ParticleGrl said:
The second issue is the long-term problem- the growth in spending is outpacing the growth of the GDP. To address this issue, we need to ask why. The answer is health-care costs. Health care costs are consistently growing faster than GDP, and for obvious reasons medicare is closely tied to these costs. Therefore, the way to address the long-term cost is a combination of rationing care under medicare, and reforming the health care system to try to slow the growth of cost. The debate over the health care law was largely a debate over the long term deficit problem, though most people don't seem to realize it.
This is somewhat true. Taking the data from the site you linked to previously and plugging it into my own spreadsheet, GDP increases about 5.37%, while spending increases at about 5.44%. Health care does indeed increase at a higher rate than spending overall at about 6.11% and it's rate of increase is increasing. So, it truly is a problem that has to be addressed.
None the less, the real reason spending outpaces GDP just slightly is that spending increases at a steady flat rate, while GDP has dips due to recessions. We never make up the difference from recessions (in fact, being an optimistic people, our Congress always forecasts strong growth in the future GDP and never forecasts recessions). Likewise, when we make one-time expenditures like the stimulus bill, we never make up that difference either. We nickel and dime ourselves into a chronic debt that only increases.
Generally, a recession reduces all revenue. Even without the Bush tax cuts, revenue would have decreased in 2001 and 2002. However, income tax cuts did make the decrease in revenues more severe and the tax cuts probably have no long term increase on the GDP (in fact, as Ivan's chart noted, the rate of growth was lower than normal even after the tax cuts). Taxes are a revenue/spending issue for government and, unless they get outrageously high, have a tiny impact on the overall economy if at all.
In fact, one could argue that high taxes encourage long term growth
if the taxes are likely to become lower in the future. It becomes better to invest net 'profits' back into the company rather than take the profit out of the company and lose it to high tax rates. In other words, investing for the future is cheaper than it would be at low tax rates. Of course, that's predicated on the hope that one could eventually recoup those investments at some later time at a lower tax rate. Likewise, low current tax rates encourage one to pull those profits out of the company rather than reinvest them into the company if tax rates in the future are going to be higher.
Of course, that whole preceding paragraph pretends a company owner has enough to live on, plus enough extra money to invest/spend as he pleases. In reality, a very small business owner pulls out enough to live on, plus saves for the future, if he's lucky, and only reinvests money into the business when he can no longer keep up with demand from customers. He keeps costs low as long as possible regardless of the tax rates.
