State of the Union: Bleak, But There's Hope

Here are my favorite charts of the Federal budget situation. Things continue to deteriorate, and they have reached levels that were never before thought possible. In the post-war period, tax collections have never been weaker as a percent of GDP. Similarly, spending has never been higher. As a result the deficit now exceeds 11% of GDP.

If there is anything good about this situation, it is this: all a smart politician needs to do is to hold these charts up to the TV cameras, much as Ross Perot did in his heyday, and show the public that we are on an unsustainable course; that we need a major rethink about how government should be managing our economy.

It shouldn't be hard for anyone to explain that it is the height of fiscal irresponsibility to proceed with a massive expansion and restructuring of our healthcare system (underwritten by taxpayers), at a time when government spending is already out of control. Moreover, embarking on a major cap-and-trade-driven increase in energy prices (in the name of saving the planet, even though this is the coolest year in the last decade) that would almost certainly weaken the economy, should at the very least be delayed several years until we can approach the problem from a position of strength and greater understanding. And of course, it would be imperative to assure the country that tax rates are not going to go up.

It is time to focus on what is left of the toothless stimulus package (to put a nice spin on it), with the objective of making those funds actually stimulate the economy instead of creating make-work projects, growing the size of government bureaucracies and transferring trillions of dollars from top income earners to low income earners. We need to use that money to increase the incentives to work and invest, and that can only happen if we cut marginal income tax rates, corporate income tax rates, and the tax rate on capital. We need some major reductions in government spending and income redistribution efforts, and some major emphasis on helping the private sector pull us out of this mess.

Comments

[User 430541:]

if GW Bush had not squandered our nation's surplus to prop up his presidency and the Republican hold on Congress with unnecessary, bubble-causing stimulus checks, then we would have had the dry powder needed to address the problems of the last year as well as the problems that are being addressed by health insurance reform. Just because GWB spent our future holding on to office, doesn't mean that Health Insurance reform and global warming don't need to be immediately addressed.

Oct 16 07:03 PM

[Gary A:]

Isn't it odd to the author that tax collections are tanking while sales remain level per government "numbers"? I think they must be lying. What other conclusion makes any sense?

Oct 17 03:11 AM

[Dave Wrixon:]

Of course these figures would be more meaningful if the GDP estimates actually meant anything in the first place.

Oct 17 03:25 AM

[Dave Wrixon:]

The figures do not square with reality.

I don't just mean these figures. Just about anything coming out of Washington only makes sense if you are totally clueless. Which is why generally they have been accepted with question even in the financial press.


On Oct 17 03:11 AM Gary A wrote:

> Isn't it odd to the author that tax collections are tanking while
> sales remain level per government "numbers"? I think they must be
> lying. What other conclusion makes any sense?

Oct 17 03:28 AM

[retfldoc:]

These charts are scary enough, but the 2000 pound gorilla in the room is the coming surge in the Social Security and Medicare population. When you factor this in and then use those numbers to extrapolate the above charts it becomes obvious that the present course is unsustainable. This makes the planned increase in spending by our government even more ludicrous. "Never waste an opportunity"...to bankrupt a nation?

Oct 17 08:30 AM

[Alphameister:]

I agree with your prescription for getting out of this mess. But "we" have elected the wrong people to make it happen. No matter how it is packaged (disguised), we are going to get the largest tax increase in American history to fund some of the worst legislation ever conceived. Pogo had it right: "We have met the enemy, and he is us."

Oct 17 10:05 AM

[Alphameister:]

>>we need a major rethink about how government should be managing our economy.<<

Much more importantly, we need a major rethink about WHETHER government should be managing our economy.

Oct 17 10:22 AM

[Michael Clark:]

And we also need a major re-think about WHETHER Wall Street should be managing our government.


On Oct 17 10:22 AM Alphameister wrote:

> >>we need a major rethink about how government should be managing
> our economy.<<
>
> Much more importantly, we need a major rethink about WHETHER government
> should be managing our economy.

Oct 17 11:11 AM

[Fritz Hotti...:]

Yes, the charts are meaningful, and so are your words.

However, you ignored the elephant in the room - - - the political forces currently in power, i.e., "Chicago politics" currently being enlarged in Washington, DC. to encompass the lower-income bracket nationwide.

The Obaama Administration is in the process of expanding the number of voters (legal and illegal) who depend of government largess; and unless there is Road to Damascus revelation in Congress prior to year-end, it is likely that the budget-busting policies underway will soon become law of the land.

Doubt there are enough brave politicians in DC to hold up those charts in front of the on-coming train to have the engineer apply the brakes.

Would like to read suggestions on how to bring about an "emergency stop".

Oct 17 12:29 PM

[E Nuff Sed:]

I think you are beating the wrong donkey.

Covering every American with the current rotten system will cost an extra $100 billion per year. Compare this amount to the bailout and other historical events.
www.ritholtz.com/blog/.../
If the US was to convert to the Canadian universal Health care system it would save 600 Billion a year (enough for a Obama fiscal stimulus per year in perpetuity) and each American would live about 2.5 years longer.
www.theglobeandmail.co.../

Oct 17 01:39 PM

[enigmaman:]

vote all incumbents out, clean house, I mean everyone that is up for re election should be shown the door


On Oct 17 12:29 PM Fritz Hottinger wrote:

> Yes, the charts are meaningful, and so are your words.
>
> However, you ignored the elephant in the room - - - the political
> forces currently in power, i.e., "Chicago politics" currently being
> enlarged in Washington, DC. to encompass the lower-income bracket
> nationwide.
>
> The Obaama Administration is in the process of expanding the number
> of voters (legal and illegal) who depend of government largess; and
> unless there is Road to Damascus revelation in Congress prior to
> year-end, it is likely that the budget-busting policies underway
> will soon become law of the land.
>
> Doubt there are enough brave politicians in DC to hold up those charts
> in front of the on-coming train to have the engineer apply the brakes.
>
>
> Would like to read suggestions on how to bring about an "emergency
> stop".

Oct 17 03:00 PM

[The Geoffster:]

Republicans and Democrats alike spend to retain power. They just have different priorities. Both parties are corrupt. They maintain their two party dominance through symbiosis. The necessary reforms cannot happen because special interests control the writing of legislation and compromise requires payoffs. If the economy does not rebound strongly which the charts do not predict, the US will find itself bowing to the draconian demands of its creditors.


On Oct 16 07:03 PM User 430541 wrote:

> if GW Bush had not squandered our nation's surplus to prop up his
> presidency and the Republican hold on Congress with unnecessary,
> bubble-causing stimulus checks, then we would have had the dry powder
> needed to address the problems of the last year as well as the problems
> that are being addressed by health insurance reform. Just because
> GWB spent our future holding on to office, doesn't mean that Health
> Insurance reform and global warming don't need to be immediately
> addressed.

Oct 17 08:21 PM