Record Trillion Dollar Deficit — Who’s To Blame?

August 5, 2009

One trillion dollar billBy John Newcomer:

The United States debt is now in what many people consider to be scary territory. We recently hit the trillion dollar mark in over spending for the year, and the Congressional Budget Office (CBO) projects the entire 2009 budget deficit will hit $1.7 trillion.  That’s right $1.7 Trillion!

The amazing thing is the $787 billion stimulus package passed by Congress this year remains largely unspent. So far,  only 13 percent of the plan’s total has been doled out. Money from the other big bailout package, the Troubled Assets Relief Package (TARP), was spent last year, and health care reform is still being debated.  So what gives?

Lost Jobs = Lost Revenue

Well, this is one of those times when government spending is not to blame.  Following the numbers shows the real culprit to be unemployment.

Federal revenue is down, and not just down, but way down.  From April 2008 to April 2009, six million people lost their jobs.  That means there are six million fewer income taxpayers and that equals a drop in income tax revenue of 44%.  But you say the Federal government has other revenue.  Yes, but not near enough to offset the income tax loss.

In fact, total federal revenue in April 2009 plunged 34% or $138 billion from April 2008.  $138 billion a month times twelve months equals $1.66 trillion dollars less revenue a year.  In truth, almost the entire deficit is a result of lost revenue, not crazy government spending.

It seems the government acts just like an unemployed worker.  You lost your job but you still need to pay for food and shelter, so you charge it.  In turn, the government loses revenue, but it still needs to pay for Medicare, Social Security, and the military, so it charges it.

So What About the Stimulus?

The stimulus package was passed to stimulate the economy and reduce unemployment.  This in turn will increase government revenue and help to reduce the crippling deficit.  With so much hanging in the balance you would think that getting the stimulus out into the economy would be a top priority, but the money remains largely unspent.  Yes, when we want and need the government to spend money it seems as if they just can’t get around to it.  We live in an upside down world at the moment.

The American Institute for Economic Research published an article in April that reports that even when the stimulus package more fully kicks in by 2011, revenues still may not increase significantly enough to off set spending.  The reason?  Baby Boomers.

The 77 million baby boomers born between 1946 and 1964 will soon start tapping Social Security and Medicare.  But more importantly 77 million wage earners will be leaving the rolls as high taxpayers and high consumers. In the past, American consumers led us out of recessions, but we may be too old to do it this time.