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Using Historical Averages To Support The Ryan Plan Is Hysterical

27 Mar 2012
Posted by Stan Collender

As I explain at the beginning of my weekly Roll Call column, I resisted the incredibly strong urge to talk about Etch A Sketch federal budgeting and instead discussed one of the most ridiculous, lazy, and absurd (Get the picture?) reasons supporters of the budget proposed by House Budget Committee Chairman Paul Ryan (R-WI) say its valuable: It moves the U.S. back to the historical averages for both spending and revenues.

Honestly, saying that historical averages are meaningful in any way for what should be done now or in the future is just nonsense.

Ryan's Historical Averages Are Irrelevant to Budget Debate

By Stan Collender
Roll Call Contributing Writer
March 27, 2012, Midnight

I was sorely tempted to devote this week’s Fiscal Fitness to what happened in the 1970s when some very well-intentioned people tried to implement an Etch-A-Sketch federal budget process called zero-based budgeting.

ZBB, the concept that failed so ignominiously during the Carter administration, really is nothing more than asking every department and agency to wipe the fiscal slate clean every year and start over.

That makes it remarkably similar to what one of the senior campaign advisers to former Massachusetts Gov. Mitt Romney last week said the GOP presidential nominee hopeful would do once the general election began. It was a great setup for a column, but I decided to resist the urge.

I also resisted what by the end of the week had become an increasingly strong desire to dissect the fiscal 2013 budget resolution proposed by Rep. Paul Ryan (R-Wis.). The gravitational pull of that story became exceptionally hard to fight when two House Budget Committee Republicans opposed the plan put forth by their own chairman and the proposal was approved by only a one-vote margin.

I decided, however, not only that the many analyses of the Ryan plan done by the end of last week provided all the needed detail but also that there had already been more written and said about it than was required. As I said about the fiscal 2013 budget submitted by the White House in February, the Ryan plan is nothing more than a GOP election-year campaign document. Even if it’s approved by the full House this week, the Ryan budget is going nowhere. In other words, why bother?

But if the Ryan plan itself isn’t column-worthy, there is one thing about the debate surrounding it that definitely deserves to be mentioned.

Many of the plan’s supporters talked almost reverentially about a federal budget myth that should have been debunked a long time ago: the need to get the government back to historical averages on spending and revenues.

What was spent and collected during a period in American history may be interesting, but it’s totally irrelevant to the budget debate that needs to take place today. Never mind that average spending and revenues by definition are what happened in the past. The calculation is nothing more than a mathematical depiction of how the government responded to national needs that almost certainly were different than they are today, and they’re certainly different from those that will exist during the next 10 years. It says nothing about what should be done now and provides no guidance on what federal spending and revenues need to be to deal with what’s ahead.

Using historical averages as guidance also assumes there is a scientifically determined standard, even though nothing like that has ever been determined.

Looking at the federal budget is not the same as measuring blood pressure. As much as those using the averages want everyone to believe, there is no federal spending and revenue equivalent of a 120/80 textbook normal.

In addition, given demographic changes and one-time events such as wars, natural disasters and tech bubbles, spending and revenue averages can easily be manipulated to prove whatever you want.

Three examples show how silly the we-have-to-return-to-historical-averages position is when it comes to the federal budget.

If military spending during the past 50 years averaged 4 percent of the federal budget, is a proposal to double the amount spent because the United States needs to increase its activities after being attacked out of line? Does the 4 percent annual average from the previous half-century really say anything meaningful about what the Pentagon should do now?

Should an average deficit of 3 percent of gross domestic product be a reason not to push for a balanced budget if that’s the correct fiscal policy, or does what has happened in the past mean that a deficit of that size is always acceptable?
If total federal revenues have averaged 18 percent to 19 percent of GDP over the previous 50 years but have fallen to 14 percent now because of current economic conditions, is a tax increase justified or required?

These three examples tell you almost everything you need to know about why the back-to-historical-averages reason for supporting the Ryan budget plan — or any budget plan — is so misleading. In almost all cases, the only average that’s used is the one that supports the proposal being offered. Enthusiasts of the Ryan plan talk fervently about decreasing spending to historical averages, but nothing about the changes from that same standard the plan will establish in other areas.

Most important, however, is that the argument about getting back to average spending and revenues ignores the fact that the United States is not the same today as it was in the past. The economy, population, military situation, demand on the federal government, tax code and everything else today are in an online environment that 50 years ago was dominated by 45 rpm records and 8-track tapes. That makes it difficult to see how a previous period in American history provides any guidance for what federal spending and revenues should be.

What we need today on the federal budget is thinking that’s smart, innovative and extraordinary. Unfortunately, what came out during last week’s budget debate was the same tired, worn-out and discredited discussion of the past. In a word, it was just average.

The only thing that is a

The only thing that is a significant break from the past is revenues.From 1945 to 1980 income taxes averaged near 12% of GDP. Reagan reduced marginal tax rates so much that they fell close to 9%. Clinton increase them back to 12%; and Bush/Obama reduced them again to 9 %(and below). However, on budget expenses have remained 12%(+/-1%)) of normalized GDP throughout. The deficit in income taxes has been financed by borrowing, largely from the Social Security trust fund. But, not only can we no longer continue to borrow from the trust funds, we have to start paying money back as beneficiaries start relying on the trust funds. In the short term, we have to raise income taxes to 12%, simply to cover on budget expenses. In the long term, income taxes must rise above 12% in order to pay back the trust funds.




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