As we talk about spiraling deficits, we should discuss what has changed that brought about the deficit. As people have lost their jobs, they obviously are not paying as many taxes to both federal and local governments. As people have lost their houses, they are paying less in property taxes. Here is a look at the federal level (courtesy of Wikipedia).
{nextpage}
So the government was used to receiving taxes at one rate, and then after the recession, they received much lower revenue from taxes, even though spending had already been decided based on previous revenue numbers.
Now as we look at the GDP it is this formula
Y = C + I + E + G
(where Y = GDP, C = Consumer Spending, I = Investment made by industry, E = Excess of Exports over Imports, G = Government Spending)
So as economists decide whether our economy is growing, how much the government spends plays a big role. Government spends money on things including funding private businesses. For example, we keep a HUGE number of prisoners in jail per capita, and the government pays for that. We pay a lot of money to government contractors to make weapons for the military and the government pays for that. We have sick people who have nowhere else to turn and the government pays for that.
Now as we look at the GDP it is this formula
Y = C + I + E + G
(where Y = GDP, C = Consumer Spending, I = Investment made by industry, E = Excess of Exports over Imports, G = Government Spending)
So as economists decide whether our economy is growing, how much the government spends plays a big role. Government spends money on things including funding private businesses. For example, we keep a HUGE number of prisoners in jail per capita, and the government pays for that. We pay a lot of money to government contractors to make weapons for the military and the government pays for that. We have sick people who have nowhere else to turn and the government pays for that.
A small but important point to make is government spending is part of the GDP and by cutting it, mathematically we are reducing growth assuming all other things are the same.
The government doesn’t have enough money, so the response has been to want to cut everything. But shouldn’t we also ask why the tax revenue is down? Why aren’t we focusing more on creating jobs? Wouldn’t that help more than cutting spending?