Thursday, July 28, 2011

Debt ceiling reality check

The current narrative over the debt ceiling debate goes something like this: A barbarian horde known as the Tea Party has swept into Washington from the nation's hinterlands. Their mission? To ensure that grandma's diet is reduced to cat food and that the corporate masters who fund their astroturfed rallies face zero tax liability.

This new generation of Republicans is so extreme (it's a Washington truism that each new generation of Republicans, be it the Reaganites in the 1980s, the Gingrich-led House of the 1990s or today's Tea Party members are the most extreme ever. Despite this the government somehow manages to keep growing at a healthy clip) that they manage to make John Boehner, the day-glo congressman from Ohio, appear almost moderate.

Holding Boehner a virtual hostage, the Tearrorists have forced him to propose a set of draconian budget cuts that will tear the very fabric of American society asunder (grandma probably won't even be able to swing Fancy Feast). President Obama, meanwhile, permanently ensconced in the sensible center of the debate, is willing to make some cuts but insists that they be balanced with tax hikes to relieve pressure on a government starved for revenue. The situation is so desperate that Joe Biden has taken on a newspaper route and the last state dinner served up ramen noodles.

The reality, of course, is nothing of the kind. Boehner's proposed cuts are actually not cuts at all, and the federal government actually flush with cash from a historical perspective. First let's take a closer look at what Boehner has put forward:

As Chris Edwards comments:
The “cuts” in the Boehner plan are only cuts from the CBO baseline, which is an imaginary path of future spending designed as a planning tool for Congress. Boehner can propose to spend any amount in any future year he wants, and in this plan he choose to have a steadily rising spending path.
Austerity this is not.

Now let's take a look at revenue. Here's a chart I made showing per capita income tax revenue collected by the federal government since the tax was first imposed in 1913:

Talk about an inconvenient truth! In other words, on a per capita inflation-adjusted basis, the federal government last year -- the midst of a glacially-paced economic recovery -- collected about double what it did in 1955, back during Paul Krugman's idyllic childhood on Long Island, described thusly in The Conscience of a Liberal:
“The political and economic environment of my youth stands revealed as a paradise lost, an exceptional moment in our nation’s history …”
Consider this: the amount of money collected last year from the income tax alone on a per capita basis was more than what the federal government spent per person in 1965 (and remember, income taxes account for less than 60 percent of government revenue).

The truth is that Washington has plenty of money. It's collecting more money per person than any year prior to 1987. What Washington does not have is enough money to fund all of its grand designs. But when you have more money than what you've had for most of your history, and it still isn't enough, maybe it's time to do less stuff.

Update: For those who think I exaggerate about how the Tea Party is seen, I present to you Rep. Nancy Pelosi

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