- - Wednesday, October 9, 2013

Only the high deficit spending of the past four years makes today’s seem sustainable. As much as some would like to claim spending- and deficit-reduction success, both remain beyond the parameters of recent profligacy. What’s more, the recent deficit reduction has not been a result of declining spending as much as it has been a result of increasing revenues.

Make no mistake: the last four years’ dismal deficit-spending record is unlike anything seen since World War II’s aftermath.

Using Congressional Budget Office figures compiled over the past 40 years, fiscal years 2009 through 2012 saw federal spending average 23.3 percent of U.S. gross domestic product (GDP). This average is higher than any single year in the previous 40 years. Only 1983’s spending comes within a half-percent of it, and that was because of our Cold War military buildup that ultimately destroyed the Soviet Union.

The past four years’ federal deficits are similar. Over this period, the deficit has averaged 8.4 percent of GDP. Again, that average is higher than any single previous year’s over the past 40; only 1983’s deficit comes within 2.5 percent of it.

The Office of Management and Budget’s historical tables go back even further. The past four years’ averages for federal spending and deficits are unequaled by any single previous year since 1946, as the aftermath of America’s war effort was still being felt.

What about the just-concluded fiscal 2013? Hasn’t the deficit dropped to where it is no longer a real problem? Hardly. Using the CBO’s May projections, 2013 spending was estimated to drop to 21.5 percent of GDP, while revenues climbed to 17.5 percent, still leaving a deficit of 4 percent of GDP.

At that level, last year’s spending and deficit figures are still the largest since 1992 — those still elevated by military spending in the immediate aftermath of the Soviet Union’s collapse.

The CBO’s averages during the past 40 years offer a better perspective for today’s spending and deficit levels. Over that time span, federal spending has averaged 20.4 percent of GDP, while the deficit has averaged 3 percent. Both are substantially lower than last year’s “success.”

What about tax revenues — mustn’t they have played some role here? Yes, they did: Last year’s federal-deficit reduction was a result of their dramatic increase. Thanks to this year’s substantial tax hikes, revenues are estimated to have spiked from 15.2 percent of GDP in 2012 to an estimated 17.5 percent last year — just above the 40-year average. That spike is the biggest jump in federal revenues as a percentage of GDP since 1952.

However, hasn’t the recession been the real reason for all of this — the spending and deficit jumps and revenue drops? America is now in its fifth year since the recession ended in the third quarter of 2009. We have not experienced even a quarter of negative growth since 2011’s first quarter, but we have experienced very slow growth during that period. What we have not experienced is a dramatic drop in spending.

Let’s compare last year’s fiscal performance to 2007’s, the last year prior to the recession. In 2007, revenues were 17.9 percent of GDP, slightly ahead of last year’s. In 2007, federal spending was 19 percent of GDP — dramatically less than last year’s 21.5 percent. Combined, 2007’s deficit was 1.1 percent — merely one-fourth of 2013’s estimated 4 percent of GDP.

Washington’s fiscal situation is only one of relative improvement, not absolute betterment, and is no longer the nation’s all-time worst peacetime budget period. While an 800 lb. gorilla may seem small standing next to a 15,000-lb. elephant, it is still huge.

The hulking gorilla that is excessive federal spending may have gone on a bit of a diet, but it has not gone away. Looking at CBO’s baseline — resting on the assumption that current law affecting fiscal matters will not change — we see that federal spending will remain high, and gets worse relative to the economy over the next decade.

Over the next 10 years, federal spending will average 21.8 percent of GDP. By 2021, it will reach 22.1 percent and hit 22.6 percent the following year. That is about 10 percent above the 20.4 percent spending average over the past 40 years.

Federal spending has moved to what appears to be a permanently higher plateau. Under the cover of crisis, the extreme has become the norm.

Story Continues →