit budget that spent more than revenues as a result of increased spending and tax cuts - done on the theory that Reagan did it but not done with any follow on fix if the tax cuts actually failed to generate enough increased revenues to pay for the increased spending. In other words, they increased spending for two wars, increased DOD also, passed Medicare Part D and C and had no plan B to pay for them if the tax cus failed to generate enough additional revenues.

    So now we talk about reforming the tax code, closing so-called loopholes without every really talking about which ones, because to do that would bring out the people who are affected in opposition and quite a few of those in opposition will be those who most associate themselves with the GOP.

    I really don't care who actually works to roll back the deficit - it will take both sides, an in my view, a combination of cuts to entitlements, AND DOD, AND some increased revenues and what we have to agree is to do it rather than argue against any/all ways we are opposed.

  • jlkinsella

    LarryGross,
    Good to read that you now agree that Obama and the Democrats passed the 2009 budget. You will now also be interested to learn that the budget did not need any Republican votes to pass in the House and in the Senate. Democrats supplied the necessary majorities to pass it in both houses. The 2009 federal expenditures were around $3.5 trillion. This was more than $500 billion above 2008 expenditures.