Tuesday, August 28, 2012

Spending "tails" and deficits

Fair warning: I'm going to get a bit wonky here, but I think this is an important distinction to make.

We all know that one of the Republican's favorite lines about Democrats is that we're the party of big spending. Of course that completely ignores that whenever Republicans have had the chance, they've outspent Democrats by a mile.

But there's also a difference in HOW a Democrat like President Obama has spent that often goes unnoticed. I see it all the time because on an infinitely smaller scale, I have to deal with spending and budgets at the nonprofit I run.

Most people who deal with organizational budgets talk about two kinds of spending...those with "tails" and those without. Tails refers to whether the spending is ongoing (therefore affecting future budgets) or one-time expenses.

For example, the biggest costs for almost any business is salaries. Adding employees is not only a current expense, but obligates spending in future years - so it has tails. On the other hand, hiring a contractor to perform a specific task is a one-time expense and doesn't have tails.

You can see the difference in these two kinds of spending played out in terms of current deficit projections very clearly in this chart.

The darkest blue area represents mostly spending on the Recovery Act. And you can see that it has almost no tails. Whereas the tails on the Bush tax cuts are huge.

This is one of the things that really drives me nuts about the Republicans lies about President Obama. They paint him as a big spender who is primarily responsible for our deficit as a result of 2 things: the Recovery Act and Obamacare.

First of all, the CBO has been clear...Obamacare is paid for and rather than contributing to the deficit, it reduces it. That's why it doesn't even show up in the chart.

And secondly, the Recovery Act (as well as TARP) funds have been spent. Their impact on our current deficit is almost nil (I suspect the small amount of on-going spending is small business and middle class tax cuts as well as unemployment insurance extensions).

So if we want to really get serious about balancing the current budget, the two things we have to do are improve the economy (bringing in additional tax dollars) and eliminate the Bush tax cuts. In other words, we need to get rid of the tails of the Bush years.

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