The Congress and the Deficit

Budget Issues

by Elaine Schwartz    •    Apr 7, 2011    •    593 Views

There are so many budget issues. How to remember them? You might think of 3 and 8.

3 decisions:

1) The shutdown: There might be a partial government shutdown on Friday, April 8, because Congress cannot agree on the 2011 budget. So far, where necessary, short-term measures called Continuing Resolutions (CRs) have authorized 2011 spending.

2) The debt ceiling: May 16 is now the estimated date on which the U.S. will reach its legal debt limit. While the Treasury says that “extraordinary measures” can be taken to extend the limit to July, still the Congress has to act to avoid default. This brief article from the Concord Coalition ideally explains the debt ceiling issue.

3) 2012 budget: And finally, there is President Obama’s 2012 budget proposal that has to be considered. This Washington Post interactive provides an overview of the federal budget process.

8 categories: Congress’s 3 decisions primarily involve debating 8 categories (from the “Battle of the Budgets,” the WSJ (4/6, p. A7).

1) Medicare, 2) Medicaid, 3) Social Security, 4) Defense Spending, 5) Non-defense Discretionary Spending, 6) Farm Subsidies, 7) Corporate Taxation, 8) Individual Taxation

The Economic Lesson

Described in John Steele Gordon’s Hamilton’s Blessing (pp. 22-25), one of the Congress’s first tasks, in 1789, was to generate revenue. The primary source, they decided, would be import duties. Meanwhile, a secondary stream of money would come from excise taxes on everyday goods ranging from carriages (which targeted the rich) to salt, which touched everyone, and whiskey (which led to the Whiskey Rebellion in 1794). Not until the First World War did the income tax become a major source of government funding.

Meanwhile, on the other side of the ledger, John Steele Gordon tells us that in 1792, outlays were so massive that the budget deficit was 38% of revenues. Then, “except for periods of …crisis, the government would never again run up so large an annual deficit in terms of a percentage of total revenues…until 1992.” (p. 6)




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