For the last two years we’ve heard the same mantra from the GOP and its mouthpiece, FOX News: “We have a spending problem, not a revenue problem.” It’s usually said with solemnity and sometimes a hint of compassion, as if the speaker understands how painful this hard truth is for fiscal weaklings.
The “spending problem” is, of course, all about “entitlements” — especially Medicare, Medicaid and Social Security. It’s not about our military spending, even though the U.S. spends as much on defense as the next 14 countries combined.
Compared to our potential “enemies,” we spend five times as much as China, 10 times as much as Russia, and 95 times as much as Iran. These ratios are crazy. Moreover, our defense budget is at a historic high.
As shown in the chart below, even apart from the cost of the war in Afghanistan, the U.S. is spending more in constant dollars on its military now than it did at the height of the wars in Korea and Vietnam.
Obama continues to spend as much as Reagan did at the peak of his Cold War struggle with the Soviet super power. However, Reagan started cutting back as the Soviet Union moved toward dissolution in 1989, and this reduction continued under Bush I and Clinton.
President Eisenhower, a five-star general and former commander of allied forces in Europe, would have been very aware of America’s military needs. Yet his defense budget, in the midst of the Cold War, was $300 billion less than Obama’s. With the end of the wars in Iraq (2010) and Afghanistan (2014), why aren’t we seeing reductions at least as great as those after Korea (1953), Vietnam (1975) and the Cold War?
Let’s stop gorging a bloated bureaucracy known for its waste and sloppy financial management. The U.S. Government Accountability Office complained in 2011 and 2012 of “serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable.”
By bringing our defense budget down to Eisenhower, Nixon or Clinton levels, we could save between $150 and $300 billion each year ($1.5-3 trillion over the 10-year period for which we set our deficit-reduction targets).
The GOP mantra claims the deficit is “not a revenue problem,” meaning we can’t or shouldn’t get more revenue by raising taxes. Even though, as Foreign Affairs put it recently, “Compared with other developed countries, the United States has very low taxes.”
Conservatives tell us we need to keep those taxes low because raising taxes on income or businesses will make our economy less competitive in the global marketplace. It will cause investors to lose heart and be a slap in the face of “job creators.”
Let’s test this claim by looking at other advanced capitalist democracies with higher taxes. Are they trailing us in the global economy? Let’s focus on northern Europe where, according to Conservatives, monster governments maraud their economies, sucking up private capital to feed generous social programs that morally stunt their citizens.
U.S. total tax revenue as a percentage of gross domestic product (GDP) is 26.9 percent. Germany, the EU’s economic powerhouse, weighs in at 40.6 percent. And — no surprise — Denmark tops out at 49 percent, followed closely by Sweden, 47.9 percent, and both Finland and Norway at 43.6 percent (Heritage Foundation 2012).
So what’s it like under the oppressive Danish government? The Heritage Foundation and the Wall Street Journal publish an annual Index of Economic Freedom (defined as governments “allow[ing] labor, capital and goods to move freely, and refrain[ing] from coercion. . . beyond the extent necessary to protect and maintain liberty itself”). The 2013 Index ranks Denmark higher than the U.S.
The World Bank’s International Finance Corporation annually ranks national economies on “ease of doing business” (with emphasis on simplicity of regulations, protection of property rights and ease of starting a local firm). The U.S. is fourth, Denmark fifth and Norway sixth out of 185 nations.
In the World Economic Forum’s Global Competitive Index, Finland (3), Sweden (4) and Germany (6) outrank 7th-place U.S. In Forbes Magazine’s “Best Countries for Business” list, Denmark (3), Sweden (7), Norway (8) and Finland (9) are ahead of 12th-ranked U.S. (out of 141 nations).
Yes, the United States does have a “spending problem,” but it’s due to a hugely wasteful defense budget. This is a major cause of our declining ability to pay for basic social programs that most Americans strongly support, such as Medicare and Social Security.
But our low ratio of total taxation to GDP indicates there is plenty of room in the American economy for additional tax revenues. The wealth and competitiveness of high-tax economies such as Denmark, Sweden, Norway and Germany show that generous social programs don’t undermine economic prosperity.
The GOP mantra is a groundless dogma.