The biggest loser is America’s taxpayers

J.T. Young Former Treasury Department and OMB Official
Font Size:

To hear Washington tell it, federal spending should win “The Biggest Loser.” Everyone who supports higher federal spending will tell you the federal government has been put on a starvation diet. However America should first consider the source of such claims, and then look inside the numbers. Washington has not been on the bread and water diet liberals claim.

In 2013, federal spending was subjected to sequestration, a process of across-the-board spending cuts to designated programs. Those automatic reductions have served as the backdrop for the story that federal spending has been subjected to deep cuts. While some areas, most notably defense, have taken real hits, overall federal spending has fared far better.

According to the Congressional Budget Office, total federal spending fell $84 billion, or 2.4 percent, from fiscal years 2012 to 2013. Falling federal spending is news of the man bites dog variety. Prior to 2008’s surge, federal spending had not fallen since 1965.

However, helping federal spending achieve its 2013 reduction were sizable receipts – $97 billion from government-sponsored enterprises (Fannie Mae and Freddie Mac) and $9 billion from TARP, the federal government’s recession rescue program – that offset other spending. Without those offsets, federal spending actually grew $22 billion. If defense’s $43 billion in actual cuts, and $24 billion in lower unemployment benefits, are also subtracted, the rest of federal spending grew 2.5 percent.

That same spending story is playing out again this year. With fiscal year 2014 now half over, CBO estimates federal spending is again running below last year’s level – $64 billion below where it was in 2013 at this point. Once again, federal receipts have come riding to the rescue: $57 billion from GSE payments and $6 billion from TARP. Without these offsets, federal spending is a paltry $1 billion lower.

This tiny trim comes in spite of sizable defense and unemployment spending reductions – $23 billion and $12 billion respectively. Without them, federal spending is up 1.9 percent.

This does not mean 2013 and the first half of 2014 have not exhibited, by Washington standards, comparative spending restraint. To understand how much, look at what total federal spending did in 2008 and 2009, when it increased by 9.3 percent and 17.9 percent, respectively – a combined 28.9 percent jump in two years. The problem is, it has roughly stayed there since then.

A comparison between Washington’s spending and taxing over the last two years is also edifying. While Washington’s spending reductions have been an over-told story, its revenue increases are an untold one.

In 2013, federal revenues easily passed their all-time peak of $2.568 trillion (set in 2007), rising $324 billion – an enormous 13.2 percent jump from 2012. While sharp tax increases (on upper income earners) and ending the temporary payroll tax reduction fueled this surge, all major revenue sources had double-digit gains: income tax revenues grew 16.3 percent, corporate revenues by 12.9 percent, and payroll taxes by 12.1 percent.

Through the first half of the current fiscal year, federal revenues continue their double-digit growth. Revenues are up $123 billion, 10.3 percent higher than the same period last year – despite last year having the big rate increases.

Over the last fiscal year and a half, the story is not Washington’s spending cuts, but its revenue increases. Federal spending – minus offsetting government payments – has actually grown $21 billion, while federal revenues have grown $447 billion – almost 20 percent over 2012’s level already.

Supporters of federal spending will argue that revenues fell precipitously during the recession and claim the current surge simply recoups lost ground. That conveniently overlooks 2013’s large tax rate increases, which are projected to take Washington’s revenues well above pre-recession levels as a percent of GDP.

Even more, it overlooks the spike in federal spending – 29 percent from 2007 to 2009 – which is yet to be undone.

Spending’s friends want to seduce us with budget baseline concepts, so that we will accept the claim of shared sacrifice between Washington’s spending and America’s taxes. In their world, neither spending nor taxes should ever go down, only up.

This is Washington’s equivalent of a tails-I-win, heads-you-lose carny game. It is an ironic approach indeed for the self-styled advocates of “fairness.” More importantly for the rest of us, it is an illustration why Washington remains unable to get its spending under control and its fiscal house in order. “The biggest loser” in the all this is really America’s taxpayers.

J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.

Tags : cbo tarp
J.T. Young