RSSFuture Surpluses…or Deficits
We have seen how the national debt has risen to its current level as a result of deficit spending. We have looked at deficit spending in absolute dollars as well as a percentage of the gross domestic product. The relationship of the federal budget to the country’s GDP establishes a foundation for understanding the potential outcomes of proposals to continue or change current fiscal policies. This chart simply asks the question: Can we expect budget surpluses or budget deficits in the future?
7 Responses to “Future Surpluses…or Deficits”
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June 14th, 2008 at 2:44 pm
If Senator McCain is elected, I really worry about our country’s debt. It will probably drastically increase. Hopefully, Senator Obama will do even better than ex-President Bill Clinton, and create an even bigger surplus.
June 16th, 2008 at 11:15 pm
It will be rough. We have to end this war going on right now, and get rid of the tax cuts for millionaires. The good thing is that the Clinton model is already tested, so Obama has a good excuse to raise taxes, by pointing out Clinton’s perfomance. In 1993, Clinton didn’t have a model to point to, which is why his plan barely got passed in Congress, and got huge political blowback for it. I just hope Obama avoids free trade, something Clinton couldn’t resist. I doubt it tho, the two parties are beholden to free trade. Its where they get their corporate contributions.
June 19th, 2008 at 3:09 pm
The only credit Bill Clinton deserves for the tax surplus of the late ’90s, is that he didn’t turn around and spend it like a typical politician would have. The tax surplus of the 90’s was due to the hot economy (created by the tech boom) which expanded the tax base. Venture Capital firms were having a feeding frenzy, pouring tons of money into new start-up ventures, then taking them public to make huge profits. All the money in so many new hands (businesses and individuals alike) turned several times in the whole economy, invoking much new spending, and creating a much expanded, taxable income base. Not a single politician deserves credit for any of that activity. It was a miracle that our politicians did not take the surplus and spend every dime as it came in! Everytime a dollar turns hands, it is taxed a little bit. The more often it turns hands in a given period of time, the more tax it generates.
If we want to see more surpluses, two things need to happen:
First we need to reduce spending by all government entities, and secondly we need to increase revenue to the government.
In order to get the government to stop wasteful spending, we need to amend the constitution so that there are spending guidelines that congress must follow. How many times over the past decades, have we heard politicians say they are going to balance the budget? How many times have they suceeded? The only law congress must honor is what is written into the Constitution, so until there is a Constitutional Amendment which restricts and guides their expenditures, they will continue to waste money.
Increasing tax revenue to the government requires either increasing tax rates (or creating new taxes), or heating up the economy to cause dollars to turn more frequently, which will widen the taxable income base. The best answer may be to combine both in a way which creates a scenario of equalization between both. We cannot increase taxes on the lower incomes (individuals and businesses), as they already spend every penny on the basic essentials to survive month-to-month (food, rent, energy, etc). If we take away any of their money, we reduce their spending on our most basic economic structures, which will affect everyone, all the way to the top. Increasing taxes in any of the lower brackets will only reduce spending, which is what fires our economy. Instead, we need to fire up the economy by increasing spending, much like we experienced in the late 90’s. To do this, we need to inspire innovation to create new businesses with new products, and inspire upper income earners(individuals, venture capital, and businesses) to invest in such ventures by invoking serious tax increases on them and allowing serious deductions for investments in those new businesses. There should be a special focus on investing in businesses which have exportable products (because we need to start bringing money back into our country to correct our trade deficit problem). And it should also focus on smaller businesses, since large conglomerates offer less incentive to individuals for new innovation, and typically focus on bottom line via job control.
Once money starts turning hands several times over, we will begin to see tax revenue increases, but it will be worthless unless there are spending controls on congress.
What this all boils down to, is that money needs to be spent. It needs to turn hands more frequently in order to widen the taxable base. The bottom 50% is already spending what they have, so this only leaves the upper brackets. It has been published that a very small percent own the vast majority of wealth. That is the money we need to fix our problems, and done properly, it can be beneficial to all.
June 19th, 2008 at 11:44 pm
tl, I nearly fell out of my chair reading your reply. I usually read user comments as a masochistic form of entertainment, but your comment shows not only that you actually understand the issue but even have a viable solution to the problem.
I’m a little dubious about raising business taxes since doing so has the potential to act as a form of inflation as the companies pass the tax burden on to their consumers in the form of higher prices, but that’s a nitpick as companies that do so should get weeded out by competition. Although my concern comes from our governments complete abandonment of monitoring the “free market” and ensuring an environment that fosters competition.
I especially liked the idea about spurring investment in exporting businesses. It would need to focus on more intangible goods and services as it is currently labor costs that keep pushing the trade deficit higher. But regardless we have to do something.
Unfortunately I don’t see an educated and motivated public that will drive the issue and I see absolutely no political will in Washington to take a chance and make a tough decision to set the ship on course.
June 20th, 2008 at 10:34 am
dwarg, Thanks. You hit the nail on the head as far as getting our politicians to take the necessary actions. Especially when it comes to amending the constitution to force them to control spending, borrowing, and taxing (see my comment on the ‘budget/spending’ page) http://perotcharts.com/2008/06/storms-on-the-horizon/?cp=4#comments , comment #35). It seems highly unlikely that politicians are going to make a legitamate effort to change something which will affect their ability to reward their constituency. It will take a massive movement on the part of the public, and will probably entail replacing many of our legacy politicians.
Please note, I am not in favor of raising taxes on anyone (business or individuals alike), especially on small entities since it will only have a negative effect on the spending which drives our economy. However, congress has used the tax benefits many times in the past to drive investment in certain segments (ie, oil and gas exploration in the ’80s), so it is not a new idea. My idea is less about increasing taxes, and more about using taxes and tax incentives to drive the massive venture capital into areas which will beneficially stimulate the economy. That is why I suggest raising taxes on upper incomes and profits, but offering equally beneficial deductions on that money which is invested into the types of new businesses which can cause dollars to turn more frequently. Typical investment is largely geared toward stable companies (blue chips and proven companies), with only smaller percentages invested in higher risk ventures. Large and mid-sized stable companies will only spend that money (jobs, expansion, R&D) when it is seen to be profitable, otherwise will likely just re-invest it in the same types of companies, which creates a n investment (cash) loop. We need to break that loop to get cash into the hands of more people, which will create more spending, which will widen the tax base, which will produce more tax revenue. I do not have all the answers, and this idea requires much more research and discussion, and I don’t want to use up all of Mr. Perot’s blog space with my two-cents.
And you are also correct about the types of export businesses (intangble goods) since we cannot compete on labor vs labor costs. But I do believe that with some innovative thinking, we can improve business processes and utilize technologies to get much closer to producing tangible products which can compete against low-cost foreign labor. It just requires doing it smarter, and I don’t think big businesses have that ability (too much internal beauracracy).
June 20th, 2008 at 12:57 pm
re:tl, I believe we have a current example of politicians response to increased revenue. The state of California in the late 90’s + had a windfall of revenue because of the increase in new business activity and the resulting capital gains taxes that resulted.
Instead of saving the extra money for a rainy day, they spent it all on NEW programs and increases of various sorts that brought re-election of a significant Democratic majority which has continued for almost 2 decades. NOW California is running huge deficients, borrowing itself into significant fiscal irresponsibility. This “windfall” tax revenue clearly was not sustainable and could not be counted on in the future. However, the politicians in Sacramento spent it as though it would continue and INCREASE forever!
It has been demonstrated over and over again at local, state and national levels, that in most cases politicians will spend some amount OVER what their current revenue is. Very little concern is shown for the future beyond the next election. Thus, about the only way to constrain the spending, is to constrain the revenue!
This is what was done on a national level during Clinton’s first term with the Republican’s gaining control of the House and stopping the proposed national health plan and costs proposed by Hillary. They voted for tax reductions and lowered the projected future revenue. For what every reason, Bill Clinton continued through the remainder of his Presidency without increasing spending significantly on a percentage basis. I would guess it had to do mostly with one party in control of the Presidency and one in control of Congress.
When one party gets in control of the Presidency and also the Congress, you have historically seen spending rise at a much greater rate then inflation.
Just raising taxes to balance revenue with spending has shown to be a failure in most cases as the spending continues to ALWAYS be raised to some number GREATER than what current revenue is.
I agree that spending must be reduced. Income and expenses need to be in balance. Politicians seem to be humanly incapable of do that which I have just stated. Look at the coming correction/disaster of municipal and state governments finances which in many cases simply mirrors the national problems of many promises of pensions, medical payments, and other commitments that have been voted without a reasonable way to pay for them in the future.
San Diego’s pension and governmental mess, Vallejo’s (California) bankruptcy, and California’s huge deficients are simply the start of a wave of similar problems soon to be felt nationwide.
I do not believe that we can simply tax ourselves out of this mess. Perot’s charts on this website clearly show that in a decade or two we would need to collect practically the entire revenue stream of the nation just to pay for the governmental promises of the national government, let alone all of the state and local governments which have very similar problems coming along. These are just not as well publicized.
Unless there is a totally different attitude of fiscal responsibility shown by politicians, there will be in the near future fiscal calamity followed by national ruin in this country.
June 22nd, 2008 at 1:39 pm
to builderofhouses; You are completely correct. I have made the same statement in other comments throughout the website, that no amount of tax revenue to the government, no matter where is comes from or how much it is, will ever be used properly unless Congress (and State govt) has to follow a law which controls spending, borrowing, and taxing. This must be done by replacing the 16th amendment with one which describes those kinds of controls. Texas had the same situation as California when the tech bubble broke. It was obvious that they all (state and local govts) believed that the money train was going to last forever, and had no backup plan to use current surpluses to cushion the inevitable fall.
Government officials will never be fiscally responsible unless they are made so by law. The only laws that Congress must follow, are those described in the Constitution, so amending the Constitution is essential to fixing the problem. Getting this to become a reality, though, is no small task. To incumbents, it would mean cutting their own throats because they use frivolous spending to reward their constituency.
I also agree with you that our best government is when we have one party in the executive office, and the other party in congress. It seem to create a better balance. I have been a 3rd party supporter since the mid 80’s. Prior to that I was republican, and still tend toward that side. However, when I realized that the republicans were just as financially irresponsible as the democrats, I felt it was time for a 3rd party influence. When Ross Perot fired up the Reform Party, I jumped on immediately. Unfortunately, when both the Democrats and Republicans used the ‘Don’t throw your vote away’ propaganda, it scared away many people who would have otherwise voted for him (my opinion).