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A Citizen’s Guide to the 2007 Financial Report of the United States Government

While watching the congressional testimony of the federal regulators yesterday, one of the representatives started waving around the Financial Report of the United States and quizzing the witnesses. SEC Chairman Christopher Cox got slapped pretty hard for not being able to answer the representative’s questions.

It is only a few pages and very easy to understand…

Last 5 posts by Rick Pollack

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20 Responses to “The Federal Government’s Financial Health”

  1. J Murray Says:

    If private companies accounted for their assets, liabilities, income, and expenses the way the federal government does, their executives would go to jail.

  2. J Murray Says:

    This report (thanks Rick) is a very good snapshot of government revenues and spending. It clearly shows that revenue is not the problem: collections rose substantially over the last 4 years, thanks to the reductions in marginal income tax rates that stoked economic growth. The supply side argument is clearly supported by the evidence in this report.

    The trouble we face is on the spending side. Until we get that under control, nothing is under control.

  3. John Ettorre Says:

    It should come as no surprise to anyone that out-of-his-league Chris Cox can’t perform. That’s why he got the job in the first place, so that he couldn’t regulate the markets and we could instead just go on a years-long binge. This all falls under the heading of reckless stuff that helped sour America on the Republican party. It’ll take at least a decade before America, the land of mass amnesia, can begin to forget what a hash these fools have made of everthing they’ve touched, and some things they’ve intentionally avoided touching.

  4. Ed Morrison Says:


    The first graph in the report is headlined “The Government Is On An Unsustainable Fiscal Path”

    In my view, the case for the supply side tax cuts is not “clearly supported by the evidence in this report.”

    The case for supply side tax cuts is hardly clear cut:

    What you see depends a lot on where you stand.

  5. John Ettorre Says:

    Ed, thanks for the link, but I think you’re wasting your time trying to convince Jonathan on this point. The only people who still need convincing that supply side theory is anything but a hoax (or wishful thinking, at best) are those who choose to misunderstand the plain evidence of our national experience over the last 28 years. They’re beyond the reach of empirical evidence and into the realm of a theological certainty that defies facts.

  6. J Murray Says:

    Ed, look at Chart 2. Federal revenues rose from $1.7 trillion to $2.6 trillion in JUST FOUR YEARS. That’s compound annual growth of over 20%. I don’t know about you, but I suspect that for 99.99% of Americans, neither their income nor their budgets grew by anything close to that over the same period. How much does the federal government need?

    I think you would have to be standing on your head to see that rate of growth in actual revenue collections as anything other than more than enough for the government maw. Our elected officials need to control spending.

    Today’s put a CONSERVATIVE estimate on Obama’s increased spending plans at $4.3 trillion over the next ten years.

  7. Ed Morrison Says:


    Revenues would have been higher (and projected deficits lower) without the tax cuts. As the first chart makes clear, the nation’s fiscal situation is a mess with deficits ballooning.

    It’s pretty clear that income growth over the past few years has been supercharged by over-leveraging in the FIRE-economy (finance insurance and real estate) and asset price inflation.

    The finance industry has made bad loans and placed extremely risky bets. They have engineered complex financial instruments that violate the essential transparency that serves as the bedrock of our financial system. They have circumvented (often with government complicity or ineptitude) common sense regulation designed to ensure that markets function efficiently with an informed assumption of risks.

    Now massive losses have seriously damaged our nation’s capital markets and have sent the real economy into what appears will be a long and deep recession.

    We have financial institutions that not only did not know how to manage risk, they unwittingly amplified it.

    If you want to continue happy talk about supply side economics, that’s fine with me. Just don’t expect the rest of us to believe it.

    I also suspect that fear rhetoric about Obama’s “tax and spend” policies may not play well this year. My sense is that a growing number of people understand the importance of making long term investments in our real economy.

    For twenty plus years we have been listening to rot that “government is the problem” and empty rhetoric about the “free market”. (The people who make these arguments are invariably those who are well served by them, including editors of the WSJ.)

    We live in a mixed economy in which we need to balance the roles of the public and private sectors. One component, in my view, is a tax system with a broad base and low rates that provides enough revenues for appropriate government investments in defense, research, environmental protection, and so on. We are far from this ideal, but the simple-minded logic of supply side economics gets us no closer.

  8. J Murray Says:

    Ed, there is no evidence supporting your assertion that “revenues would have been higher (and projected deficits lower) without the tax “cuts.” Indeed, there is a great body of evidence, worldwide, that reducing marginal tax rates–which are not tax “cuts”–stimulates economic growth, speeds reallocation of capital, and results in dramatic growth in both income tax and capital gains tax collections, which is exactly what happened here, as this very report states.

    “Chart 2 shows that government revenue increased steadily from 2003 through 2007, largely because of taxes on increasing individual income and corporate profits.” I remind you again that government revenues increased at a compounded rate of over 20% during that period. We do not have a revenue problem, but a spending problem.

    You remain in thrall to static budgeting, which assumes that increased tax RATES have no suppressing effect on the economy and result in the collection of more tax revenues, and its opposite, that decreased tax RATES result in decreased collections with no stimulating effect on the economy. The problem with this view is that the evidence is all in the other direction. How else do you explain the last five years of economic growth and increased tax collections? Chance?

  9. Ed Morrison Says:


    You did not read (or perhaps understand) my post.

    I am no fan of higher marginal tax rates, and I agree that all things equal, lower tax rates are better for growth than higher tax rates.

    Nor am I a fan of wasteful government spending.

    The problem is that the simple-minded supply side prescription (cut taxes and all will be well) does not lead to responsible budgeting. Even the U.S. Treasury backed off of the exaggerated claims used to promote Bush’s tax policies. Read more.

    Policymakers praying at the altar of supply side economics have made a hash of our federal budget, once during Reagan and a second time during Bush II.

  10. John Ettorre Says:

    It takes a curious form of resistance to the plain meaning of the English language to maintain that cutting the rate at which taxes are assessed on someone’s income does not constitute a tax cut. You can play word games all you like, Jonathan, but you should know that Orwell has already written well enough to innoculate most intelligent people against that kind of pretense. When your income is taxed at a rate of 25% one day, and the next day at a rate of 20%, there has been a tax cut. End of story.

  11. Rick Pollack Says:

    Here is a detailed, visual guide to federal spending. Zoom in and slide it around – or it will just a be a blur…

  12. J Murray Says:

    Ed, I read your post and understood it. You believe that the government should take more of a share of GDP for its purposes, and that that is a good thing. However, no matter what the marginal tax rates have been over the last 80 years, government’s take of the economy has remained steady at 20% of GDP. This was as true when marginal tax rates were over 70% for those with higher incomes as it is today.

    Economies adjust to tax rates, and the adjustments that occur when tax rates are higher is that capital goes elsewhere, stifling growth. This reduces the pie that is available for all purposes.

    Now, Ed, you did not address the issue of why you believe tax collections would have been higher–that is, would have grown at MORE than the 20% compounded rate at which they grew over the last four years–with higher tax rates. Please explain the deductive chain of logic that led you to your conclusion and provide, if you can (which I doubt) supporting evidence.

    Attacking the theory of supply side tax rates, which has been accepted and adopted by governments worldwide, and is supported by a large body of evidence, is not evidence supporting your contention.

    Our government does not have a revenue problem. It has a spending problem.

    John, you have a journalist’s understanding of tax policies, and that is not a compliment.

  13. Ed Morrison Says:


    You believe that the government should take more of a share of GDP for its purposes, and that that is a good thing.

    No, I don’t. And nowhere in my comments can you reach this conclusion.

    As for revenues being higher, you might read this analysis.

    As for the Bush tax cuts being truly supply side tax cuts, not even the supply siders believe this.

    Read Bruce Bartlett’s book, Imposter: How George Bush Bankrupted American and Betrayed the Reagan Legacy.

    Read especially Chapter 2, “The End of Serious Policy Analysis” and Chapter 3, “Why the Bush Tax Cuts Didn’t Deliver”.

    Bartlett’s criticism didn’t sit well with the “Bushies” (who prize loyalty over smarts, as we found in the Iraq occupation with the Coalition Provisional Authority).

    For more on Bartlett’s controversy is here. For more on the loyalty over substance Bush administration in Iraq, read Imperial Life in the Emerald City.

  14. J Murray Says:

    Ed, most of your links don’t work. Even if they did, I’m still looking for evidence, not opinions. The facts are that the report Rick linked to clearly show that tax collections by the federal government grew at a compounded annual rate of over 20% following the Bush reductions in marginal tax rates. The economy covered from the bust and 9/11 to produce some 8 million new jobs in the subsequent five years. Where is your countervailing evidence?

    By the way, I’m mad at the Bushies, too. They spent too much and allowed a profligate Congress to spend too much. That, however, doesn’t change the facts about the effect of the Bush tax program.

  15. J Murray Says:

    And, Ed, if you don’t believe that the government should take a larger share of the economy, which is what the first graph that you keep pointing to shows, then how else will the structural problem be solved? The only other way is through spending reductions. So, either you are for spending reductions, in agreement with me, or you are for increasing the government’s take from the economy, which is the shadow Obama plan. There is no other way.

  16. John Ettorre Says:

    Jonathan, as I think you well know from the case of your beloved Wall Street Journal, good journalists can and do have a pretty sophisticated grasp of a whole range of issues, including tax policy. So I’ll take your little barb in the spirit in which I think it was offered, as coming from a frustrated journalist.

  17. Rick Pollack Says:

    Ed’s links have an extra character. Here are the corrected links:

    Jonathan said, “I’m still looking for evidence, not opinions.”

    It is interesting Jonathan that I have been asking you for facts and you have only been referencing opinion. It would be great if everyone posting included supporting facts. Opinion is fine, but facts/data are essential.

  18. Ed Morrison Says:

    Thanks, Rick.


    I’m for rational budget policy discussions that lead to more efficient and effective government investments, more responsible entitlements, and a tax structure that is more simple and fair. In the process, we can regain control of the deficit as a share of our total economy.

    Addressing the structural deficits will require balancing cuts in both budget appropriations and tax expenditures. These decisions require an ability to lead by consensus.

    Sadly, the Supply Side nostrums you repeat lead us nowhere near this consensus.

    In my view, we stand at an important crossroads. Entire missions of the federal government (regulatory, fiscal and monetary) need rethinking in ways that has not been done since the 1930’s.

    Supply siders have fought hard by promoting the faulty, simple-mainded premise that government is the problem and that we can simply “starve the beast” by denying the government the revenues it needs to operate.

    Your simplistic declaration — “there is no other way” betrays the false choice. The budget is a complex system in which a large number of very important policy choices are reflected. There is no either/or.

    The Congressional budget process started off in the right direction to structure these trade-offs. Sadly, this process has been largely destroyed by excessive partisanship over the last twenty-five years or so.

    At the core of this partisanship: the false choices of supply side economics.

    It’s a wrongheaded approach.

    The politics of budget policy have become so polarized that the federal government (both parties) have lost the capacity to govern effectively.

    This is not a new problem. Twenty-five years ago, I was serving as a staff counsel on Senate Democratic Policy Committee responsible for tax and trade policy.

    I left that position when I concluded that both parties had descended into partisan attacks that made governing virtually impossible.

    My mistake was thinking that this period of toxic partisanship would play itself out in a few election cycles.

  19. J Murray Says:

    Ed, okay, let’s start with creating the productivity growth in government that has rippled through the private sector in the last decades. For the money the government takes from us and spends, we should require annual productivity gains equivalent to what happens in private industry. Then the government wouldn’t need to take more from us.

    Rick, I tried to provide links, but wasn’t able to. My entire post was not permitted to display. You will have to find them on your own. The links I tried to provide showed that between 2003 and 2007, the economy grew at an annual average of 2.1%, and produced over 8.1 million new jobs.

    The economy grew, new jobs were created, and government collections grew. Where is the countervailing evidence?

  20. Ed Morrison Says:


    For the money the government takes from us and spends, we should require annual productivity gains equivalent to what happens in private industry.

    It’s a good idea, but I would approach it somewhat differently.

    I would first challenge Congress to reorganize and re-establish the integrity of the budget process. Within the budget process, I would embed stronger performance metrics to guide budgeting. See:

    This will take strong bi-partisan leadership, but it’s a good place to start.