Putting the Spending Genie Back in the Bottle

Posted: Dec 30, 2012 12:01 AM

As the following chart from Investor's Business Daily demonstrates, The Bush Tax Cuts didn't starve the federal treasury – revenue flooded in as the economy expanded from the pro-growth policies implemented in 2003 and continued until the sub-prime mortgage market collapse. 

Even with the anemic Obama economic recovery, revenues are again nearly equal to the level required to fund the government had spending over the last fifteen years increased at the rate of population plus inflation growth.  But, that has not been the case.

The pox on Bush and the Republican majorities is that while revenues soared following implementation of the 2003 tax cuts, spending did as well.  To be fair, much of that increased spending was related to the war on terror following the September 11, 2001 attacks. 

Also, the rate of GOP spending increases pale in comparison to what happened when Democrats took control of Congress beginning in 2007 and further accelerated when Obama moved into the White House in 2009.


Federal revenue rose from $1.7 trillion to $2.4 trillion from FY 1998 to 2012 as indicated.  "Revenue growth averaged 2.9% annually, despite two recessions, bear markets, - and tax cuts," as David Hogberg explained in the feature article accompanying the IBD graphic.

However, federal spending rose nearly twice as fast – 5.7% per year – surging from $1.6 trillion to $3.5 trillion over the same period, notes Hogberg. 

Further, the chart shows that if spending had increased over the period at the same rate as population and inflation, revenue would have trended upward about the same even allowing for the effects of the recessions.  But, current spending levels are nearly $1 trillion beyond what population-plus-inflation growth increases would have dictated.

Hogberg calculates that had spending from FY1998-2012 increased consistent with population-plus-inflation growth, revenues would have exceeded spending by $177 billion – a net budget surplus!  Instead, because of the dramatic increase in spending, the federal government racked up an additional $6.7 trillion of new debt.

Every objective observer knows that the elephant in the room is the out of control rate of spending increases over the last many years.  True to form, however, Washington – and particularly Barack Obama - is laser focused on who they can raise tax rates on and by how much.  Their efforts would be better directed at putting the Spending Genie back in the bottle.