Myths Behind Taxes and Spending
A new Congress and new administration will take over in January, but one thing will remain constant: the federal government’s finances will be a wreck. How do we fix it?
A first step is understanding why the budget is so out of whack – the facts behind it, not the myths. The Manhattan Institute’s Brian Riedl tackles the biggest budget myths here, arguing that just a little research can quickly erase some errors. Included on the list? The Trump tax cuts were a main driver behind skyrocketing deficits:
Myth: The 2017 Tax Cuts Drive the Deficits
Yes, the tax cuts reduced revenues relative to the earlier baseline (and much of the subsequent nominal growth in revenues comes from inflation, population growth, and real bracket creep). But even if the tax cuts are renewed, their $200 billion annual cost cannot explain more than a fraction of the budget deficit’s expansion from $600 billion to $2 trillion between 2016 and 2030. The real deficit driver is the annual general-revenue transfers needed to pay all Social Security and Medicare benefits (including debt-interest costs) rising from $350 billion to $1.5 trillion over that period.
And what about the idea that social programs have suffered the bulk of budget cuts? Not so fast:
Myth: The Safety Net is Shrinking
Total federal spending on means-tested health, food, housing, cash, and other assistance has risen every decade since the Great Society was enacted — and regardless of which party controlled Washington — from 1.4 percent of GDP (1970s), to 1.9 percent (1980s), 2.6 percent (1990s), 3.0 percent (2000s), and 3.9 percent (2010s) before surpassing 4.0 percent of GDP this year. Health care and cash assistance drive most of the increase, although SNAP saw a 106 percent increase in caseloads and 136 percent hike in inflation-adjusted spending between 2001 and 2019, despite the number of individuals in poverty rising by just 3 percent.
As has often been noted, the government has a bipartisan spending problem. The political class will not break the spending habit until voters insist on it. And if they won’t, markets inevitably will.