Our budget deficit is so big that many folks find it hard to grasp. I know I do. For example, last year’s deficit, at around $1.3 trillion, was huge. To get a visual picture of this issue, check out this chart from a lengthy presentation created by Mary Meeker at venture capital firm, Kleiner Perkins:Click to enlarge
(Click to enlarge)
The little pie chart on the left represents Federal revenues. The big one on the right represents spending. Just looking at these two images suggests a problem, doesn’t it? No way the big pie chart is ever going to fit in the little one.
Some folks believe we can solve this deficit by raising revenues, which as you can see is patently impossible. To cover the deficit with higher revenues would require that Federal receipts go up by roughly $1.3 trillion, which would be a greater than 50% increase given that all Federal revenues only totaled $2.2 trillion.
Can’t we just tax the rich?
Given that we had a deficit of $1.3 trillion even after taking in $899 billion in total income tax revenues, does anyone in his or her right mind think raising income taxes on everyone or 'raising taxes on the rich’ would solve the problem? We would have to see income tax revenues from everyone go up by more than a double. That is, with a $1.3 trillion deficit for 2010, we would need an extra $1.3 trillion in income tax revenues on top of the $899 billion we got in 2010. That is not going to happen. And, instead of getting a reduction in spending, we are actually ramping it up for fiscal year 2011. Now that’s crazy.