Myths From D.C. Part 1: 'We Just Need More Revenue

According to the politicians in Washington D.C., the world operates according to rather absurd principles. These strange principles often lead to policies and ideas which directly conflict with real-world experience, basic logic, and economic realities. Thus, this post is Part 1 in a series of posts on “Myths from D.C.” which will highlight some of the strange myths that hold sway among politicians, pundits, and friends of big government during these heated budget negotiations.

How often have we heard some politician proclaim that our current budget crisis is due to too little tax revenue?  If only the federal government could coerce Americans into forking over more money to Uncle Sam, then this budget crisis wouldn’t be an issue.

Max Baucus, chairman of the powerful Senate Finance Committee (D – MT), joined the chorus saying, “We are simply not raising enough revenue.”  The Center for American Progress, the liberal think tank, also released a paper earlier this month to encourage us to “recognize our revenue problem.”

Yet, in reality, the “revenue problem” is a myth from those who want to see more government control in our everyday lives. We have a spending problem, not a revenue problem. It’s that simple. How can we know this?

In the past four years, federal spending has drastically outpaced revenue, signifying a severe lack of fiscal discipline on the part of our federal government. Imagine an individual making $50,000 per year and spending roughly $60,000 per year, then she would have a debt problem after a few years, but a few tough decisions could easily “balance the budget.” If that same individual spent to $100,000 per year while she received a slight pay cut due to rough economic circumstances, then we wouldn’t say she has a “revenue” problem.  Instead, she has a spending problem that signifies a lack of financial discipline.

This scenario is almost exactly what has happened with our federal government.

Federal Outlays vs. Revenues (Americans for Prosperity Foundation)

As you can see in the chart, revenue and spending grew in close tandem with each other from 2002 until 2008, although the government still got used to spending beyond its means in those years. However, in 2009, federal revenues took a modest dip due to the housing bubble bursting. Instead of cutting back and matching the revenue coming into the Treasury, the federal government increased by over half a trillion dollars. Since that time, revenues have slowly inched back to pre-bubble levels of $2.5 trillion, but federal spending has remained in the stratosphere of $3.5+ trillion.

This year, the federal government is projected to outspend by over $1.1 trillion.

Only by Washington logic could we witness such a massive increase in spending relative to revenue and conclude that we having a “revenue problem.”  Senator Jim DeMint was right earlier when he said, “This federal government doesn’t need more money.”

What it really needs is less spending.