Wednesday, June 10, 2009
I've updated these charts with the May figures released today by Treasury. The yawning gap between tax receipts and expenditures in the top chart equals about 9% of GDP ($1.3 trillion in the past 12 months), and it is very likely to continue to grow. We have't seen anything even remotely close to this degree of fiscal profligacy since WW II. Obama lectured Congress yesterday about how they should impose fiscal discipline by (again) adopting a pay-go rule, which would require all new spending increases be financed by either spending cuts elsewhere or higher taxes.
This probably made for a good sound bite, but it is amazing that he exempted his own spending profligacy from the rule. The big problem we face in the years ahead is that his spending plans will ramp up federal government spending from the 20% of GDP level which was the average over the past 40 years, to 24-25%—a 20-25% permanent increase in the level of government spending. His budget, meanwhile, makes the heroic assumption that tax revenues, currently just a bit over 15% of GDP, are going to quickly rise by 25-30%, to 19-20% of GDP, a level we saw only briefly at the height of the dot-com boom. If tax revenues don't experience the most incredible surge that has ever been recorded, the deficit is going to be more than $1 trillion per year for the foreseeable future.
Posted by Scott Grannis at 11:26 AM