Guess what was the biggest percentage-gain revenue winner for the taxpayer in 2010. Answer is inside. Background reading:
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Reprinted with permission.
Perhaps you missed it, but then so did the Washington press corps. Late last week the Congressional Budget Office released its preliminary budget tallies for fiscal year 2010, and the news is that the U.S. government had another fabulous year—in spending your money. We didn't expect President Obama to hold a press conference, but why are Republicans so quiet?
Spending rolled in for the year that ended September 30 at $3.45 trillion, second only to 2009's $3.52 trillion in the record books. But don't think this means Washington was relatively less spendthrift. CBO reports that the modest overall spending decline results from three one-time events.
The costs of TARP declined by $262 billion from 2009 as banks repaid their bailout cash, payments to Fannie Mae and Freddie Mac were $51 billion lower (though still a $40 billion net loser for the taxpayer), and deposit insurance payments fell by $55 billion year over year. "Excluding those three programs, spending rose by about 9 percent in 2010, somewhat faster than in recent years," CBO says.
Somewhat faster. You've got to laugh, or cry, when a 9% annual increase qualifies as only "somewhat faster" than normal.
What did Washington spend more money on? Well, despite two wars, defense spending rose by 4.7% to $667 billion, down from an annual average increase of 8% from 2005 to 2009.
Once again domestic accounts far and away led the increases. Medicaid rose by 8.7%, and unemployment benefits by an astonishing 34.3%—to $160 billion. The costs of jobless insurance have tripled in two years. CBO adds that if you take out the savings for deposit insurance, funding for all "other activities" of government—education, transportation, foreign aid, housing, and so on—rose by 13% in 2010.
As for the deficits, the 2010 total was $1.29 trillion, down slightly from $1.42 trillion. That's a two-year total of $2.7 trillion, or more than the entire amount during the Reagan Administration, when deficits were supposed to be ruinous. Now liberal economists tell us that deficits are the key to restoring prosperity. But all we have to show for spending nearly 25% of GDP for two years running is a growth rate of 1.7% and 9.6% unemployment.
Those slow growth numbers have contributed to the deficits by yielding paltry tax revenues. Individual income tax receipts fell again in 2010, by 1.6% to $901 billion. As recently as 2008, individual income tax revenues were $1.15 trillion. Corporate tax revenue climbed a healthy 38.6% to $192 billion, but that's still well below the $304 billion of 2008. This only underscores how much deficit reduction depends on a growth revival.
Here's the kicker: By far the biggest percentage-gain revenue winner for the taxpayer in 2010 was . . . the Federal Reserve. Thanks to the expansion of its balance sheet with riskier assets, the Fed earned $76 billion during the year, a 121% increase. The Fed's windfall is a perfect symbol of our current economic policy. The government is making money because it now controls so much capital, but it is robbing that money from the private economy in the process. It is never a good sign when your central bank is a national profit center.
The nearby table shows the increases in spending overall and in certain major categories over the last two fiscal years. You might call it the fiscal scorecard for the 111th Congress, and that's before the ObamaCare subsidies begin in earnest. (We've excluded TARP and deposit insurance to better capture the underlying spending trend.)
The 21.4% federal spending increase in two years ought to put to rest any debate about the nature of America's fiscal problem. The Pelosi Congress has used the recession as an excuse to send spending to record heights, and its economic policies have contributed to a lousy recovery. The solution is to stop the spending and change the policies. Polls open on November 2.
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Further reading:
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