I recently read a fascinating story that so transfixed and made such a profound impact on me that I’m suggesting it to all of my friends. It is a dark tale of insatiable desire and wanton excess. It portrays humanity’s noblest intentions and deepest character flaws. While it may have a dry title, once you start reading you can’t put it down. It’s called “1040 Instructions, 2010”, and it is published by a boutique publishing company called the IRS. It’s also free, which is a bonus.
In the event you’re too busy to read the entire thing – and let’s face it, even people who don’t have anything to do are too busy to read the entire thing – let me recommend the specific section where the story really gets interesting. It’s a visual depiction of two pie charts under the exciting heading “Major Categories of Federal Income and Outlays for Fiscal Year 2009”. Make sure you’re sitting down when you read this section.
It is a human tendency, whenever we see a pie chart, to immediately identify the biggest slice of pie. This, come to think of it, is how I size up actual pies too. One pie chart is called “Income”, and the other pie chart is called “Outlays”. It shows relative sizes of how the Federal Government raises money and then spends it.
The biggest slice of pie in the “Outlays” section is called “Social Security, Medicare, and other retirement”, which accounts for a whopping 34% of the pie. That’s a lot of pie. Since we know from public data that the Federal Government “outlayed” about 3.5 trillion dollars in Fiscal Year 2009, that means that in addition to this slice of pie being very filling, at 1.2 trillion dollars it is also very expensive.
The other pie chart is called “Income”. Income is a word which, to companies and families, roughly means “what we make over a given period of time”. Although we would snicker if one of our neighbors included their unpaid credit card balance as part of their income, the Federal Government is impervious to snickering, and therefore includes “Borrowing to cover deficit” as one of the pieces of its reported income pie. And if you’ve read the story this far, you won’t be surprised to know that this slice of pie is the largest single slice of the income pie at a belly-busting 40 percent of the entire pie, or about 1.4 trillion dollars.
Borrowing this much money to cover one year’s spending would probably be ok if it was a rare occurrence, but the story becomes more troubling when you realize that this is business as usual. In fact, if you look at all the years going back to the early 20th century (it’s easy to do – simply point your favorite search engine to “OMB Historical Tables”) you quickly see that although tax policies change and economic conditions fluctuate, the US Government generally takes in about fifteen to twenty percent of that year’s Gross Domestic Product – a little bit more during the internet boom years of the late 1990’s, a little bit less during the recent recession. While some people beat their drums to increase taxes on certain groups of taxpayers or types of industry, the smart money says that the most the Federal Government will take in each year is going to be around eighteen or nineteen percent, regardless of our diverse opinions about what’s “fair” or how we spread the tax burden around.
Going back to that outlay pie in 2009, the Federal Government spent 25 percent of that year’s GDP. The following year, fiscal 2010, the government spent about 24 percent of the GDP. Despite the rancor we hear in the news, much of the current fight in Washington is over minor differences of whether to reduce by 2 percent or 4 percent the projected 2012 deficit (not overall spending). Even Representative Paul Ryan’s plan released earlier this week doesn’t get spending under 20 percent of GDP until 2015 – when today’s eighth graders will be packing for college. Opponents, predictably, refer to this plan as “extreme”.
But voices like Rep. Ryan and many others are contributing to a new seriousness when it comes to correcting a trajectory that we cannot maintain. An article in the March, 2011 issue of Reason magazine by Nick Gillespie and Veronique de Rugy called “The Nineteen Percent Solution” outlines another approach to confronting the same problem.
Over the past several years both the Bush and Obama administrations have been running around the neighborhood – mostly to the Chinese family across the street – borrowing pie from them and promising them that someday our grandkids will bake pie for their grandkids, plus our grandkids will be happy to throw in some extra pie as interest.
The pie charts in the 1040 instructions indeed tell a harrowing tale. Can the country pull itself out of the debt spiral? Do politicians have the guts to reduce spending? Do voters have the wisdom to re-elect politicians who do?
It’s quite a story. Stay tuned….
Published on April 11, 2011 in honor of the coming tax day of April 15th.