A budget analogy that earns a Geppetto checkmark

at 06:00 AM ET, 03/16/2011


(Alex Wong - GETTY IMAGES)

“For every $10 that the federal government collects in tax revenue, it is borrowing about $7. And just to put that into perspective, if you're a family making $50,000 a year, that would be like borrowing $35,000 every year.”

--Rep. Cathy McMorris Rodgers (R-Wash.), March 15, 2011

 

At a news conference Tuesday, House Speaker John Boehner (R-Ohio) urged quick action on a final spending bill for the current fiscal year. Among the speakers who joined in his call for action was Rep. Cathy McMorris Rodgers, the vice-chair of the House Republican Conference. She offered the rather arresting image of a family borrowing nearly as much as it made “every year.”

 Does her statistic have merit?

The Facts

 Let’s look at the charts contained in the president’s budget. For the current fiscal year, the budget anticipates receipts of nearly $2.2 trillion, and the deficit (that’s the borrowing) of $1.6 trillion. So for the current fiscal year, she is right—the United States is borrowing $7 for every $10 in tax revenue.

But note that she likened this to a family doing it “every year.” She is in the ball park, at least for the previous two years. The ratio was almost $7 of borrowing for every $10 of revenue in 2009, and then it was 6 to 10 in 2010. 

 In all three years, it’s very simple why the ratio became so off-kilter—the double whammy of plunging tax revenue because of the recession and the various bailouts and the stimulus bill.

 But looking forward, her analogy starts to break down. In 2012, when tax revenues are expected to jump as the nation’s emerges from the recession, the ratio drops to just $4 of borrowing for every $10 of revenue. By 2013, the ratio would be 3 to 10.

 Todd Weiner, a spokesman for McMorris Rodgers, said that the three-year trend from 2009 to 2011 makes her statement valid. “As for the next few years, without serious spending cuts, there will continue to be massive deficits for as far as the eye can see.  Whether that will produce a 10-to 7 ratio or a 10-6 ratio or something else cannot be known,” he said.

 As we have outlined before, there are budget gimmicks in the White House’s numbers, and so the upward path should be taken with a grain of salt. But the Congressional Budget Office Budget Outlook issued in January also shows a similar improvement in the ratio, starting in 2012. Again, the reason is not because spending decreases substantially, but because revenues once again begin pouring into federal coffers.

 Borrowing, of course, can be a good thing, particularly if it is used for investments. A family making $50,000 a year would not be able to afford a car or a house if they did not borrow money from the bank. But as Rep. McMorris Rodgers said, it would not be a good thing to buy a car every year.

 Moreover, it is worth noting that the spending bill McMorris Rodgers  and Boehner are promoting would actually do very little to affect this ratio. The $61 billion in proposed cuts amounts to just 25 cents of savings in her analogy, meaning that even after the cuts the family still would be borrowing $6.75 for every $10 of revenue. That’s because the real savings in the budget is not in a discretionary part , funded year by year, but in the mandatory spending programs on autopilot, such as Medicare. A boost in revenues, such as through eceonomic growth, would also greatly shift the ratio.

 

The Pinocchio Test

 

Congratulations to the gentle lady from Washington. She earns a rare Geppetto Checkmark.

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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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