A graph using data from this website posted in a previous thread.

 

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

 

The yellow line is outlays/spending and the pink line is revenue. The red line is a trend line using the trend from 1980 to 2002. Many of those years were deficit spending years but the curves and trend was very linear for both outlays and revenue. Trending the line out to 2016 (last year in the data) revenues should be around $3T - and so should spending - at least based on long term historical trends.

 

But spending has 'jumped' to new and apparent long term baseline. After a projected reduction in 2010 (a historical first if it really happens) the projection is for the line to return to a historical higher than normal trend upward after 2010 and reach 4.5T in 2016.

 

 

But the projections call for revenues to dramatically jump. And jump even sharper than after 9/11. The 2016 revenue estimate is a stunning $3.8T. This is well above the historical trend line. This will leave 'only' a $700B deficit.

 

But is this realistic? The historical trend line says $3.0T in revenues in 2016 would be good. That would assume a strong recovery and one that fully recovers historical trends and completely catches up. That is not what is happening right now at all.

 

The sharp curve in the CBO projections for revenue from 2012 to 2016 is pure fantasy. But it is needed to at least attempt to rationalize the 'new baseline' of spending that jumped up after 9/11 (yes, Bush started it) and really spiked the last 2 years. Even if the projection were solid and true the deficit would still be $700B in 2016 - a historical number. But it will likely be at least double that - around $1.5T - per year.

 

CBO and the WH and Congress may live in this Fantasyland where revenues magically jump so that the deficit gap is narrowed in the next 4 years. But S&P and Moodys do not live in this world. Thus, I am afraid our credit rating, and the US dollar status as the world's reserve currency, is shot - with or without a budget deal. The projections still reflect a very bad financial situation. The likely reality, even under optimistic circumstances, is likely a lot worse.

 

 

 

 

Just about everyone in DC is to blame! This had to come sooner or later, you can't just keep "raising the debt ceiling", how many other countries can do that? People have to realize, the Tea Party especially, that taxes HAVE to be raised along with cuts to reduce the debt.

 

If this isn't settle, we are in for more trouble at least short term, we all hear about the rise in interests rates, but I was also told to expect huge spikes in gas! In the long run, could this be good? As DC came to the point where they had to actually do something about the debt.

"Miracle happens between 2012 and 2016"

 

 

 

Yeah, right. Would you plan like that for your own household or business?

Just about everyone in DC is to blame! This had to come sooner or later, you can't just keep "raising the debt ceiling", how many other countries can do that? People have to realize, the Tea Party especially, that taxes HAVE to be raised along with cuts to reduce the debt.

 

If this isn't settle, we are in for more trouble at least short term, we all hear about the rise in interests rates, but I was also told to expect huge spikes in gas! In the long run, could this be good? As DC came to the point where they had to actually do something about the debt.

 

As a guy who shares most of the principles of the Tea Party, I'm not opposed at all to tax hikes. The problem is I don't want to have to pay more in taxes just so the President can continue careless spending. If I'm guaranteed that my higher taxes result in a dramatic reduction in debt, I'm okay with that & would be fully on board with it. But President Obama is not showing me any propensity toward reduced spending, so I basically oppose any tax hike idea he puts forth.

"Miracle happens between 2012 and 2016"

 

 

 

Yeah, right. Would you plan like that for your own household or business?

 

I was thinking more on the order of the Sun blowing up.

As a guy who shares most of the principles of the Tea Party, I'm not opposed at all to tax hikes. The problem is I don't want to have to pay more in taxes just so the President can continue careless spending. If I'm guaranteed that my higher taxes result in a dramatic reduction in debt, I'm okay with that & would be fully on board with it. But President Obama is not showing me any propensity toward reduced spending, so I basically oppose any tax hike idea he puts forth.

This is pretty much the way I feel. Until the President and Congress can show me they have the ability to be responsible with the current revenue then tax increases should not even be in the discussion.

Why we will be fortunate to get to the tend line when it comes to revenues....

 

GDP for 2Q2011 was released today - 1.3%. That is terrible. What is worse - 1Q2011 was revised. It was revised from the original 1.8 down to 0.4. So it was revised 1.4% down. If the same magnitude revision happens for 2Q it will be official - double dip.

 

Today's news on GDP:

 

http://www.reuters.com/article/2011/07/29/us-usa-economy-idUSTRE7662I420110729

 

Original 1Q GDP estimate released from WH:

 

http://www.whitehouse.gov/blog/2011/04/28/advance-estimate-gdp-first-quarter-2011

Some details behind the fantasy of receipt projections.

 

Source data:

 

http://www.whitehouse.gov/omb/budget/Historicals/

 

Chart is original but numbers are from source above.

 

Using historical trends from 1980 forward this is where the federal government gets its monies. I do not believe that minor tax changes that the Ds and Rs squabble about impact revenues much. Case in point - capital gains. The bubbles of capital gains happened under both Clinton and Bush under different tax rates.

 

What is interesting is that social security receipts never dipped between 1980 and 2007, even during recessions. But now they have. Seems to bear out how deep this recession is.

 

Notice that all 3 major sources if income are well above the trend line in 2016. And the trend lines (automatically generated by Excel) include the 2012 to 2016 spikes. Without these out years in the trend the trend line would be lower in when projected out to 2016.

 

The key points:

 

- The projections out to 2016 for revenues are overstated for all 3 major categories of sources of Federal revenues. Individual income tax is the worst but SS and Corp are also well overstated.

 

- This is easy to see if you just do some basic budgeting and forecasting. It is being ignored by the politicians - D, R and I's! They must know the CBO forecast is fantasy. But without these fantasy projections for revenue the deficit forecast would already be ultra-critical since the new baseline for spending calls for around 4.5T of spending by 2016 - the new baseline in spending.

 

Where it goes...and will go...

 

The answer - Medicare/Medicaid, Social Security and Debt.

 

So the question is what can you do without - health benefits, retirement funds or paying the mortgage on the debt run up by the Federal Government? It has to be one of those three. Everything else - including defense spending is already planned to take a downward dive...it is in the plan that they get severe cuts.

 

Of course the answer is that there are no plans to deal with any of the 'big 3'. So there is no plan. No matter what comes out in the next 48 to 72 hours - it is just a stepping stone on a trail to disaster. Spending will likely reach 4.5T in 2016, revenues will likely be, at very, very best around 3T. So we have a 1.5T problem - per year. This is not sustainable.

 

So at least part of the reason for the lack of a plan and direction is that the plan or direction would need to cut at 3 sacred cows - Health, Retirement, Interest on Debt. But no one has a plan to do that. What is happening now is just drama in unfolding tragedy.

 

As a guy who shares most of the principles of the Tea Party, I'm not opposed at all to tax hikes. The problem is I don't want to have to pay more in taxes just so the President can continue careless spending. If I'm guaranteed that my higher taxes result in a dramatic reduction in debt, I'm okay with that & would be fully on board with it. But President Obama is not showing me any propensity toward reduced spending, so I basically oppose any tax hike idea he puts forth.

 

Spending has been fairly flat since Obama came in office, although it is at such a high rate that it clearly needs to be cut. On the tax side, I saw someone the other day saying we don't even need to raise tax rates. If we would just eliminate the tax credits currently in place, there would be $1 Trillion in added revenue.

Here's a thought: Reduce defense spending. It's gotten completely out of hand, far more ridiculous than anything else. Stop putting money in the pockets of defense contractors.

Here's a thought: Reduce defense spending. It's gotten completely out of hand, far more ridiculous than anything else. Stop putting money in the pockets of defense contractors.

 

Reduced defense spending is already built into the plan after a peak in 2011. See the magenta line in the last chart.

 

Here is 2009 - 2016. 2009 and 2010 are actuals. 2011 - 2016 are estimates.

 

636,775 666,715 739,664 707,466 648,205 637,550 644,077 651,447

Reduced defense spending is already built into the plan after a peak in 2011. See the magenta line in the last chart.

 

Here is 2009 - 2016. 2009 and 2010 are actuals. 2011 - 2016 are estimates.

 

636,775 666,715 739,664 707,466 648,205 637,550 644,077 651,447

Thats not a good enough cut, see where it actually rises again before 2016? I would like to see that spending cut to about 2006 levels, or even 2005.

Thats not a good enough cut, see where it actually rises again before 2016? I would like to see that spending cut to about 2006 levels, or even 2005.

 

2006 Defense spending is a hair under $500B. 2016 projected spending is a hair over $650B. So lets go to 2006 levels by 2016. That 'saves' $150B more than projected.

 

In the first post I point out that the likely 2016 gap will be around $1.4T or $1,400B. So lowering defense to this level by 2016 fixes approximately 1/10th of the likely problem. There would still be 9/10s of a problem left.

 

I am just pointing out the numbers. I have not answer or better alternative. The more I look at this I am afraid there is no reasonable answer. There certainly is no 'easy' answer.

For those that want a tax increase, how much more are you willing to pay? How much should taxes be increased? Or is this just some theoretical tax increase that affects "the rich". Because it seems to me tax increases only affect the working class. Low income...no increase, high income...manage around it, middle income...stuck with it! Problem is many of the middle income jobs are now in Asia and Latin America....think we can get them to contribute?