Perhaps the BEST B1G Forum anywhere, here at College Football Fan Site, CFB51!!!

This is one of the weirdest and most interesting thing about our economy:

It is consumer driven and when consumers *THINK* that a recession is coming, they cut back on spending. If that is widespread enough it becomes something of a self-fulfilling prophecy as:

• Consumer anxiety depresses consumer spending, then
• Depressed consumer spending causes a recession, then
• Some of those anxious consumers get laid off essentially because they thought they were going to get laid off.

So we should believe our leaders when they say things are going well and we’ll all do better!!

(I kid, though the addiction to bad news is not ideal)

The smart play is to be a contrarian:  Spend MORE during busts and LESS during booms.  This is especially true for hyper-cyclical industries like construction. 

Like Keynes advocated.

Unfortunately our government didn't get the message. They spend a lot during busts and spend even more during booms. 

I've seen this done a number of times before so I don't claim it as an original idea but from @betarhoalphadelta 's CBO link:

• 2023 Federal Government Revenue was $4.4 Trillion, that is $4,400,000,000,000
• 2023 Federal Government Expenditures were $6.1 Trillion, that is $6,100,000,000,000

It is really hard for most people to grasp numbers of that size so take away eight zeros and think of it as a family budget:

Revenues:

• $22,000 Individual Income Tax Revenue
• $16,000 Payroll Tax Revenue (this is SS, Medicare)
• $4,200 Corporate Income Tax Revenue
• $2,290 Other
• $44,490 TOTAL

Expenditures:

• $13,000 SS
• $9,170 Nondefense discretionary
• $8,390 Medicare
• $8,050 Defense
• $6,590 Interest on the Debt
• $6,160 Medicaid
• $4,480 Income Security Programs
• $5,020 Other
• $60,860 TOTAL

$16,370 Deficit
$262,000 Outstanding Debt

So this "family" with $44,490 in annual income needs to cut expenses and/or raise income by $16,370 just to get to break-even.  Then they can start working on paying off the $262,000 that they have in outstanding debt.  

If they doubled revenues and halved expenditures that would get them to $88,980 in revenue and $30,430 in expenditures.  Five years of that would pay off the debt!  

On the deficit, I think the best we could expect, at best, is to have the debt grow more slowly than GDP.  At best.

There is no practicable way to cut the deficit to zero inside some 30 year plan that would get upset along the way.

Agreed, and you can grow your way out of the problem. These two are the same chart but one is denominated in dollars while the other is in %GDP.

Like Keynes advocated.

Unfortunately our government didn't get the message. They spend a lot during busts and spend even more during booms.

Yep.  

The problem is getting the government to actually reduce spending during the booms.  

Our government actually did a decent job of this up until the 2008 crash.  Since then they've just gone completely nuts.  If you look at the chart I posted of Debt as a % of GDP (which is the only way to view it because dollars aren't comparable, %GDP is):

The chart starts in the mid-1970's and Federal Debt is roughly 1/4 of GDP.  It remains right about there through the end of the Nixon Administration, the Ford Administration, and the Carter Administration.  In 1980 when Reagan was elected the Debt was 25.5% of GDP.  Then we had 12 years of:

• Tax opposing Republican Presidents (Reagan 1981-1988, Bush I 1989-1992)
• Spending proponent Democratic House of Representatives
• Mixed control of the Senate, it was R for a few years, D for most.  

At the end of that, as of 1992 the Debt had risen to roughly 1/2 of GDP, it was 46.8% for 1992.  

Then Democrats controlled everything for two years (1993-1994 was Clinton as President, 258-176 D majority in HoR, 56-44 D majority in the Senate).  The debt as a % of GDP was essentially unchanged in this period but it is probably too short to get a real handle on how their policies would have impacted things if left in place.  

Then in 1994 there was a MASSIVE swing in Congressional control.  Republicans gained 54 seats in the HoR to take a 230-204 majority and eight seats in the Senate to take a 52-48 majority which grew to 54-46 when two former Democrats switched parties.   From 1995-2000 we had a Democratic President and Republican Congress and the Debt shrunk from roughly 1/2 of GDP to roughly 1/3 of GDP.  It was 47.8% in 1994 and 33.7% in 2000.  

From there:
In 2001 and 2002 R's controlled the HoR and the Presidency but the Senate was 50/50.

• 31.5% debt in 2001
• 32.7% debt in 2002

In 2003-2004 R's controlled the Presidency, the HoR (229-205) and the Senate (51-48+1 "Independent")

• 34.7% in 2003
• 35.7% in 2004

In 2005-2006 R's controlled the Presidency, the HoR (232-202), and the Senate (55-44+1)

• 35.8% in 2005
• 35.4% in 2006

In 2007-2008 Republican Bush remained in the White House but Democrats took over the HoR (233-202) and the Senate 49+2-49)

• 35.2% in 2007
• 39.2% in 2008

With Obama's election in 2008 the Democrats also made HUMONGOUS gains in both houses of Congress so for 2009-2010 they held the Presidency, the HoR (257-178), and the Senate (57+2-49)

• 52.2% in 2009
• 60.6% in 2010

In 2010 the Democrats fell back to earth, losing the HoR and losing most of their majority in the Senate so Democrat President, 242-193 Republican HoR, 51+2-47 Democratic Senate

• 65.5% in 2011
• 70% in 2012

In 2012 Obama was re-elected, and the Democrats expanded their Senate majority to 53+2-45 while eroding but not overtaking the Republican HoR majority to 234-201

• 71.8% in 2013
• 73.3% in 2014

In 2014 Republicans expanded their HoR majority to 247-188 and took a 54-44+2 majority in the Senate

• 72.2% in 2015
• 76% in 2016

In 2016 Trump won the Presidency but the R's lost seats in the HoR (still a 241-194 R majority) and Senate (52-46+2 R majority)

• 75.7% in 2017
• 77.1% in 2018

In 2018 R's grew their majority in the Senate to 53+45+2 but lost their majority in the HoR (235-199 D)

• 79% in 2019
• 98.7% in 2020

In 2020 D's won the Presidency and VERY slim majorities in both houses of Congress, 222-213 in the HoR and 48+2+VP-50 in the Senate

• 97.1% in 2021
• 95.8% in 2022

In 2022 D's gained a seat in the Senate to take a 49+2-40 majority while R's took over the HoR 222-213

• 97.3% in 2023

I think the three biggest "events" in this timeframe (at least the 2001-current portion where I broke it down by year) were 9/11 in 2001, the Credit bubble in 2008, and COVID in 2020.  

9/11 had surprisingly little impact on the Debt as a percentage of GDP.  I'm sure that defense spending rose but Defense isn't THAT big of a chunk of the budget and from 2001-2007 the Debt only grew a few percent from 31.5% of GDP to 35.2% of GDP.  

The credit bubble in 2008 had a much bigger impact.  Heading into that the Debt was still around 1/3 of GDP as it had been since the combination of a Democratic President and Republican Congress got it under control in the late 1990's.  Then in about five years the Debt roughly doubled from just over 1/3 of GDP to just under 3/4 of GDP.  

The response to COVID was to go on an unprecedented spending spree and that took us from debt of around 3/4 of GDP to debt roughly equal to GDP.  In one year (2020) the Debt grew by almost 20% of GDP from 79% of GDP in 2019 to 98.7% of GDP in 2020.  

My view is that Federal Debt of roughly 1/3-3/4 of GDP is manageable but increasingly difficult as it gets higher.  Federal Debt of around equal to GDP may not be sustainable in the long-run.  Interest on the Debt is now more than 10% of Federal Expenditures and is the fifth largest expenditure behind only SS, Nondefense discretionary, Medicare, and Defense.  More problematic is that of those five, one is essentially out of Congress' control two others are the political third rails of SS and Medicare so . . .  What is left is just Defense and Nondefense discretionary but, as @betarhoalphadelta and I discussed above, you would have to literally zero them out to actually balance the budget.  

It's very counterintuitive thing about tax REVENUE, when tax rates are cut, the tax REVENUE doesn't drop off much, if any longer term.  Revenue isn't the issue exactly.  (This is sometimes termed Hauser's Rule.)  What does cut revenue hard of course is recessions, unsurprisingly, but if one looks at the impact of previous tax cuts on revenue, it's not very obvious.  There probably is some "ideal" income tax rates (Laffer), and maybe it should be higher today for higher income folks, I could see that, but it's not going to raise a ton of revenue, nor is an increase in the corporate tax rate.  And oddly enough, the progressive nature of the US tax code is stronger than for most European countries (they tax the middle harder and have a VAT).  

Correct.

And that is a worry.