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The Federal Budget for Dummies: Tax Cuts + Increased Spending = Red Ink

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In the late 1990s, Bill Clinton managed to produce a series of record-setting federal budget surpluses. Not deficits, surpluses. For those who are unacquainted with such a foreign concept, budget surpluses occur when the federal government collects more revenue than it spends--which, as we all know, doesn't happen very often. Incredibly, from 1998-2000, the Clinton Administration generated a series of annual budget surpluses and succeeded in paying down the national debt by a record $360 billion. Even better, as Bill Clinton left office, White House budget officials predicted that, if the incoming Bush Administration embraced a similar level of fiscal discipline (... thunder rumbles ominously in the background... ) the federal government would continue to generate budget surpluses far into the foreseeable future. A conservative estimate predicted that the federal government could possibly generate more than a trillion dollars in budget surpluses during the first decade of the new millennium.

That was then...

So, what the heck happened? If the Clinton Administration was raking in record budget surpluses how could the federal budget tank on such an epic scale in just a few short years? From 2000-2012, the national debt has grown from $5.7 to $15.1 trillion. During that epic tailspin, the US has gone from generating record surpluses in 2000 to racking up the largest deficits in history from 2010-2012.

Given all the bad economic news in recent years, I suppose blame for the budgetary nightmare must lie Barack Obama, right? He's one of those tax and spend Democrats, so Obama has got to bear the majority of blame for the $15.1 trillion national debt. Certainly, budget deficits have been big and ugly during Barack Obama's first term in office--indeed, they have been historically large. Of course, we have to keep in mind that, from the moment that he assumed office, President Obama has been struggling to pull the country out of the the most severe financial crisis in 80 years. So, for the sake of accuracy, it would be unfair to assign all of the blame for the federal budget nightmare to Barack Obama. Yes, budgetary shortfalls during Obama's tenure have been grim, but it is important to recall that President Obama inherited the worst federal financial calamity of the post-WWII era.

Aha! So, something significant must have occurred in the years between Clinton-era prosperity and Barack Obama's ascendancy to the White House--and what might that have been? Hmmm....

George W. Bush was a man on a mission. Practically overnight, Dubya single-handedly demolished US prosperity and plunged the country into a bottomless sea of red ink. How could one man achieve such an historic train wreck in nary the blink of an eye? Easy. Dubya tossed fiscal discipline out the window and embraced the surest recipe for bankruptcy ever invented: Dubya insisted on having his cake and eating it too. More specifically, Dubya slashed federal revenues (in the form of a series of massive tax cuts) while simultaneously endorsing a neverending series of spending increases. As anyone who has ever balanced a checkbook knows, you can't cut your income and increase spending without digging yourself into a deep financial hole. However, this simple logic was completely lost on Dubya.

It's only a guess, but I'll bet Dubya never had to worry about balancing his personal checkbook. Otherwise, I suspect that his financial decision-making as president would have been very different.

Bill Clinton generated federal budget surpluses by imposing a strict and straightforward fiscal discipline on his administration: Clinton would not approve new spending, no matter how popular proposed programs might be, for which there was no established revenue source. Without doubt, Clinton benefited from the strong, sustained economic growth that was driven by the boom, and post-Cold War realignments. Nevertheless, Clinton's admirable commitment to fiscal discipline put the federal government on a course to strengthen its position of global leadership while also living comfortably within its means. Now, that's sound fiscal management.

And then, along came Dubya.

Though they are very scarce these days, Dubya's defenders have often argued that many of the spending increases that Dubya approved were required in order to fight the war on terror. Thus, Dubya could still claim to be a "good conservative" because, when it came to spending increases, Dubya only ballooned the federal budget out of wartime necessity. Indeed, Dubya was fond of reminding the public that he was a wartime president and, as such, he was "the Decider" for many of the often puzzling federal initiatives that took place during his watch.

OK, so let it be on Dubya's head. During his time in office, Dubya never encountered a spending bill--whether it was related to the war or not--that he was unwilling to sign. Yet, at the same time that he was signing spending bills willy-nilly, he was also doing his best to strangle federal revenues. Extraordinarily, Dubya even signed a huge tax cut on the eve of his ill-fated war on Iraq. Even if the war did not make much sense (Wherefore those dratted WMDs?), it was even more ludicrous to cut taxes as Dubya committed the US to fighting multiple overseas wars. This essentially put the US in the preposterous situation of having to wage multiple wars on borrowed money.  

If the federal government is going to spend big, then the simple truth is that, under such circumstances, the feds will have to increase ( Not decrease!! ) their revenues. Either Dubya didn't understand, or, more disturbingly, he didn't care about the essential correlation between federal expenditures and revenues.

Irrational as Dubya's tax-cut-and-spend-BIG regime may have been, post-millennial Americans quickly became addicted to such illogic. Americans have always been tax-haters, but, until recently, that particular pathos had not been cemented to an insistence on BIG federal spending. Almost uniformly, Americans have become volubly unwilling to pay for the tax-dependent services that they demand from the federal government. Even though it makes no fiscal sense whatsoever, Americans want the federal government to do more, and tax less. And in a democracy like the US, politicians have to give the people what they want, right? Thus, for the past twelve years, as the federal government has gotten cash-poorer, it has spent bigger. Three cheers for democracy! The people have spoken, and the net result of our tax-cut-and-spend-BIG mania is a $15.1 trillion national debt.

With that kind of fiscal illogic polluting the minds of Jane and John Q. Public, is it any wonder that we haven't summoned the fortitude to fix the global financial crisis?

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Prof Tim teaches sociology at CSU-Pueblo and he writes books about social change, such as... A Formula for Eradicating Racism,

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