Friday, November 03, 2006

Politics & Public Finance

An article in the Washington Times discusses what might happen with respect to national public finance if the Democrat party wins Congress:
But Republicans such as former House Majority Leader Dick Armey of Texas said that if the Democrats take over, 'they will try to find some way to raise taxes to finance their spending programs.'

Democrats gave voters a peek into the kind of spending proposals they want to enact in their election agenda titled 'A New Direction For America.' The campaign agenda does not say how much their proposals would cost, but an analysis by the National Taxpayers Union based in part on CBO estimates puts the price tag at more than $79 billion a year.

These legislative proposals include $16.2 billion a year for lower-interest college loans, nearly $1 billion more per year for scientific research, $4 billion in additional Pell Grants for college students and $28.8 billion more for health care, including increased subsidies for the Medicare prescription-drug program for the elderly.
Perhaps one of the biggest spending initiatives in the Democrats' agenda is a program called 'AmeriSave,' under which the government will match the first $1,000 contributed to an IRA, 401(k) or other investment retirement account. The program would cost taxpayers $37.5 billion in the first five years.

Another measurement of spending increases a Democratic Congress would seek can be found in amendments they have offered in the Senate in the past two years. According to an analysis by the Senate Republican Policy Committee, Senate Democrats proposed $95.2 billion in increased spending for fiscal 2006 and $74 billion for fiscal 2007.

Mr. Panetta blames both Republicans and Democrats for the sizable budget deficits of the past six years and does not see that changing dramatically anytime soon, despite this year's sharp decline in the deficits as a result of unexpectedly stronger federal tax revenues.

"This Congress has been the worst on borrowing and spending that I've seen in my lifetime, with record deficits. Responsibility for that rests with both parties. My theory is that they will continue to borrow and spend in the future," he said.
I thought that, perhaps, a discussion of national public finance would benefit from seeing these three charts which provide the larger context. When looking at that national government's public finance I think it is best to consider receipts, outlays, and the deficit in terms of the percent of GDP.

The chart of the deficit numbers suggests that the deficit during the Bush Administration has not been exceptional when compared to the period of the last 30 years. Certainly the deficit during the Bush administration makes quite a contrast with the budget surplus at the end of the Clinton administration. But budget surplus during the Clinton years does seem the exception since 1960.

The chart of outlays suggests that the lenth of the period during the Clinton administration during which outlays trended downward seems out of the norm since as long ago as 1930. Nonetheless, outlays as a percent of GDP seems to have stayed right around 20% since about 1950 or 1960. The experience during the Bush administration doesn't seem unusual when compared to the entire period depicted in the chart.

The chart of receipts suggests that receipts have been right around 17% or 18% since about 1950 or 1960. The recent experience during the Bush administration seems to fit that pattern.

It seems that public debate tends to attribute national public finance to the President, and following that practice I've referred to the experience reflected by the years of the Clinton presidency and the Bush presidency. But, perhaps focusing on the President presents not quite the right target. After all, the President does not have the power to tax, nor does the President have the power to fix the amount of appropriations. These powers reside in Congress. Perhaps the charts suggests that it doesn't much matter which party controls Congress, the public finance of Congress has pretty much been in the same neighbor relative to national output since about 1950 or 1960.

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