Opinion: Memo to Deficit Commission: It's the Spending, Stupid

(July 16) -- This week, federal red ink topped $1 trillion. And there's still three months to go before the government's accounting year finishes. To put that in some perspective, the entire federal budget didn't reach $1 trillion until 1987.

So what to do in the face of these gargantuan deficits? Raise taxes? Cut spending? Hope the economy grows fast enough to close the gap? All of the above?

President Barack Obama appointed a bipartisan commission to look at the options, and it made some news this past weekend when its co-captains spoke to the nation's governors. But you don't need a commission to know what the solution is. You just need a calculator.

The simple fact is that deficits are out of control right now because spending is out of control. That's the pretty obvious lesson drawn from looking at the past 60 years of federal budget data.

As the chart nearby shows, since 1950, tax revenues have been remarkably stable. Despite endless machinations, reforms, tweaks to the tax code, new breaks, tax hikes and tax cuts, tax revenues as a share of the total economy (called gross domestic product, or GDP) have stuck steadily at right around 18 percent.

What has changed is spending.

In the 1950s, for example, spending and taxes were in close alignment. But then outlays, again measured as a share of GDP, started ratcheting up.

They reached a peak, ironically enough, during the Reagan-Bush decade of the 1980s, in part a result of the defense buildup during those years. President Bill Clinton, with the help of a GOP-controlled Congress, put the brakes on spending during the 1990s.

It's true that the recent deep and prolonged recession has blown a massive hole in the budget -- cratering tax revenues (they're expected to come in at just over 14 percent of the economy this year) while exploding spending for stimulus and safety net programs.

But that doesn't explain what's in store spending- and deficit-wise for the next 10 years.

The Obama administration is putting the country on a course over the next decade to spend at levels unseen since World War II, according to a Congressional Budget Office analysis of Obama's budget plan. By 2020, the CBO expects federal spending to account for 25.2 percent of GDP -- higher than any year in modern history, except three during the war.

At the same time, Obama's tax plans -- which include letting Bush's tax cuts on the rich expire -- do little to boost federal revenues as a share of GDP. The result: unprecedented deficits year after year for the next decade.

Congress could try to close this huge deficit gap with more taxes, and the commission may very well recommend that action.

But that raises two questions: Will the public be willing to accept a permanently larger tax burden? It hasn't in the past, voting time and again for tax cutters. And could Congress even achieve such a goal if it tried? That's not entirely clear either, since tax-raising efforts in the past did almost nothing to budge revenues as a share of the economy.

Given that, deficit hawks pretty much have only one option -- spending cuts. And that means digging into entitlements, particularly Medicare, Medicaid and Social Security, which consume a huge and ever-growing share of the federal budget.

But hey, I never said the solution would be easy. Only that it is obvious to anyone who's looked at the numbers.