David Wessel

No one really knows how much the U.S. government can borrow before global investors get uneasy and begin to demand higher interest rates. The national debt exceeded 100 percent of GDP during World War II and then came down as the economy sprinted. But history suggests debt of that level is in the danger zone. Think Argentina, circa 2001. Think Greece, circa 2012.

Ultimately, what matters is where Congress and the president end up, not where they start. But defining the starting point and crafting the baseline are important to the politics and public perceptions of the budget—they are used by one side to magnify the size of the spending cuts or tax changes proposed by the other side—and politics and perceptions have a lot to do with what actually happens.

“From the mid-1930s to the 1970s, the government made a set of commitments that led to expectations on the part of the American people about what their government owes them,” says Robert Reischauer, a former director of the Congressional Budget Office. “And they are totally unprepared to go back to a different world.”

Except for four unusual years at the end of the 1990s and the beginning of the 2000s, the federal government has spent more than it took in every year for the past four decades. It borrows the difference, essentially promising that taxpayers in the future will pick up the tab for government spending today.

Until the Civil War, the U.S. government relied almost exclusively on tariffs on imported goods, a practice that provoked conflict between Northern manufacturers who favored tariffs to keep imports out and Southern farmers who did not. An income tax was imposed during the Civil War, but proved so unpopular that it died in 1872. In its place, the government imposed taxes on alcohol and tobacco that accounted for 43 percent of all federal revenue by 1900. Repeated attempts to revive the income tax were thwarted when the Supreme Court declared it unconstitutional in 1895. But the Sixteenth Amendment to the Constitution changed that. Less than eight months after it was ratified in February 1913, Congress enacted an income tax.

For every dollar the United States spends on the military, it spends another nickel on foreign aid, international development aid, and humanitarian assistance. Yet in a CNN poll in March 2011, the typical respondent estimated about 10 percent of the entire federal budget goes for “aid to foreign countries for international development and humanitarian assistance.” The reality: about 1 percent. That’s another problem with budgeting: the public makes woefully wrong assumptions about virtually every aspect of it.

In the high-volume debate over taxes, facts about basic issues—who pays? how much? who doesn’t?—often get lost, twisted, or distorted. Perhaps the most salient and overlooked fact is this one: for most Americans, federal taxes have not risen over the past couple of decades.

Adjusted for inflation, the federal government spent more on Medicare and Medicaid in 2011 than it spent on everything in 1960.

Nearly all the growth in the federal budget over the next ten years [2013-2022] is going to come from spending on healthcare and interest payments unless something changes. “You can’t fix this without doing health care,” says Paul Ryan. “I mean, health care is the driver of our debt.” And, as he and others routinely observe, even though the United States spends far more per person on health care than any other country, it isn’t close to having the world’s healthiest population.

The public remains strikingly misinformed about the budget. The typical respondent to a CNN poll said food stamps accounted for 10 percent of federal spending; it’s closer to 2 percent. Maybe being off by a factor of five is understandable given the enormity and complexity of the budget. But it’s harder to make sense of a 2008 Cornell University poll in which 44 percent of those who receive Social Security checks and 40 percent of those covered by Medicare say they “have not used a government social program.”

The share of income most American families pay in federal taxes has been falling for more than thirty years. Today, Americans pay less of their income in taxes than citizens of nearly every other developed country.

The 1980s broke a pattern in which the federal government ran big deficits only in wartime. The deficit topped $200 billion a year from 1983 through 1992. They would have been even bigger if Reagan hadn’t flinched on taxes, accepting significant tax increases in 1982 and 1984.