It's Math

President Obama recently defended his calls for massive tax increases by stating that his proposals are "not class warfare, it's math."

Let's look at the math of the federal budget.

The Congressional Budget Office's last budget projection for the upcoming 2012 fiscal year projects that the federal government will have about $2.5 trillion in revenues and $3.6 trillion in outlays.   This is a $1.1 trillion deficit.

The CBO projects that in 2021 total revenues are projected to be $4.4 trillion.  This assumes that the current Bush Tax cuts continue, the AMT is indexed for inflation and the estate tax changes that were made at the end of 2010 continue.  In other words, without any tax increases taking place,  revenues are still projected to increase by $1.8 trillion in the next 9 years according to the CBO.  That is an annual compound rate of about 6.5% per year.

The current CBO projection for federal outlays estimates that we will spend $5.7 trillion in 2021.  That is a $2 trillion projected increase in outlays.  Therefore, we are looking at a $1.3 trillion deficit in 2021.  However, if we could limit our spending increase to a mere $800 billion over the next nine years, we would have a balanced budget in that period of time without increasing taxes.

This means that if we could limit overall annual spending to 2.25% per year between now and 2021 we could be within striking distance of a balanced budget according to the CBO projections.  Let's be generous and commit to a 2.5% annual increase in spending which should get us where we need to be in 10 years.

I am not proposing inhumane cuts.  I am not proposing taking a meat ax to the defense budget.  I am just saying we need to limit spending increases to around 2.5% per year between now and 2021.

The CBO is projecting that revenues are going to grow at about 6.5% per year.  If we increase income by 6.5% per year and limit spending to no more than 2.5% we can close the deficit within 10 years.  We are currently borrowing 40% of every dollar we spend so that is the hole we need to climb out.  An excess of 4% of income over expenses for 10 years gets you out of the 40% hole.  (4% x 10 years=40%).

It's simple.  It's math.  It's the math the President should be working on.