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I do not know who first made this point, but it is one I believe we have to be honest about. Debt and budget deficits are the result of spending more than we take in: Debt is a symptom; overspending is the disease.

This is a topic I have posted on before. No matter how much people want to pretend that we can just raise taxes to cover our federal (or state) budget deficits, it simply is impossible in my view. If you read on, I believe I can prove that point.

The only time we have had a Federal budget surplus was during the end of the Clinton administration. Income tax rates were higher back then and many liberals are advocating a return to those tax rates. Okay, but be careful what you ask for.

For those who call for higher income taxes as we had in 2000, that’s fine with me provided we also go back to the spending levels of the Clinton administration. In President Clinton’s last full year, fiscal year 2000 (which ended Sept. 30, 2000), Federal revenues and spending were as follows (adjusted for inflation):

  • Revenues: $1.88 trillion
  • Spending: $1.77 trillion

To see the data for the Clinton administration years, click here.

The chart below shows spending for last year (2010) of $3.5 trillion. In other words, since 2000, federal spending has doubled (after inflation). Federal revenues have gone up, but spending has gone up much more -- and the proposed budget ramps up spending even more.

Buddy, can you spare $1.3 trillion?

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]

Source: Clusterstock / Kleiner Perkins

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 into the little one. We are spending too much money -- and that is the problem.

Can’t we just tax the rich even more?

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.

The billionaires’ club

There are those who think we should just confiscate the entire wealth of billionaires. In this post, Mary Katharine Ham points out that the entire net worth of the nation’s billionaires is about $1.3 trillion. So, even if the Feds just snatched all of their money, it would only cover the deficit for one year.

Of course, what would be the encore for the next year? Millionaires? And when they were tapped out? Let’s say the Feds decided to tap every household with annual income over $250,000 in order to cover the deficit. Kevin Williamson points out that there are about 2.2 million such households in America. Okay, so how would that work? Divide $1.3 trillion by 2.2 million and you get $590,000 in additional taxes on each such household. Obviously, that won’t work.

Of course, those who advocate confiscating wealth do not bother to point to the obvious downside of such totalitarian taxation tactics. Does anyone think rich folks would just sit around and lose all their money?

No matter what level of wishful thinking pundits and politicians engage in when it comes to raising taxes to cover trillion dollar deficits, there is no way out except to cut government spending while actively trying to help the economy grow.

Source: Budget Deficit: Overspending Is Killing Us