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In order to keep up with the nature of free, spirited debate, I wanted to place the chat feature at the top of the homepage. This ensures people can come here and share their views on anything they wish and not have it be related to any specific discussion. Here, people can share ideas, links, and views "unmoderated" and an their own pace. To me, this makes The Elephant in the Room blog truly a place for debate.

Tuesday, December 20, 2011

Revenues vs. Spending: Our Take

As we have said since the beginning of this blog, we take positions (albeit, conservative ones), and we tend to back them. This is what we stand for. We stand by opposing views that are backed over agreeing views that are not.

Allow us to try to shed some light on the revenues vs. spending issue we continually see discussed on various blogs and mainstream media news sites. Again, these are our views and our interpretations of the data. As always, the comments section is open for civil debate.

First, we believe that the current financial crisis (skyrocketing federal deficits and the increase in the national debt, and yes, we know the difference between deficits and debts) is the result of out of control government spending as opposed to those that think it's the result of lagging revenues. Secondly, we also believe that, in spite of what the mainstream media tries to brainwash readers with, the Bush-era tax cuts were a boon to government revenues. We must note that this is not an analysis of who or what party or president caused the problems; it is merely a review of which part of the federal budget, in our view, contributes most to deficits and debt. Our primary source of data is the Office of Management and Budget Summary of Receipts, Outlays and Surpluses or Deficits Table located here:

This report can be found on the OMB website located here: 

First, the data. We have selected federal budgets from 2001-2010, and the projected budgets for 2011 and 2012:

We are going to highlight selected years in the data:

1. 2004-2007 - We chose this set because 2004 was the first full year of the "Bush-era" tax cuts. It is also the first 4-year period in which these tax cuts were "seasoned," and their effects had made their way through the economy. We close the set at 2007 because this is the beginning of the recession and revenues tail off (though not to pre-recession levels) due to various circumstances which are not considered "normal" economic conditions (high unemployment, reduced corporate profits, etc.). The recession was not caused by the Bush-era tax cuts, and the economy was side-swiped by other exogenous forces. 

2. 2008-2011 - We chose this set because this was the era of increased government spending. Expenditures during these 4 years skyrocketed and, in our opinion, have contributed most to the mammoth yearly deficits our country is now experiencing. Unlike revenues, which are the result of economic conditions, expenditures are outlays that are the direct result of government officials' decisions and are made independent of economic circumstances. This is why we tend to discount revenues during this period while we take a look at government expenditures. To us, the story told by revenues during this period is not as significant as the story told by expenditures.

Notice the time period from 2004-2007. The yearly increase in government revenue was at its highest rate, and the change relative to base year 2001 was extraordinary.  Now take a look at expenditures in 2008. From 2001 to 2007, government expenditures increased by only 60%. From 2008 until 2011, in less than half the time, they went from 60% to 100% of 2001 levels. Prior to 2008, the greatest increase in yearly government expenditures was 7.95%. In 2008, it was 9.3%. In 2009, it was 17.94% year over year.

These figures might be easier to understand on a simple graph.

During the green period (the period highlighting the Bush-era tax cuts), revenues increased at a rate greater than the increase in government spending. The gap between the two was actually shrinking. The Bush-era tax cuts, as you can see on the graph, yielded the greatest increase in government revenues during the entire 12 year study period. 

During the red period (the period of increased government spending, ignoring revenues), government spending skyrocketed. When compared to revenues during this period, expenditures increased at a rate that exceeded the deceleration in revenues. Outlays increased 29% from 2007 to 2009 alone. Notice the gap between revenues and spending in 2010 and 2011. This is the yearly deficit, which, if left unbalanced (which it is) then gets rolled into the national debt. 

Let's look at another graph.

This graph supports the information presented in the previous graph. During the era of Bush-era tax cuts (yes, we know they are still in effect, but government revenues are greatly affected during recessions and therefore looking at revenues under these conditions would not be statistically sound), government revenues had its greatest year-over-year increase. As stated in the analysis of the previous graph, the rate of increase in revenues exceeded the rate of increase in government expenditures. During the red period, government spending increase at astounding levels year-over-year. 

This final graph is the most telling.

The first thing we noticed: Government revenues, since the first full year of the Bush-era tax cuts, never dipped below pre-tax cut levels. The tax cuts have always maintained a net positive revenue stream relative to the time before they were enacted.

The second thing we noticed: Government spending, especially since 2008, has been, in our opinion, out of control. In 10 years, the government has doubled its outlays. Perhaps, if the recession did not hit, looking at the rate of increase in revenues from 2004 to 2007, revenues might have kept pace (after all, as previously stated, revenues were growing faster than expenditures since the Bush-era tax cuts).

What does this all mean to us? Simply: the government spends too much. If a regular citizen started earning less money, he or she would naturally start to spend less. If not, they would certainly fall into bankruptcy. Adjusting its spending is not a corrective action our government seems to take in a similar situation. When the government started to earn less (nothe government does not have as much control over its revenues via taxes as people like to think), it should have started to spend less. Unfortunately, as the data shows, it actually did the opposite and started to spend more.

What should the government do? Duh, spend less! The government can easily cut trillions of dollars in unnecessary spending. There is no amount of tax increases that can keep up with this out of control spending anyway, and the only way for the government to bring its budget into balance is by living within its means. Empires fall because they go bankrupt, and, if the United States doesn't take heed, it will end up going down that long road to ruin as well.

Looking forward to your comments. Thank you.

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  1. Great analysis. This info needs to be spread. You know the teaparty loves this stuff. I'm not being sarcastic. It's really good. I will share it.

  2. GREAT report. Really opens your eyes. We have to do something

  3. Well done. Of course, the left would try to refute this any way the could.

  4. Voted in your poll at the top right. We ABSOLUTELY have a spending problem. I've seen these numbers before. Your numbers and analysis show it. Why can't liberals get it through their heads. All they do is spend spend spend. Enough!

  5. Well written. And thanks for the poll. I voted for spending of course

  6. The government will tax itself into a whole we can't get out of. Great article.

  7. Hey anonymous, aren't we already there?

  8. Great article and charts. I'm 'numbers challenged' so it's hard for me to explain our current economic situation to my mom (a die hard liberal)

    I hope you don't mind if I copy your charts to show her in plain 'green and red' the dire straits were in, if we don't knock it off... and soon.

    Thanks! And Merry Christmas

  9. Dara - Thank you for the supportive words. Out of all the comment contributors here, you are probably one that shares my views (and the views of the other people who run this blog as well).

    Sure! We don't mind at all. Thank you for inquiring. We exist to share information. Plain and simple. We find that people tend to live in a dangerous world full of myths, and, unfortunately, they use this untrue information to make voting decisions which affect everyone. For example, for some reason, a lot of people out there believe millionaires pay a lower average tax rate than middle class families... which is 100% not true... but people believe it and act accordingly. We absolutely do our research, cite our sources and take the positions we do so that people can share it, talk about it, and pass it on. We hope that you tell lots of people. Hopefully they stop by the blog and engage in our discussions (which we promote as respectful and insightful).

    Sorry about all that rambling, but yes, definitely share.

    Also, do you have our email address? Our Twitter? You have some very good things to say. If you ever wanted to submit something directly, you can.

    We are glad to have contributors like you (I say we because I'm not the only actual writer on this blog). We are doing our best to create forums. We start the topics and hope that people of different views engage with each other instead of with me and the writers directly. We appreciate your comments and look forward to more!

    Thank YOU and we hope that you and yours have an very Merry Christmas!

  10. Nice article LME. One thing you can rest assure of, the first little 0bama drone that gets on here is going to say, "Well Bush had the wars off the books and 0bama put them on the books".

    Tell me you haven't heard that a bazillion times.

    So you may want to address that common liberal knee jerk response.

    I love how they can't seem to grasp the concept of the ON BUDGET, OFF BUDGET, and that the numbers reported in the media are the COMBINATION of the ON BUDGET and OFF BUDGET. I have no idea how they come to the conclusion that OFF BUDGET suddenly turns into "off the books" as if the money is completely unaccounted for.

    By the way, the wars are still on the OFF BUDGET.


  11. Quit comparing the federal budget to a household budget. It's completely inapt. A household cannot raise revenue by increasing taxes. A household cannot acquire more resources by invading another country or instigating a coup to install a more friendly regime that will give preferential access. A household cannot borrow at almost zero percent directly from the Fed, and then monetize that debt by issuing Tresuries. It is stupid to compare the two.

  12. Anonymous - thank you for your post, but... where in our article is the federal budget compared to a household budget. We are merely taking a position that the increase in expenditures are the cause for the country's financial problems. We show that revenues have been fine and have been in a smaller range. Expenditures have risen out of control. Where do you see a household budget comparison?

  13. Right here: "If a regular citizen started earning less money, he or she would naturally start to spend less. If not, they would certainly fall into bankruptcy."

  14. It is GW Bush who lowered revenue while increasing spending. It's not even controversial. Everyone knows it. Those wars he started weren't fought by volunteers for free, with equipment donated by military manufacturers.

  15. Mike Crews - thank you for your posts.

    First, yes, that's a fact. If a regular citizen did start to earn less money, he/she would (hopefully) try to spend less. This isn't a federal budget vs. household comparison. It's merely looking at the spending habits of individuals.

    Secondly... our post on federal spending vs. revenues cites an OMB report... from that report, it claims that revenue actually INCREASED once the Bush-era tax cuts went in:

    Here are the yearly government REVENUES from the time the Bush-era tax cuts were passed until 5 years after:
    2003: $1.78T
    2004: $1.88T
    2005: $2.15T
    2006: $2.40T
    2007: $2.56T

    You are making a claim that GW Bush LOWERED revenue, while increasing spending. Yes, spending did rise, but if you look at our first chart, revenue post 2003 actually rose at a quicker rate. Our challenge: show how Bush lowered revenue as you claim.

    Thank you.

  16. Everything's fine. God Bless America.

  17. Mike Crews - You should check out this article:

    See the commentor Allan... he at least backs what he says with cited evidence.

  18. I saw it. Another bodsom for a pillow. Sleep well.

  19. Mike – that’s fine… You’re welcome to your opinion. But we believe in proof. We think that blindly following something is dangerous. We will always stand closer to opposition that can back what they say than those in agreement that cannot. I find it sad that you seem to be part of the OWS movement and don’t even attempt to actually back what you say. Take care… good luck!

  20. "WE?" Another bosom is your pretense that you represent some "We". But I only see LME posting answers on this blog.

    Sleep well.

  21. Mike - Actually, try again. We have more than one contributor (see Pachyderm Pride, for example). You should read us more! You might need.

    In all honestly, but, this is nothing personal... what's your point? You come here to make a claim, yet you provide no evidence behind that claim, and then start slinging personal insults? What good is that? How does that back your opinions or your cause?

  22. Well quite frankly, I don't quite know where to start with this place. There are many great differences in perspective between you and me, and arguing about the data is fruitless (and boring, though I can do it when necessary). I'd much rather debate perspectives than numbers. Such as, why is it surprising that expenditures exceed revenues in a recession/depression. That you think this is a problem is an example of how far apart we are on the basics.

  23. Mike - Actually, I don't mind the debate. First, our post is merely about our position that expenditures are more to blame than revenues. Our source of data is the OMB report cited above. All we are doing is saying, basically "hey, over the last 12 years, this was revenue, this was spending, look at the direction, amount, change, trend, etc. in one vs the other, and, at the end of the day, we feel spending is the biggest cause of our debt problem." That's really all we are saying.

    With regards to recession/depression spending, yes, if you're referring to (this is going to be an assumption on your position) your views, that Keynesian economics, namely recessionary spending, is a good thing, obviously, with me being a pure Smithian economist, they would differ. The purpose of this article wasn't about recessionary spending or government involvement in that, but we would be happy to debate that subject. Thanks!

  24. This comment has been removed by the author.

  25. Keynesianism isn't just about spending in a recession, ffs. This is just one example of how often I will have to back the truck up on this blog. I fear it will get tedious - especially since posts can't be edited, but only deleted and replaced. :)

  26. Mike - I know it isn't solely about that... but, with your comment of "Such as, why is it surprising that expenditures exceed revenues in a recession/depression. That you think this is a problem is an example of how far apart we are on the basics" isn't it fair to assume that spending in a recession is what you were referring to? You don't have to "back the truck up" here... you can participate as much or as little as you like. I do have an education in economics and finance, I tend to know what I'm talking about.

  27. If you think government should provide a safety net for people whose jobs were lost due to the recession, deficit spending is an unavoidable conclusion.

    If you don't, then you don't. I happen to think the wealthiest nation in history can afford to take care if its own in good times and bad.

    If we can't do that, what is the point of the United States of America?

  28. Mike -

    I don't think the gov't should provide a safety net. By providing that safety net, yes people are helped, but ultimately, they are hurt more. Their incentive to ensure crushing negative situations don't hurt them as badly is not there. For example, if there was no safety net, perhaps people would contribute more to a "rainy day" fund, or some other personal savings account. Ultimately, to me, safety nets create too much moral hazard. People behave in riskier ways because they know someone else is bearing the cost of that risk with a safety net.

    I understand your view about the wealthiest nation being able to help people, but I respectfully disagree. In my opinion, the best way it can help is to let people live and learn on their own. It should get out of the way.

  29. Then I do not want to help your blog achieve a wider audience. You're on your own. LOL.

  30. Mike - I'm sorry that you feel that way. The blog doesn't need any individual assistance in gaining a wider audience; word of mouth and social media is working well. People seem to like our open, respectful forums where they can express themselves freely and gain exposure to their viewpoints. When we say we want to gain a wider audience, we mean that we think the passing of information is our country's biggest asset. The more views, facts and opinions we can share, we think the better everyone will be. We do not have advertisements (yet, though it's not a closed door in the future) and we simply own this blog as a forum for all to come and express themselves. We hope you reconsider, and the offer will always be there. Thanks!

  31. You want a community to serve you, but you feel no obligation to the community.

    Got it.

  32. Anonymous - Um, thank you?

    First... what are you talking about? This is an article/analysis about the debate of which government budget item contributes to the national debt, revenue or spending. We used the government's numbers and concluded it was spending. Where in our article did we say anything about wanting the community (different from the government, by the way) to serve us? Where in the article we say we didn't want to serve the community?

    I'm not really sure what the point of this comment was. If you read through our blog, we are not at all about gitchy, catchy comments like the one you made. We are about taking positions and being able to back them with a sound argument and truth and citable facts. I'm not really sure you accomplish that. We gave our article and we backed it. Would you like to try to refute it? You're more than welcome to do so. Dropping a comment like that really backs what we say when we claim we are tired of the unbacked drivel that is out there. Thanks!

  33. What I am talking about is a guy (YOU) who feels no obligation to the comunity ("I don't think the gov't should provide a safety net" "let people live and learn on their own") trying to build a community. It is to laugh. I can only mock a venture like this.

  34. Anonymous - I think you're mixing up some ideas here. Read what I wrote... "I don't think the GOV'T should provide a safety net." Perhaps you should get your facts straight before personally attacking me. Yes, I don't think the government should provide a safety net for people? Why should it? How is it fair, in a country where we all have the freedom to determine our own paths, to give money to one group of people but not all? How is it helping a community to take hundreds of thousands of dollars in taxes from a wealthy person in Florida to give to a poor person in California? Is that helping the community? I believe that gov't safety nets only promote a behavior known as moral hazard (people behaving in more risky ways because they know they do not have to bear the cost of that risky behavior).

    I DO believe, however, in individuals helping their communities. I would challenge you to provide some proof that this is not the case. You can copy and paste anything you like from this blog, but you will not find that not helping the community is something I stand for.

    If you do read this blog, you would find that IF the gov't does provide a "safety net" for people, it should charge every taxpayer the same rate. I am vehemently against government discrimination in any way (I think a country built on equality should strive to live that way) and taxes and their associated rates should always be flat.

    So, would you like to revise your personal attack. People here can disagree with me, but all I ask is they get their facts straight. Thanks!

  35. You are not worth the effort.

  36. Rather, your blog is not worth the effort.

  37. So if we shouldn't help the people that are suffering from the recession, why did we help the people that created the recession?

  38. This comment has been removed by the author.

  39. Anonymous - thanks! Glad to see you have an opinion. We would have much rather you debated us using an argument backed by facts, but, if not, that's your choosing.

    Scorpio - Thanks for your comment. Who said WE shouldn't help people? My issue is having a GOVERNMENT that helps people, and something that's worse... having a government that discriminates by having some people pay for that help at a greater rate than it makes others pay.

    My first challenge to you is... why are some people NOT hurt by the recession? I'm not wealthy, but, I got a new job in 2010, and the recession is barely affecting me. I had 9 interviews and 6 job offers. I took one of them, obviously. You can call me heartless, but, why am I not affected? Perhaps I've made decisions that are working better for me? Why should the government discrimantly (yes, made up word) take from those who make good decisions and give to those who don't?

    Secondly, why do you think the the amount of citizens on the government dole is ever expanding? Perhaps the government safety net "help" only helps people in the short term? Yes, it gives them some basic sustenance, but it ultimately hurts them in the long term. Government safety programs ultimately kill peoples' incentive to go out and do something for themselves. That's why you see people staying on it. Could it be that the unemployment rate is so high because the government keeps extending unemployment benefits? Like I said, I had SIX job offers. SIX! Right in the middle of the recession. Maybe if the government's safety net known as unemployment insurance went away, people might actually go and get a job?

    But again, please don't mix up NOT helping people with the belief that the government shouldn't. Keep in mind, politicians are elected by voters. Don't you think it's a great conflict of interest if politicians give give give to voters in the form of "help" and those same voters keep voting those politicians in power?

    Also, with regards to helping those who caused the recession... what are you referring to? People that became over-zealous by continuing to extract the equity in their homes through second mortgages? Government officials that tried to buy poor voters that passed legislation that unfairly made banks give loans to people that weren't credit worth? Freddie and Fannie? Which is it?

    I hope you don't think I'm heartless, but I will never apologize for the truth. Again, we ALL have the opportunity to make choices, and yes, some make better ones than others. Consequence, good or bad, is a product of those choices, and yes, people should have to live with those consequences.

  40. I'm sorry, I'm glad you have been able to make good decisions in your life, but being in the construction industry my life kind of sucks seeing as how there is not much building going on right now. I also thought that the people were the Government, and again, why did we bail out the Banks?

  41. Scorpio - Thank you for writing back. Again, please don't take this as heartless, but yes, you made a choice to get in to whatever profession or career you did and with that comes consequences. If my field went cold and I couldn't find work, I would have to adjust accordingly. I wouldn't want to make someone else pay for my life.

    To me, the most important and the best thing about America is: there is no law, no regulation, no rule preventing you from adjusting. You made the choice to get into your field, and you can also make the choice to get out of it. You can make choices to save while you're working in that field, or you can make the choices to spend like crazy and be ill-prepared for a recession. We all have the equal opportunity to make choices. Again, I can't reiterate this enough but yes, with everything comes a choice, and that is absolutely not being heartless. I don't believe the government should take from one group to give to another.

    With regards to bailing out the banks, I'm vehemently opposed to it. Again, if banks, people, or any other free-to-choose person or institution knows the government will get their backs, they will continue to make risky/bad decisions (see our post: I am against any form of government coddling, and, in my opinion, the banks should be allowed to fail just like everyone else.

    I appreciate you coming here to express your opinions. I hope you continue to do so. I really wish you the best of luck with your career.