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US Taxing and Spending Policies:
The Lines Crossing Problem
Robert Dugger
Invest in Kids Working Group
Washington DC
October 27, 2008
The Federal Budget “Lines Crossing Problem”
Without massive tax or deficit increases (and even
assuming complete elimination of the “Bush tax
cuts” and no economic downturn), all federal
revenues will be absorbed within 15 years by –
 National debt interest payments
 Federal “tax expenditures” – tax subsidies and
loopholes
 Social Security and Medicare and other entitlement
payment
2
All US revenues will be exhausted by mandatory spending
in 15 years absent very large tax or deficit increases
Total Mandatory Spending Will Exhaust All Federal Revenue Resources by 2024
(Note: Tax expenditures are added back to federal revenue and shown
separately as an expense to clarify their size and significance)
35
35
Exhaustion Point
30
30
25
25
20
20
Tax Expenditures
15
10
15
National Debt Interest
Percentage of GDP
Percentage of GDP
Federal Revenue Plus Tax Expenditures
10
Other Mandatory Expenses
Medicare/Medicaid
5
5
Social Security
0
1990
2000
2010
2020
2030
0
2040
Calendar Years
Source: Government Accountability Office, Long-Term Fiscal Simulation, January, 2008, alternative fiscal scenario, which assumes continuation of current policy. Other
Mandatory spending, CBO March, 2008 baseline and 1.9% of GDP after 2018. Tax expenditures are assumed to be 8.0% of GDP throughout.
3
When the “lines cross”, there will be no money
for…
…early education, national parks, the
Army or Navy, or the FHA to guide
planes to safe landings.
No money for hundreds of government
services and functions.
No immigration control. No federal court
system. No Homeland Security. No
government scholarships.
Nothing.
4
Well before the lines cross, if nothing is done, the
United States will become a different and
unpleasant place
 In five years -- just 60 months absent
massive tax and deficit increases -- there will
be as much as 30% less money for much of
what the government now does.
 In ten years, the figure will be nearly 60%
less.
 As the fiscal oxygen diminishes, people and
businesses will fight for air – they’re
beginning to fight now.
5
Government budgets define civil relationships
• Government budgets are about money,
but more importantly, they define rights
and obligations among citizens
• Budgets define a society’s civil
relationships -- who gets what, who
pays for what, and who owes what to
whom
6
Out of balance budgets mean civil relationships are
out of balance and unsustainable
• The deeper the imbalances, the more
serious the struggle for money will be.
• Americans will be pitted against each
other. Citizens with budget advantages
will resist giving them up. Some may even
fight..!
• The turmoil will affect financial and
economic stability
7
Unsustainable civil relationships will need to be
replaced by new sustainable ones
To establish new sustainable relationships
To assure that investments in kids receive the
resources required for the US to have a
competitive future workforce and fiscal
sustainability,
We need to establish clear firm principles for
federal and state budgeting
8
New budget tax and spending principles have to
meet several tests:
 Make solid economic sense for the next several
generations
 Make sense politically and are supported by
voters at the most personal levels
 Speak in terms of American ideals of equal
opportunity and life success
 Call for allocating resources on the basis of
proven long term economic returns
9
Three principles that MAY meet the tests of what’s
right, what makes economic sense, and what’s
politically workable, are:
1. The highest priority of US budget policy is
the lifetime wellbeing of every American,
starting in the earliest years of life.
2. US budget resources go to policies and
programs with the highest evidence-based
economic returns over generations.
3. Funding decisions, from the outset, are
based on measurable goals and
continuous performance evaluation.
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