GOP Talking Point: “Washington Has A Spending Problem, Not A Revenue Problem”

Boehner: “Washington Has A Spending Problem, Not A Revenue Problem.” In his comments following President Obama's April 13 speech on deficit reduction, House Speaker John Boehner stated:

You are also aware I have been pushing the president for months to engage in this discussion about our long-term fiscal mess. I'm glad that he's finally decided to engage in it. But there's been a lot of discussion about the need to raise taxes. And I'll just say this: we can't tax the very people that we expect to reinvest in our economy and to create jobs. Washington has a spending problem, not a revenue problem. [speaker.gov, accessed 4/15/11]

Fox Adopts GOP's Talking Point On Deficit

Varney And Doocy Agree That Deficit Is Not A “Revenue And A Tax Problem” But A “Spending Problem.” During a discussion of the deficit on the April 18 edition of Fox News' Fox & Friends, Fox Business host Stuart Varney stated: “I don't think this is a revenue and a tax problem. This is a spending problem.” Co-host Steve Doocy replied, “Absolutely.” From Fox & Friends:

VARNEY: If all you want to do is just raise taxes, not cut spending, all you want to do is raise taxes, then the amount of tax-raising you've got to do is simply phenomenal. And it's not going to happen. This is bad economics. It might make good politics. After all, half of all households pay no federal income tax at all, so you can preach to that choir. You can tell them, you can have everything you ever wanted, and the other half will pay for it. Maybe that's good politics, but it's lousy economics.

DOOCY: But you also have the option, either you can raise taxes on somebody or everybody, or simply cut spending.

VARNEY: Yes.

DOOCY: On big, important programs.

VARNEY: Of course. Look, that's what's required, isn't it? This is not -- I don't think this is a revenue and a tax problem. This is a spending problem.

DOOCY: Absolutely!

VARNEY: We have spent ourselves into a $1.6 trillion deficit this year. We've got to cut that spending to get out of that hole. And we show no signs of doing it. That creates a debt crisis, and we're in it. [Fox News, Fox & Friends, 4/18/11]

Rove: Obama Is “Wrong That This Is A Revenue Problem. This Is A Spending Problem.” On the April 15 edition of Fox & Friends, Fox News contributor Karl Rove stated that Obama is “wrong that this is a revenue problem. This is a spending problem, and it's his spending.” From Fox & Friends:

BRIAN KILMEADE (co-host): Here's what stunned me, and I think it's essentially for -- he's saying game on.

ROVE: Right.

KILMEADE: Because he said the problem is the rich are not paying enough. Upon further review -- and he brought to your years at the White House, the proof of that. But the stats show that revenues were never higher than they were during those eight years.

ROVE: That's correct. That's right.

KILMEADE: There has to be a reason.

ROVE: And look, here's the other thing. Let's assume -- you're absolutely right. He's wrong that this is a revenue problem. This is a spending problem, and it's his spending. He's increased discretionary domestic spending in two years by 84 percent if you include the stimulus. His budget plan in February has us going -- spending $46 trillion over the next 10 years with $36 trillion in revenue. [Fox News, Fox & Friends, 4/15/11]

Camerota: “Republicans Say ... We Don't Have A Revenue Problem, We Have A Spending Problem.” On Fox News' America's Newsroom, during an interview with Rep. Robert Andrews (D-NJ), guest co-host Alisyn Camerota stated, “You know, of course, what Republicans say, which is that we don't have a revenue problem, we have a spending problem.” [Fox News, America's Newsroom, 4/15/11]

But Numerous Economic Experts Say That We Have A Revenue Problem

Krugman: “Government Spending Has Continued To Rise More Or Less On Its Pre-Crisis Trend” While “Revenue Has Plunged.” In an October 17, 2010, blog post, Nobel Prize-winning economist Paul Krugman wrote:

For all those commenters saying that we must have had a surge in government spending -- I mean, look at the deficit! -- a simple picture:

Government spending has continued to rise more or less on its pre-crisis trend. Revenue has plunged, because the economy is deeply depressed. [NewYorkTimes.com, 10/17/10]

Krugman: Since 2007, “Revenue Plunged, Leading To Big Deficits.” In an October 18, 2010, post, Krugman wrote:

During the pre-crisis period, spending grew slightly faster than GDP -- that's Medicare plus the Bush wars -- while revenue grew more slowly, presumably reflecting tax cuts.

What happened after the crisis? Spending continued to grow at roughly the same rate -- a bulge in safety net programs, offset by budget-slashing at the state and local level. GDP stalled -- which is why the ratio of spending to GDP rose. And revenue plunged, leading to big deficits.

But I'm sure that the usual suspects will find ways to keep believing that it's all about runaway spending. [NewYorkTimes.com, 10/18/10]

Krugman also included this chart:

Former Reagan OMB Official: “I Think The Biggest Problem Is Revenues.” In an interview with Talking Points Memo, David Stockman, a former Office of Management and Budget director under President Reagan, responded to Rep. Paul Ryan's (R-WI) budget plan and stated: “I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution.” From Talking Points Memo:

While the government teetered on the brink of a shutdown last week over short term funding, economists across the ideological spectrum weighed in on the GOP's long-term plan with negative reviews. The biggest shock came from high-profile economists with GOP leanings, who also criticized it on the merits.

“It doesn't address in any serious or courageous way the issue of the near and medium-term deficit,” David Stockman told me in a Thursday phone interview. “I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution. It's a measure of how far off the deep end Republicans have gone with this religious catechism about taxes.”

Stockman, who directed Ronald Reagan's Office of Management and Budget, approves of Ryan's entitlement proposals, but breaks faith over taxes and the GOP's unwillingness to slash defense spending. [Talking Points Memo, 4/11/11]

David Cay Johnston: “There Is A Simple, Factual Way To Describe What Is Happening To Our Government: We Have A Revenue Problem.” In a March 4 column, Pulitzer Prize winner and economics author David Cay Johnston wrote: “There is a simple, factual way to describe what is happening to our government: We have a revenue problem.” From Johnston's column:

Right after the midterm elections, when false claims that lower tax rates increased revenues helped win votes, Fox News captured the lockstep approach perfectly in a piece on its website about how Republican leaders were “on message.”

Notice these almost identical quotes from the Sunday morning talk shows five days after the midterms:

We don't have a revenue problem. We have a spending problem.

-- Senate Minority Leader Mitch McConnell, R-Ky.

Washington does not have a revenue problem. It's got a spending problem.

-- House Majority Leader Eric Cantor, R-Va.

We do not have a revenue problem. We have a spending problem.

-- House Budget Committee Chair Paul Ryan, R-Wis.

I think it's not a revenue problem; it's a spending problem.

-- Sen. Rand Paul, R-Ky.

As framed, these advertising lines are matters of opinion, but how many Americans recognize them for what they are -- opinions, not facts?

[...]

When members of Congress will fight to protect a $53 billion mistake that benefits one industry, giving away our commonwealth for free, it is not just unconscionable. It is part of a pattern of wrecking our government and our economy for short-term political gain. And in this one, the oil companies won the day in the House.

There is a simple, factual way to describe what is happening to our government: We have a revenue problem. [Nieman Watchdog, 3/4/11]

Harvard Business Review Group Director: "[T]he Giant Deficit Is Mainly The Result Of The Collapse In Tax Receipts Brought On By The Recession." In an October 2010 post on his Reuters blog, Justin Fox, editorial director of the Harvard Business Review Group, analyzed the deficit and concluded that it was “mainly the result of the collapse in tax receipts brought on by the recession”:

The Treasury Department reported on Oct. 15 that the deficit in fiscal 2010, which ended Sept. 30, was $1.294 trillion. That's less than FY 2009's $1.416 trillion, but it's still really really big. Why is it so big, though? Is it because of all that stimulus and bailout spending? Or is something else going on?

To find out, I created a fantasy world. I figured out how fast federal spending and revenue grew over the last business cycle, from 2000 through 2007, and calculated where we'd be today if those growth rates had continued through 2010. I was originally motivated to do this for a commentary that's supposed to air tomorrow night on Nightly Business Report. But I'm thinking there's not a huge overlap between Felix Salmon readers and Nightly Business Report viewers, so I'll go ahead and share what I learned.

In my no-financial-crisis, no-bailout, no-recession, no-stimulus scenario, spending kept growing at 6.22% a year, and revenue kept growing at 3.45%. You can see from the difference between the two numbers that this was an unsustainable path. But it clearly could have been sustained for a few more years.

Where would it have left us in fiscal 2010? With $2.843 trillion in federal revenue and $3.270 trillion in spending, leaving a deficit of $427 billion. The actual revenue and spending totals for 2010 were $2.162 trillion and $3.456 trillion. So spending was $186 billion higher than if we'd stuck to the trend, and revenue was $681 billion lower. In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending. Nice to know, huh? [blogs.reuters.com, 10/25/10, emphasis added]

Lawrence Haas: “Sorry, The Federal Deficit Isn't A Spending Problem.” In a February 3 Fiscal Times column headlined, “Sorry, the Federal Deficit Isn't a Spending Problem,” Fiscal Times contributor Lawrence Haas wrote: “What's driving our future budget deficits is not spending, per se, but two societal realities. First, like most of Europe as well as China and Japan, the United States is growing older as a society. Second, health care costs continue to grow far faster than inflation and even faster than the economy.” While Haas noted that the “deficit problem” is not a “revenue problem,” he wrote: "[I]f you want to blame our looming deficits on policy changes, you would look not to spending but, rather, taxes -- specifically, to President Bush's huge tax cuts of 2001 and 2003." From Haas' column:

What's driving our future budget deficits is not spending, per se, but two societal realities. First, like most of Europe as well as China and Japan, the United States is growing older as a society. Second, health care costs continue to grow far faster than inflation and even faster than the economy.

To be sure, those realities have major impacts on existing federal programs. The combination of an aging America and soaring health care costs will drive up the costs of Medicare and Medicaid, while an aging America also will swell the budget of Social Security. Nevertheless, the fact that demographic and technological factors expand the costs of key federal programs that, in their basic elements, have been around for decades doesn't merit the conclusion that “spending is out of control.”

[...]

Frankly, if you want to blame our looming deficits on policy changes, you would look not to spending but, rather, taxes - specifically, to President Bush's huge tax cuts of 2001 and 2003 that Congress recently extended until 2012 and will likely extend either wholly or in large measure again after that.

Simply letting the Bush tax cuts expire would reduce annual deficits to about 3 percent of GDP (which is considered economically sustainable) over the next decade, though they would start rising again later on due to soaring health care costs.

Does that mean “the deficit problem is a revenue problem?” No, it means the deficit is what it always is - a mismatch between revenues and spending. Policymakers can address it by cutting spending, raising revenues, or some combination of the two. What they choose to do is a political matter, nothing more and nothing less. [The Fiscal Times, 2/3/11]