How the 2009 Federal Budget Could Have Been Balanced.

Our government collected fewer taxes in FY2009 than it did in FY2000 – this can be said without adjusting for inflation. In 2000, the government took in 1.54 trillion dollars in on-budget taxes, but only took in 1.53 trillion in 2009.  This is despite spending twice as much money in 2009 than in 2000.   Tax receipts during the 90s grew fast.  That was partly do to higher taxes and also with a phenomenal increases in GDP and wealth.  Then came the 2000s.  Tax receipts languished from lower taxes, a recession, more tax cuts, another recession, a slow recovery, and then the Great Recession.  So as an academic exercise, let’s see where the budget deficit would be if tax revenue had grown instead of diminished during the 2000s.  You can see how revenue has slowly, but steadily, gone up during the 80s and 90s, but then went sideways during the 2000s.  I included the raw numbers, plus numbers that adjust for inflation.

(Click chart for larger image.  Click here for the numbers)

I always read some pundits claiming that the Clinton-era tax and GDP growth was unsustainable(see here for example).  Therefore, I calculated the tax revenue increases of 1993-2000.  The average growth was 8.78%.  However, since I’m adjusting for inflation now, I adjusted everything to 2009 dollars.  This yielded average growth of 6.01% in tax revenue from 1993 to 2000.  However, since people accuse that being unsustainable and unrealistic, I decided to chart out the slowest growth in tax revenue from the Clinton Era.  It was 5.9% if using non-adjusted numbers and 3.61% if using adjusted numbers.  Here’s what revenue would’ve been like if the 2000s had averaged the slowest rate of the 90s.

(Click chart for larger image.  Click here for the numbers)

Whether or not you adjust for inflation, it would’ve put on-budget revenue at approx 2.6 trillion$ in 2009 and 2.74 trillion in 2010.  What that means is that the on-budget deficit would’ve only been 400$ billion dollars in 2009 if our spending patterns had been exactly the same.   However, if you strip out all the spending that was done because of the great recession, but keeping stimulus spending, that would’ve been 397$ billion in spending cut.  The 2009 budget could’ve been balanced if revenue had grown at the slowest rate it grew in the Clinton Era, and there had been no Great Recession.  No other adjustments necessary.

Now let’s explore another scenario.  Let’s say that tax revenue had grown even slower than the slowest rate it did during Clinton’s presidency.  I decided to take a look at what the average growth rate for tax revenue has been since 1962.  When adjusting for inflation, the average growth rate from 1962-2000 was 3.16%.  However, if you exclude the Clinton era completely it’s even lower.  From 1962-1992, the average growth rate was 2.4%.  You can see my raw numbers and other statistics here.  I added to the graph what would’ve happened if the 2000s had maintained revenue growth in accordance to the historical averages.  This time I only included the adjust for inflation numbers.

(Click chart for larger image.  Click here for the numbers)

If 63-2000 average tax revenue increases had occurred in the 2000s, the 2009 revenue would’ve been about 2.55 trillion.  That means the 2009 budget would’ve only had a 50$ billion dollar deficit once you take away the Great Recession spending.  That probably would’ve been easily covered if you eliminated the 2009 stimulus spending.

If 63-1992 average tax revenue increases had occurred in the 200s, the 2009 revenue would’ve been about $2.38 trillion.  That would mean that the 2009 budget would have to have been about 620 billion dollars lighter.  If, once again, we assume no Great Recession and remove $400 billion, that still leaves 220$ billion to cut from spending.  Not an easy task, but much less daunting than the 1,500 billion dollars we actually had because of sideways revenue.

If there had been no recession, where would you cut that 220$ billion from the 2009 budget?  Remember – I already removed the direct costs of the recession(and only those costs).

Border Secuirty and Jobs Bills Pass

As I predicted last friday, the house has passed the “let’s flush $600 million down the toilet in the name of border security” bill.  I won’t rehash why the money is being wasted.  From Reuters:

The U.S. Congress on Thursday passed legislation to strengthen security along the border with Mexico, trying to tackle the politically sensitive issue of illegal immigrants ahead of November congressional elections.

Final legislative action came as the Senate passed the bill on a voice vote, one day after the House of Representatives interrupted a six-week recess to pass the bill.

The only good thing to come out of the bill is it’s funding mechanism.  In order not to add to the deficit congress had to either cut spending or increase revenue.  In this case they mostly chose to raise revenue.  However, instead of a general tax increase they targeted towards companies that make a business model out of importing cheap labor into the company.

The plan is financed by imposing higher visa fees on some Indian technology companies operating in the United States, prompting a protest from the government of India.

Senate aides said the Indian companies had been targeted because they take advantage of a U.S. law to import a high percentage of their workers from abroad. They said four Indian companies would be affected: Tata (TCS.BO), Infosys (INFY.BO), Wipro (WIPR.BO) and Mahindra Satyam (SATY.BO).

It may strange that congress would pass a bill that hits only 4 companies.  However, that’s because they are the only 4 large companies whose majority of state-side employees hold temporary visas.  Fee qualification is explained over at NDTV:

The Bill proposes to increase visa application fees by at least USD 2,000 for the next five years to raise nearly $550 million to help fund the $650 million plan for increasing security along the US-Mexico border. These fee increases will apply only to companies with more than 50 employees and for whom the majority of their workforce are visa-holding foreign workers.

Indian software firms, including IT biggies like TCS, Infosys, Wipro and others, use H-1B and L-1 visas to fly their employees to the US for working at their clients’ locations as on-site engineers.

The bigger news is that congress also passed a so-called “jobs” bill.

House Democrats on Tuesday pushed through a $26 billion jobs bill to protect 300,000 teachers and other nonfederal government workers from election-year layoffs, while sending $16billion to help cash-strapped states with rising Medicaid costs.

The bill would be paid for mainly by closing a tax loophole used by multinational corporations and by reducing food stamp benefits for the poor. It passed mainly along party lines by a vote of 247-161.

I’m all about closing tax loopholes, and I’m also glad that we’re going to keep more teachers in the classroom, and police on the streets, but I am a bit concerned about cutting food stamps during the worse recession in 70 years.  Cutting the food stamps keeps the bill “budget neutral”.  However, it’s likely just smoke and mirrors anyways.  The food stamp funding will likely be restored in next years budget.  It’s hard to vote against giving food to the poor.

Under the bill, effective March 31, 2014, food stamp benefits would return to the levels that individuals would have received under pre-Recovery Act law. This modification is estimated to save $11.9 billion over 10 years. House Democrats plan to work to restore this funding before the cuts are implemented in 2014, however.

President Obama signed the Teacher and Police jobs bill into law yesterday and will be signing the border security bill into law today.  All this when the congress is supposedly on their “august break”.

Indian software firms, including IT biggies like TCS, Infosys, Wipro and others, avail H-1B and L-1 visas to fly their employees to the US for working at their clients’ locations as on-site engineers.

More Websites about the U.S. Budget

Short post today. I just wanted to share with you some new sites I’ve found about the federal budget. I wish I would’ve found these sites sooner. It would’ve made things a lot easier for me in the beginning.  These links don’t necessarily contain budget information as much as they contain organized links to budget information.

U.S. Government Documents: The Budget Process. This is the site I could’ve used from the start.  It includes links to almost every needed resource you need to research the federal budget.  It includes a glossary of terms and concepts as well as links to current, past, and projected numbers.  Thank you Columbia University.

To go along with the Columbia website, the Congressional Research Service provides this pdf called, FY2011 Budget Documents: Internet and GPO Availability is a list with a brief description of all the government documents one would need to study the federal budget.