Robert V. Green explique pourquoi le problème semble insoluble : une augmentation de 50 % de l’impôt personnel laisserait un immense défict de 1 000 milliards en 2011; une réduction de 50 % des dépenses discrétionnaires laisserait aussi un déficit de plus de 1 000 milliards en 2011. La combinaison des deux laisserait quand même un énorme déficit de 500 milliards en 2011.
En tenant compte du peu d’empressement des politiciens pour les décisions difficiles, l’avenir de l’économie américaine est plutôt sombre. Il est probable qu’ils opteront pour la solution qui leur semblera la moins dommageable du point de vue politique : laissez l’inflation réduire l’importance relative de la dette. Ainsi, il ne sera pas nécessaire d’augmenter les impôts ni de réduire les dépenses. Il n’est donc pas surprenant que l’agence de notation de crédit S&P ait récemment abaissé la perspective des États-Unis de stable à négative.
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Updated: 18-Apr-11 09:08 ET
The Spending Authorization Misses the Point
[BRIEFING.COM - Robert V. Green] The debate over the government funding bill, particularly how it is portrayed in the media, is ironic at best. The bill, passed on Thursday, supposedly cuts $38 billion in government spending. This amounts to only 2.3% of the projected deficit for fiscal year 2011. The real problem is entitlement programs, which no party seems willing to address.
The 2011 Budget
There is no official 2011 budget.
None was ever passed in Congress last year (fiscal 2011 began on Oct. 1, 2010), which makes the temporary spending bill authorizations necessary.
The 2012 budget offered by the President in January shows a projected $1,645 billion deficit for the current fiscal 2011 year.
There is little reason to believe in projected deficits, however, even in the short term.
The 2010 Budget submitted by the White House had shown a projected a deficit of just $912 billion for the current fiscal year. This means that just 24 month ago, the federal government had projected $500 billion less in spending this year than will actually happen.
Try finding someone in the media discussing the $500 billion difference in 2011 spending between the 2010 budget and the 2012 budget.
The spending cuts put forth in the recently passed authorization total just $38 billion. This is just 2.3% of the projected deficit for this year.
The problem is that these budget cuts addressed only discretionary budget items. The true debate over the federal deficit must become much larger.
The Debate over the Deficit
Everyone recognizes that the deficit is an increasingly important problem.
However, no one seems willing to admit the basic facts about the deficit:
• Discretionary spending is too small to solve the problem
• The tax base is not large enough to solve the problem
• Mandatory entitlement programs are the real problem
One way to think about the scale of this problem is the following:
• Even if all discretionary spending were cut by 50%, there would still be a $1 trillion deficit in 2011
• Even if all current taxes were increased by 50%, there would still be a $1 trillion deficit in 2011
When you examine both of these ideas, it becomes clear that mandatory programs are the real problem.
The Tax Base
The federal government receives taxes in three basic ways:
• Individual income tax
• Corporation income tax
• Payroll taxes
Other sources, such as estate taxes, excise taxes, customs duties, and Federal Reserve earnings are less than 10% of all receipts.
Here is a breakdown of those tax receipts as detailed in the FY2012 budget presented by President Obama in February.
| Tax Type, $ Billions | 2012 budget | % of total |
| Individual income Tax | 1,141 | 43.4 |
| Corporate Tax | 329 | 12.5 % |
| Payroll Tax | 925 | 35.2 % |
| All Other | 233 | 8.9 % |
With these data in mind, it is helpful to ponder whether raising individual income taxes actually accomplishes any significant reduction in the federal deficit.
The projected federal deficit in the 2012 budget is 1,101 billion. This is significantly lower than the deficit of 2011, which is estimated (in the 2012 budget) to wind up as $1,645.
Leaving aside the issues of how raised taxes affect behavior, it is interesting to make some assumptions on how raised taxes might affect the deficit. Just assuming that taxes could be doubled presents an interesting perspective on the deficit problem.
If the entire individual income tax were doubled, the projected 2012 deficit could be bridged. The 2011 deficit would still be over $500 billion.
The damage to the economy, however, would be immense, as it would drop consumer spending significantly.
What if taxes were raised only on the so-called rich?
Using data from 2008, the most recently available data from the IRS, we can roughly calculate the potential of raising taxes on the richest individuals in America.
In 2008, the top 1% of all earners in the US paid taxes of $392 billion, or roughly 38% of all individual income taxes paid. Persons earning income (reporting Adjusted Gross Incomes, AGI) of $380,000 or more are in the top 1%.
If taxes on these individuals were doubled, $400 billion in new revenue might be raised, clearly not enough to bridge the deficit gap.
The top 5% of all earners paid taxes of $605 billion, or roughly 59% of income taxes raised. Persons earning income of $159,000 or more are in the top 5%.
If taxes on these people were doubled, $600 billion could be raised.
If taxes on the top 25% of all tax filers were doubled, an additional $809 billion could be raised. To be in the top 25% of tax filers, an income of just $67,000 is required.
Since the top 25% of all tax payers paid 86% of all income taxes, it seems obvious that doubling their income tax would have just as much harmful impact on the economy as doubling taxes for everyone.
Instantly doubling taxes is, of course, impractical. The impact on personal behavior would drastically change the actual results, as the richest Americans are often able to control just how much wealth is converted to income and thereby taxed.
But by assuming that individual taxes could be doubled, it becomes apparent that even such a doubling is not enough.
The conclusion, therefore, is that the deficit is not simply a result of "rich-people-not-paying-their-fair-share."
Increased corporate taxes are actually in the current 2012 budget.
Corporations paid $191 billion in corporate tax in 2010, with $198 billion projected in 2011. The 2012 budget projects corporate taxes at $329 billion, an increase of 73% over 2010.
Yet, even a 70% increase in corporate taxes still creates a $1.1 trillion deficit in 2012.
It is clear that the federal government deficit problems can never be solved by income tax solutions alone. At best, we think only about 20% of the deficit problem could be attacked through higher taxes.
This leaves government spending as the only way to control deficits.
Government Spending -- Discretionary and Mandatory
The biggest problem with controlling government spending, however, is that much of the spending occurs on entitlement programs, where the spending is mandated by a federal law.
Mandatory programs, as they are called in the federal budget, are those where no discretionary spending is possible by Congress. The laws themselves dictate what must be spent, based upon the entitlement criteria in the law. If a citizen meets the criteria, the government must make the payment.
Social Security is the largest mandatory entitlement program, with Medicare and Medicaid the second largest components.
The following table breaks out federal spending into its largest categories, as detailed in the White House 2012 Budget.
| US Federal Spending Category | 2012 Budget, $ Billions | % of Total |
| Discretionary Spending | 1,340 | 35.9 % |
| Mandatory Programs | 2,140 | 40.6 % |
| Net Interest | 242 | 6.5 % |
| All Other | 6 | 0.5 % |
It is worth examining each of these in detail.
Discretionary Spending
Discretionary spending is broken up into two portions, Security and Non-Security, as shown in the following table :
| US Fed. Discr. Spending | 2012 Budget, $ Billions | % of Total |
| Security | 884 | 66.0 % |
| Non-security | 456 | 34.0 % |
Security includes both Defense Spending, Homeland Security, National Nuclear Security Administration, and Veteran's Administration programs.
Non-security spending includes all of the basic governmental agencies that function in the US, many of which are represented as cabinet positions.
The largest of these are, in order:
• Health and Human Services
• Education
• HUD
• Justice Department
• Department of Agriculture
• Department of Energy
• NASA
• The Treasury
• Transportation Department
• Department of Labor
• Department of Interior
The agencies listed above account for 85% of all non-security discretionary spending.
Most of them have already had their funding levels cut from prior-year levels, some continually year after year; Health and Human Services has had their budget cut every year for the past four years.
Short of closing down one of these agencies entirely, there is little to be gained from trimming spending in these governmental agencies. The entire budget of the Health and Human Services department, for example, is just 7% of the entire federal deficit projected for 2012.
Mandatory Programs are the Problem
The real problem with government spending are the mandatory programs, primarily Social Security.
The retirement and health programs of the US are primarily funded by payroll taxes, yet the spending on these programs greatly exceeds the receipts generated by the payroll taxes.
The following table illustrates where mandatory spending is expected to occur, as listed in the 2012 Budget.
| US Fed. Mandatory Spending | 2012 Budget, $ Billions | % of Total |
| Social Security | 761 | 35.8 % |
| Medicare | 485 | 22.8 % |
| Medicaid | 269 | 12.6 % |
| All Other | 612 | 28.8 % |
| Total | 2,127 | 100 % |
Since the total spending of mandatory programs is $2,127, but payroll taxes assigned to cover them are only $925, you could reasonably view the social security and other entitlement programs as operating at a deficit of $1,202.
The total deficit projected on the 2012 budget is $1,101. If the mandatory programs are viewed as a deficit of $1,202, it seems clear that the deficit problem has been found.
The entitlement programs -- by themselves -- are the real problems with federal deficits.
In fact, if the entitlement programs, along with the payroll taxes, were simply eliminated, the deficit problem would turn into a surplus. This possibility, however, is just as unlikely as doubling the total income tax from individuals.
Should the payroll taxes be increased to pay for Social Security? Perhaps, but the current 2011 tax laws actually cut payroll taxes by 2%.
Little Chance of Real Budgetary Discipline
The media tends to paint the budget issues as a Republican versus Democratic political battle.
This posturing completely misses the point, however.
The real federal deficit spending issue is Politicians versus Entitlement Programs. So far, no politician has even shown up for the fight.
When will the two parties form a united front to attempt to control the runaway spending of entitlement programs? The only reasonable projection from current trends is "never."
While both parties posture with plans labeled as attacking the deficit, until a plan that addresses mandatory entitlement programs comes out, all other plans should be viewed skeptically.
Any attempt to deal with the federal budget deficit issues has to address the entitlement program problems.
Any type of budget that does not address this issue is myopic at best and deliberately deceitful at worst.
From this perspective, all of the media attention and political focus on the details of budget cuts in the current 2011 spending authorization seem like much ado about nothing.
Comments may be emailed to the author, Robert V. Green, at aheadofthecurve@briefing.com
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