Happy Sequester Day everyone.
I have consistently commented on my opinion of the deficit. And that is, we don't have a debt problem, we have an economic growth problem.
Our budget isn’t static. When the economy slumps, tax revenues from payroll, income, and corporate taxes fall. At the same time, spending on unemployment benefits rises and the political system provides stimulus through tax cuts or higher spending. That’s what happened in the 2009-2011 period. So the deficit quickly grows by big leaps and chunks.
This also works in the other direction. When the economy improves, and more people go back to work, receipts from corporate, payroll, and income taxes rise at the same time that money spent on unemployment benefits decline. And so the deficit can decline quickly.
So far, to date in fiscal year 2013, the budget deficit has declined by $86 billion. Moreover, through the first four months of fiscal 2013 the government has collected $468 billion in individual income taxes, up 15.8 percent from $404 billion in the first four months of fiscal 2012.
Also, through the first four months of fiscal 2013, social insurance and retirement taxes (Social Security, Medicare) came in at a $254.9 billion, compared with $241.1 billion in the first four months of fiscal 2012—an increase of $13.8 billion, or 5.7 percent. So far this fiscal year, the combined receipts of taxes tied to jobs and employment are $723 billion, up $77.9 billion from $645 billion in the first four months of fiscal 2012. That’s a 12 percent increase.
At the same time, we’re spending less on unemployment benefits. First-time unemployment claims continue to hover at the relatively high level of 360,000. But thanks to an improving jobs market and the expiration of extended unemployment benefits, the number of people receiving benefits has fallen sharply.
All told, rising payroll-tax collections and declining unemployment have produced $86 billion of deficit reduction in the first four months of fiscal 2013—which is almost exactly the amount the sequester hopes to achieve. Now, assume that these trends continue through the remaining eight months of this fiscal year—i.e. that employment-related taxes rise by 12 percent for fiscal 2013, and spending on unemployment benefits declines by 24 percent. That would mean an extra $228 billion in revenue in fiscal 2013 compared with fiscal 2012, and $21.6 billion less in spending on unemployment benefits—or $249.6 billion in deficit reduction.
That is three times the amount of the sequester. So what is all the fighting about? Simply both parties trying to make political points. Nothing else.
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