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Deficit Commission Fantasies

The failure of the deficit commission “supercommittee” generated a considerable amount of press coverage citing this failure as more evidence of government dysfunction. In fact, even if the committee succeeded, their success would have been empty because its goal for reducing the deficit was an exercise in political fantasy.  Some data from the 2011 Economic Report of the President, found on the Council of Economic Advisors web site (www.whitehouse.gov/cea) illustrates this fact quite clearly.

Table B78 from this report lists federal government spending in billions of current dollars for the fiscal years 1944 through 2012. In the table, federal government outlays (the sum of federal spending on goods and services, interest payments, and net transfer payments to the public) were $1.789 trillion (yes, that’s right, trillion) but, interestingly, the federal government had total tax receipts of $2.025 trillion, running a budget surplus of $236.2 billion. In 2010, the last year in the report where actual data is reported, federal government outlays were $3.456 trillion, with tax receipts of $2.162 trillion, implying a budget deficit of $1.293 trillion.  Between 2000 and 2010, government outlays increased by just over 93 percent!

The deficit commission had a target of $1.2 trillion which seems like a large sum until you realize that this sum was to arise over a ten year period. So the deficit was to be reduced by $120 billion each year which amounts to about 3.5 percent of federal outlays. Clearly this is a trivial amount and it makes no serious effort to address the future spending by the government caused by projected increases in Social Security and Medicare programs. This future spending will be discussed in a future post on this site.

So “success” would clearly have done nothing to address the long-term problems of federal government spending. What was revealed by this committee is the complete denial of reality by the political class in this country.

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Economics One

A blog by John B. Taylor

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One economist's views on economic policy.

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