Fiscal Cliff Solved? Not Without Spending Cuts.

Graph of Federal Spending 2006 to 2011

So the President and Congress have decided that Uncle Sam’s financial problems stem from not having enough of your money–so they raised taxes. Oh, and they cut some spending but you will need a magnifying glass to find it.

However, this budget deal ignores the reality that federal spending has grown tremendously in the last few years. As shown in the chart above, between fiscal years 2006 and 2011, federal spending has soared by $948 billion.

As a percent of Gross Domestic Product (GDP), federal spending jumped to 24.1 percent in FY 2011 from 20.1 percent in FY 2006.  The historic average over the last four decades is 20.7 percent of GDP.

With Uncle Sam on such a spending spree, shouldn’t the economy be booming? The economy is not booming because of the fundamental problem of government spending–the money has to come from somewhere else through taxes, borrowing, or printing money.

Up until yesterday, Uncle Sam was able to pay for his spending by borrowing and printing money. Now, Uncle Sam has decided to reach into your back-pocket with higher taxes.

What hasn’t been tried is for Uncle Sam to tighten his belt and reduce spending. So why is there so little discussion on reducing federal spending? I think Mark Steyn hits the nail on the head:

“The thing to do is to get people used to the spending, which is about 25 percent of GDP. If he’s gotten people used to the spending, at some point people will have to pay for it the way the Norwegians pay for it, the way the Belgians pay for it. They will have to pay taxes that match what the government is spending. Obama has figured out if you get ‘em used to the spending, then two, three years down the line the taxes will fall his way,”

The frog (a.k.a. the American taxpayer) is slowly being boiled.