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Pelosi is Right About Federal Spending

Nancy Pelosi went on Fox News on Sunday and said that federal spending is not the primary cause of the deficit, lack of revenue is. “It is almost a false argument to say we have a spending problem. We have a budget deficit problem that we have to address,” she said. Jim Hoft at Gateway Pundit offers the predictable substance-free sneer.

He calls her statement “unreal” and says:

For the record… During Pelosi’s first year as Speaker in 2007 the deficit was $160 billion. The national deficit since then reached an all-time record of $1.4 Trillion after the failed stimulus and record spending by Democrats. This was more than eight times larger than what it was when Pelosi and Democrats took over in 2007. The deficit has been over a trillion dollars every year since Obama has been in office.

And for the record, Hoft is either clueless or dishonest here (or both). Deficits are the difference between two things: revenue and spending. The fact that we have a big deficit does not necessarily mean that we have too much spending, it could also mean we have too little revenue. And guess what? The facts show that our current budget problems are caused primarily by too little revenue, not too much spending. You can view all the data on federal revenue and layouts here.

In inflation-adjusted dollars, federal revenue went from $2.414 trillion in 2007 to $2.998 trillion in 2011 (2012 figures are just estimates at this point, so we’ll stick with confirmed numbers). Federal spending, on the other hand, has actually gone down since 2009, from $3.173 trillion to $3.126 trillion. So what happened in the meantime? The great recession hit in 2008, which depressed federal revenue enormously. As Politifact reported, the federal spending rate under Obama is the lowest of any post-war president. Indeed, under St. Ronald Reagan, federal spending went up five times faster than under Obama.

Nancy Pelosi is right, we have a revenue problem, not a spending problem. And the wingnuts, who like to pretend that the revenue side of the equation simply doesn’t exist, are, as usual, dead wrong.

Comments

  1. unbound says

    I had the same discussion with my uncle before the election last year. I had to point out to him that as a director, if I were to completely ignore my revenues and focus purely on costs, I would be fired. You always have to look at both sides of the equation, especially as a business…which is what most of the conservative yahoos want to see happen (that government becomes more like a business).

  2. divalent says

    From the link you posted with all the data, your number for 2011 revenue # is wrong: it’s 1.998 trillion (so down ~0.4 trillion from 2007).

    But why did you switch to basing from 2009 (rather than 2007) in the spending side for comparison? The actual numbers for spending from 2007 to 2011 (the range you use for revenues you compare it to) is 2.565 trillion in 2007 to 3.126 trillion 2011, so up ~0.4 trillion. IOW, the increase in the deficit over that time is about equally due to decline in revenues and rise in spending.

    And what do you mean by “spending rate”? As a percent of GDP, 2011 Federal spending was 24.1%, which is higher than under any president since WW-II.

  3. roggg says

    I dont understand something here. You say federal revenues went up by over half a trillion dollars, yet you say the recession depressed revenues int he same period causing a growing deficit. I don’t know how to reconcile these two statements. What am I missing?

  4. raven says

    Nancy Pelosi went on Fox News on Sunday and said that federal spending is not the primary cause of the deficit, lack of revenue is.

    Correct.

    1. Bill Clinton left us with a budget surplus and a humming away economy.

    2. Bush saw that and decided to end our long nightmare of peace and prosperity.

    3. He cut taxes citing the magic of supply side economics.

    4. Magic doesn’t work!!! Then he starts two expensive wars, one of which might have had a justification.

    5. Economy crashes, budget deficits soar, unemployment goes up.

    6. Obama tries to fix things with oddly enough, some success.

    You have to wonder why Clinton did well with higher taxes and Bush caused a lost generation with lower taxes. It’s real simple. We are starving the federal government.

  5. raven says

    There really isn’t much of a correlation between taxe rates and prosperity.

    1. Of the 15 richest countries in the world, most of them are also the 15 highest taxed.

    There is a solid correlation between low tax rates and national failure.

    1. Countries with low tax rates end up failing. Jamaica, Argentina, Greece, Pakistan, Mali, Afghanistan, Somalia etc.. It seems that below 10% of GDP, there isn’t enough money to even have an effective central goverhment and without a central government, you don’t have a working country.

    2. Most third world countries are Libertarian. Low taxes and few regulations on companies. These are mostly stagnant societies, going nowhere.

  6. lynxreign says

    Of course, if you understand a fiat currency, which is what the US has, you realize the deficit isn’t a problem at all. The US cannot go bankrupt, we should be spending much more than we are now and we can ignore revenues as long as unemployment remains high. Government money doesn’t come from taxes, it comes from spending. Taxes merely remove currency from circulation.

  7. maddog1129 says

    I have never understood all the harping on cutting spending and balancing the budget as if the federal government were an ordinary household. What ordinary household that has an unbalanced budget repeatedly cuts its income? If you want the government to function like an ordinary household, then you should encourage it to increase its income. That’s what you tell the basement living freeloaders … “Get a job!”

  8. says

    What ordinary household that has an unbalanced budget repeatedly cuts its income?

    What ordinary household– unbalanced budget or not– repeatedly takes the credit card and blows loads of cash on things that it not only doesn’t need, but which actually hurt it?

  9. lynxreign says

    But that’s the thing, the government is nothing like an “ordinary household”. When the government needs more money, it prints it. Frequently it then sells bonds to match the new currency it issues, but it isn’t dependant on finding income.

  10. Nick Gotts (formerly KG) says

    As divalent@2 says, the figures you give don’t correspond to the ones you link to, and from the latter, it looks as though revenue fell and spending rose over that period. Spending tends to rise in a recession even with as patchy as welfare state as that of the USA, but so it should – this is the main counter-cyclical mechanism in advanced capitalist economies.

  11. robertfaber says

    Lets get a frame of reference here for discussion.

    http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

    Ok, so if you look at 2007 in the middle table (inflation adjusted dollars), you see $2.4 trillion in constant 2005 dollars for receipts. Let’s see what has happened with revenue since then:

    2007: $2.414 trillion
    2008: $2.288 trillion
    2009: $1.899 trillion
    2010: $1.927 trillion
    2011: $1.998 trillion

    So basically, we’re short about $2 trillion in revenue since the decline. Actually a lot more than that, given that before the crash, GDP was projected to continue to grow, so the spending planned by the Bush administration and the GOP no less, while fudged with regard to the cost of the wars, was roughly in line with projected revenue.–revenue which obviously did not meet expectations. Not remotely. Now look at the chart one more time. Anyone who says we do not have a revenue problem is either a con artist, or the people who order their books from WND.

    Another quick note, a recession means GDP has shrunk. That’s what a recession means. Literally. There’s also going to be some emergency countermeasures and built in social spending to alleviate its effects. As such using “spending as a percentage of GDP” as a benchmark for the growth of the federal government can be used (particularly by some partisan outlets) to mislead the public when in fact spending in real dollars has declined.

  12. laurentweppe says

    what most of the conservative yahoos want to see happen (that government becomes more like a business).

    “Government should be done like a business” is nothing more than a coded way to say “Government should serve the interest of the upper-class alone”

  13. says

    “Taxes merely remove currency from circulation”

    No, government takes money through taxes and then spends it on things like purchasing goods, employee wages, and contractors. The money doesn’t disappear from circulation. Government employees buy food, clothing, cars, etc. They pay mortgages and utilities just like every other citizen. So do people who make money indirectly from the government, like contractors and equipment manufacturers.

    You can argue the merits of this or that government spending, but to say that taxes take money out circulation like it was just being burned in a big bonfire on the Washington Mallis just ridiculous.

  14. lynxreign says

    Nope. The money the government takes in in taxes is essentially removed from circulation. They do not require it to spend on anything. When the government wants to spend money, it spends the money. It doesn’t have to worry about where the money is coming from, it spends it into existence.
    When the government spends money, it spends it on everything you mention, the path from there is quite correct. Government spending puts money in the hands of everyone.
    The taxes the government collects may be immediately replaced by new spending, but the government doesn’t have to wait for tax dollars to come in to spend, it simply spends. The tax dollars that come in aren’t physical dollars that get burned, they’re placeholders. They’re symbols. They dissapear when they come back to the government and the government spends anew.

  15. Brandon says

    As at least a couple commenters have explicitly pointed out or implied, using different years as baselines is a bit of a bad trick, as it isn’t really a very useful comparison. Ignoring breakpoints for who the President was and focusing instead strictly on the revenues and outlays, from the chart linked in #13, revenue dropped from $2.414 trillion to $1.998 trillion. Meanwhile, spending went from $2.565 trillion to $3.126 trillion. As percentages of the GDP, we have revenue falling from 18.5% to 15.4% while spending grew from 19.6% to 24.1% (it actually peaked in 2009 though).

    I think there’s a pretty good case that the deficits aren’t much of a problem at all right now. That said, if we’re all going to agree that deficits are a problem, I don’t see a sensible way to paint them as strictly a revenue or spending problem, given that the two were headed in opposite directions over the past few years. Really though, this is all just such a simplification, and it ignores more important policy concerns that underly the deficits, so I don’t feel any great need to argue it at length.

    Frankly, the end point is that I don’t think Pelosi has any better of a grasp on this than the deficit scolds. She happens to reach a conclusion I prefer, but I don’t think she did it via strong economic principles.

  16. Drew says

    @ divalent

    I think 2007 was used in terms of revenue comparisons because 2007 was the point at which the author of the original was remarking about debt in terms of Pelosi’s involvement as speaker.

    However since the larger point of that author’s post was that Obama is spending hugely larger amounts than his predecessor(s) the point of comparison ought to be the last year that a predecessor had control of the spending (the budget for the first year of a president’s term is more or less set by the time that president takes office).

    This of course ignores that the congress has the job of setting the budget and therefore grants the president far more responsibility for the amount spent than said president actually has, additionally the numbers above fail to take into account new spending that was instituted during Obama’s first year, but even when that is taken into account the difference in spending between the beginning of first term vs 2011 is still only between 1.4 and 4.9% depending upon how much you want to attribute to Obama (Stimulus, or Stimulus plus TARP) which is still significantly lower than most President’s records since 1953 (at 1.4 it’s the lowest and at 4.9 only Eisenhower and Clinton fare better)

  17. dogmeat says

    There are a few things that are also being ignored when they refer to budgets and revenue. During the Bush administration, some things that are currently part of the budget were not, they were special appropriations paid differently than the standard budget. When Hoft claims that the deficit in ’07 was $160 billion, he is ignoring these “small items” that weren’t part of the standard budget. Little things like the troops in Iraq and Afghanistan were handled as separate appropriations, not part of the regular budget. You add those in and you get a deficit nearer to 1/2 a trillion.

    Also, a lot of people seem to forget that the Obama budgets have had to include an ever increasing amount dedicated to interest payments. Nearly half a trillion last I checked. When you plug those facts in, the amount of spending changes rather dramatically. When you then add in the fact that congress actually increased spending in the ’13 budget (something like 70 billion off the top of my head) and cut revenue, the idea that the Democrats are the ones spending like crazy and running up massive debt becomes even more laughable.

  18. sillose says

    its been said before, but we do have huge spending problems, and obscene amounts of waste. the republicans are, if you keep to broad strokes, right about this. our infrastructure is crumbling healthcare is broken welfare is fucked the environment is being left to rot education has new cuts pending every time i check, and for all this we spend obscene amounts of money on our military. that needs to stop.

    not that we dont also have serious income problems, we really should fix those.

    and taxation does give the government that money to put back into circulation, it just also has a habbit of cheating extra money in. even if this is the case, the money you give them in taxes helps slow inflation, and it makes them have to cheat less. i suppose. not really okay with the whole cheating thing.

  19. matty1 says

    What ordinary household– unbalanced budget or not– repeatedly takes the credit card and blows loads of cash on things that it not only doesn’t need, but which actually hurt it?

    Addiction springs to mind. Maybe the US government should go to a warmongers anonymous meeting – I hear the coffee is good.

  20. Michael Heath says

    dogmeat,

    Nice to see you contributing again.

    dogmeat wrote:

    There are a few things that are also being ignored when they refer to budgets and revenue. During the Bush administration, some things that are currently part of the budget were not, they were special appropriations paid differently than the standard budget. When Hoft claims that the deficit in ’07 was $160 billion, he is ignoring these “small items” that weren’t part of the standard budget. Little things like the troops in Iraq and Afghanistan were handled as separate appropriations, not part of the regular budget. You add those in and you get a deficit nearer to 1/2 a trillion.

    I’m fully aware of the fact President Bush failed to publish budgets with known future expenditures, like the war in Iraq. However, why would that matter when we’re looking at actual past results rather than budgets? RobertFaber @ 13 provides the data: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

    How we can track the change in debt if we don’t accurately calculate actual revenue and spending? I assume the actuals contain the results of all off-budget activities. Where am I wrong? And if I’m wrong, where are the correct results that allows me to reconcile how revenues and spending got us to our current debt level?

  21. robertfaber says

    I haven’t seen any pushback from any outlet on the revenues side listed by TPC. If you have some information, do share it. On the expenditures side, the best I can come up with (because I’ve yet to see any reliable or non-partisan source actually do it), with regards to actual and including off-budget spending, is to also look at the growth of the public debt. For example, when the Bush administration claims that the deficit in 2007 was a mere $160 billion, but the national debt goes from $8.5 trillion to to $9 trillion over the same time frame, something is fishy. In fact, the public debt appears to increase during the Bush administration by half a trillion nearly every year, with the exceptions of FY 2008 and 2009 where it increases by double that, while his creative accounting lists deficits that are much lower than they actually were.

    I’m not claiming there isn’t a spending problem. But almost all of that comes from the fact that the military budget is too bloated, and our high health care costs are draining public funds more than they should. Fix those two problems, and get revenues back to a higher level of GDP, and this country is solvent.

  22. says

    “I’m not claiming there isn’t a spending problem. But almost all of that comes from the fact that the military budget is too bloated, and our high health care costs are draining public funds more than they should. Fix those two problems, and get revenues back to a higher level of GDP, and this country is solvent.”

    Well, we could combine the War on Drugs with the War on Poverty and the War on Aging. We could bring our brave soldiers back home and let them scour this nation clean of junkies, indigents and fogies. The unintended consequence might be millions of condo units in Phoenix, South FL and San Diego becoming suddenly vacant and depressing the real estate markets but it’s a small price to pay for gummint and social stability. Besides, we’ve always been at war with junkies, indigents and fogies.

  23. eric says

    lynxreign:

    Nope. The money the government takes in in taxes is essentially removed from circulation.

    I have never, not once, sent the IRS a physical bill. Probably neither have you. Look, I actually mostly agree with your “its a placeholder” comment, but it seems to me that your argument is double-edged: if the fact that its a placeholder makes statements like “government spends taxes” meaningless, then it also makes “taxes removed from circulation” meaningless too. You can’t remove symbolic or placeholder money from circulation. I believe the Fed Reserve removes old bills from circulation as a matter of course; there is a regular process for doing that and replacing them. But that has nothing whatsoever to do with what the IRS does.

    Democommie:

    We could bring our brave soldiers back home and let them scour this nation clean of junkies, indigents and fogies.

    Carousel! Ahhhh, the gem in my hand just turned red. Run Logan run!

  24. says

    Raven: “We are starving the federal government.”

    Or as Republicans would put it: “Mission accomplished.”*

    * Boehner should fly onto an aircraft carrier with great fanfare, rock a codpiece and declaire victory over evil, godless liberalism.

  25. dogmeat says

    Michael @23

    Hi Michael, thanks, it’s been a busy year, looks like next year will be even busier.

    I wasn’t refuting or disputing anything said here, only commenting on the (to my knowledge) false statement made in the initial piece cited by Ed when Hoft spoke of a “mere” $160 billion dollar deficit under Bush. He was gimmicking the numbers to make it appear that the Bush administration was practicing fiscal restraint when that couldn’t be further from the truth.

    After looking at the table linked, I do see that the numbers do match what Hoft was claiming; I don’t have the data, but I am skeptical of that number. I also have a problem with the 2001 surplus. That was the last of the Clinton budgets, which did initially have a surplus, but the recession of ’01 and the Bush tax cuts of ’01 turned that surplus into a deficit. I’m not certain if they are simply posting budget vs. receipts, but I get the impression that they are. The ’09 deficit, to my knowledge, was $1.8 trillion, not the $1.4 trillion that they site. ’01 finished out with a deficit, not a surplus, and Bush added a hell of a lot more debt to the total than the $3.5 trillion (quick math in my head) that the table suggests, the last debt level that I saw attributed to Clinton budgets (plus predecessors) was $5.7 trillion, the debt as the ’09 budget expired was $12.3 trillion (with about $200 billion of Obama’s stimulus spent in that budget year), I’m wondering where the other $3 trillion is in these numbers.

    If you go through and add up the deficit numbers since 1940, I don’t think you’ll get anywhere near the $16 trillion we currently have, so I think there is something missing in that table. My guess would be additional appropriations bills are left out and this is a budget/revenue comparison.

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