How Can the Government Spend More Than it Brings?

U.S. Government Deficits

Why is it that the U.S. Government can spend more than it brings in through taxes and other revenue? What are the specific reasons why the U.S. can consistently and constantly operate its programs and conduct official business while running a huge deficit? These questions and others will be reviewed in this paper.

The Deficit -- why and by how much is the U.S. In debt?

A May, 2012 article in the Economist quotes Republican presidential candidate Mitt Romney saying that the U.S. Government has "…a moral responsibility not to spend more than we take in" (Economist, 2012, p. 1). The article reminds Romney that if what he is saying is true then America is "…a thoroughly depraved and immoral country" because in 76 of the past 100 years "the U.S. government has spent more than it has taken in" (Economist, p. 1). In fact in 26 of the past 30 years the government has spent more than it received in taxes. The article specifically mentions that the last five Republican presidents (Nixon, Ford, Reagan, Bush and Bush) all "…violated this putative moral responsibility with joyful abandon" (Economist, p. 1).

While Romney hoped to make some political hay by offering his pronouncement that government debts are immoral, the truth is that Romney has endorsed the proposed budget of running mate, Paul Ryan, which includes "massive tax cuts that will dramatically increase the federal deficit," so voters can see that political rhetoric is just that, rhetoric, and addressing the deficit requires deeper thinking (Economist, p. 2).

How much is the current U.S. deficit? Presently it is (overall) about $16 trillion, according to Kimberly Amadeo writing in About.com (a New York Times publication). The federal deficit for this year, 2012, according to the Congressional Budget Office (CBO), is expected to be $1.1 trillion. In 2011 $5 trillion was added to U.S. deficit, Dennis Cauchon writes in USA Today (2012). But that $5 trillion figure is based on including the cost of "promised retirement benefits" to Congress and the public, Cauchon explains. It also includes "liabilities for Social Security, Medicare and other retirement programs," and while that $5 trillion figure is realistic, the government is only required to calculate the "official deficit," which was $1.3 trillion, Cauchon points out. Cauchon quotes Sheila Weinberg of the Institute for Truth in Accounting: "By law, the federal government can't tell the truth"; she refers to the working number ($1.3 trillion) versus the real number when retirement programs are considered ($5 trillion) (Cauchon, p. 1).

Why is it okay for the government to spend more than it brings in?

The U.S. government can spend more than it brings in because that has been an operative federal policy for many years. When a government can't pay all its fiscally mandated obligations, it can't just simply issue IOUs to those entities it owes money to. Instead, it borrows money. When more money must be borrowed by the federal government, it simply raises the "debt ceiling" (Sahadi, 2011). It is up to Congress to approve the raising of the debt ceiling, Sahadi writes in CNN Money; and unless Congress approves the raising of the debt ceiling (which it has done 74 times since 1962), the Department of the Treasury does not have the legal authority to borrow any more money, Sahadi continues.

Meanwhile, economics Professor Robert L. Sexton writes in his book Exploring Economics that budget deficits "can be important" since they offer the government the "flexibility to respond appropriately to changing economic circumstances" (Sexton, 2010, p. 782). For example deficits may be helpful in an economic "downturn" or during a national emergency. When taxes are cut and government spending increases, the deficit grows larger, Sexton explains. The example he gives of how politics affects the deficit involves Presidents Clinton and George W. Bush.

Clinton, his Democrat legislators along with many Republicans in Congress worked to reduce the deficit in the late 1990s. Because of the surge in economic growth (brought on by the "dot.com" digital revolution) the deficit "turned into a budget surplus" (Sexton, 782). But by 2003 that surplus "slipped into a deficit" for three reasons: a) President George W. Bush promised a tax cut in his campaign and he was able to convince Congress to go along with him; b) the "war on terrorism" and the Iraq and Afghanistan wars cost billions and wiped out the surplus; and c) the recession of 2001 put millions out of work and the loss of those tax revenues led to "less tax revenue and greater government spending" (Sexton, 782).