- - Thursday, April 19, 2018

ANALYSIS/OPINION:

While tax cuts take the budget blame, spending does the debt damage. Proponents of big government spending are happy to stoke the latest story in the narrative that America is under-taxed.

However, quick comparison of federal revenues and outlays versus their historic averages shows clearly the fault lies with Washington’s spending, not America’s paying.

The Congressional Budget Office’s latest 10-year budget estimates show the biggest change from its prior projections comes from changes due to Republicans’ recent tax cut. Of course, media and bigger government advocates have seized on this fiscal snapshot.

Even former Obama administration officials, who oversaw federal debt more than double during their eight years, hypocritically hyperventilate over projected deficits that still fail to match their actual ones.

It is time to step back and see the spending sleight of hand some are seeking to play in this instance. If we are truly interested in seeing the fiscal issue America faces, it is not one of simply looking at a comparative change.

Instead, the issue is one of absolutes: Where does the problem lie? To understand it, a simple historical comparison — using the same latest CBO projections — shows it quite clearly.

Over the last 50 years, as a percentage of GDP, federal revenues and federal spending have annually averaged 17.4 percent and 20.3 percent, respectively.

This year CBO projects federal revenue will equal 16.6 percent. By 2028, CBO projects it at 18.5 percent. In comparison, CBO projects federal spending will be 20.6 percent of GDP and by 2028, 23.6 percent.

Thus, at the tax cuts’ beginning, federal revenues are 0.8 percent below their 50-year average, but will rise to 1.1 percent above it. Federal spending starts at 0.3 percent over it, and grows to 3.3 percent above it.

Nor are these two endpoints anomalies. They represent clear trends: Both revenues and outlays will increase, but spending will increase more and faster.

Over the 10-year period, CBO projects federal revenues will average 17.5 percent of GDP, slightly above the 50-year average. Spending will average 22.4 percent of GDP — 2.1 percent above its 50-year average. Over the next 10 years, CBO projects federal spending will never be below its 50-year average.

Critics will argue these official estimates only show part of the picture. They will claim Republicans purposely gamed the system by prematurely ending individual tax breaks when 2026 begins.

However, even under the tax cut plan’s full impact, CBO projects federal revenues will hit their 17.4 percent 50-year average in 2024 — a year ahead of the individual cuts’ expiration.

What is at work here is clear: Spending has been Washington’s long-term problem and is projected to continue to be so. The 50-year averages show that going back, and a comparison of it to CBO’s 10-year projections confirm this going forward.

Kitchen table common sense would also reach the same conclusion. Any family confronting a financial dilemma does not say that their solution is to make more money than they have in decades. Outlays are made to match income, not the other way around.

Outside of higher spending’s higher deficits and debt is also lower growth. Government’s increase is conversely the more productive private sector’s decrease. This in turn, reduces the economy’s proportional yield of revenue. The fiscal problem is thereby further exacerbated.

A reduced economy increases the demand for government spending in order to compensate for diminishing prosperity. The absolute demand for more revenue from a less efficient economy means taxes grow relative to it.

This brings us back to the recent tax cuts’ critics. This rebalancing of revenues relative to their long-term trend is precisely what they seek. They are more than happy to redefine parameters to obtain it. Just as they redefined the Obama years’ slow growth as the “new normal,” so they seek to similarly redefine a higher American tax burden.

If there is blame for Republicans, who have full control of government, it is on spending, not their recent tax cuts. Though in fairness to them, it is hard to see how they could have lowered spending with their slim congressional majorities and a military underfunded under President Obama.

But it is not hard to imagine the howls of today’s liberal tax cut critics if spending reduction would have occurred — especially from the entitlement reform so desperately needed.

The latest attempt to seize on anything to discredit tax cuts should be seen for what it is. And those making it should be recognized for what they seek: Redesigning by redefining America’s tax burden.

• J.T. Young served in the Treasury Department and the Office of Management and Budget.


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