Monday, August 12, 2013

Federal budget progress continues

In today's WSJ, Steve Moore echoes my thoughts from last month on the incredible shrinking federal budget deficit. Yes, "The biggest underreported story out of Washington this year is ... the federal budget ... shrinking ... much more than anyone in either party expected." And with the July numbers released today, the story hasn't changed, although the 12-month deficit inched up from $694 to $722 billion. The progress is mostly due to a pronounced slowdown (and even a recent shrinking) of federal spending. At the same time, a growing economy, rising incomes and corporate profits have boosted revenues to new highs. 



Spending has dropped almost 4% over the past year, while revenues are up almost 13%. As the second chart above shows, revenues have been higher than their year-ago level every month for the past several years; this is not just the front-loading of incomes that happened last December in order to beat higher expected tax rates—this is ongoing and likely to continue. It's the sort of thing that happens in every recovery. But we've never seen a slowdown in spending since WW II. That is big news.


The budget deficit is now down to only 4.2% of GDP. Just a few years ago we were all worried that the runaway budget deficit would be the ruin of us all. Now the deficit is back down to levels that are easily manageable. To be sure, entitlement spending promises to reverse this in coming years, but for now things are under control and entitlements are not cast in stone.

This is very good news because it all but eliminates the rationale for higher tax rates, and it has resulted in a serious shrinkage of the relative size of the federal government, from a high of 24.4% of GDP in 2009 to only 20.7% today. That's a whopping 15% reduction in the size and burden of government in just under four years. This gives the private sector some badly-needed breathing room, and that's a good reason to expect somewhat stronger economic growth in the years to come.

15 comments:

Rob Dawg said...

Derivative math. Sinking into the abyss more slowly is not swimming to the surface.

Bill Luby said...

Kudos for having been well ahead of the curve on this, Scott.

Cheers,

-Bill

steve said...

so in other words, drowning at a level of three feet beats drowning at a level of nine feet. we're still ADDING to a prodigious debt load but more slowly and this is GOOD news? I will not celebrate.

Hans said...

At 300% increase in Federal spending in 22 years or 7.3% per year; and that the budget spending has been retarded for one year is not something to be proud of...

William McKibbin said...

The only question is how to bailout Detroit, Stockton, probably Chicago, and who knows who else -- Federal spending and revenues is not the whole story -- far from it...

Benjamin said...

Good news.

But remember, it is not just entitlements, but also federal agency spending that is sucking too much out of the pockets of productive businesses and citizens.

Right now, federal income taxes raise about $1 trillion.

The budgets of just three agencies---Defense, the VA and Homeland Security---are more than $1 trillion.

In other words, every income tax dollar you send to DC goes into the warfare state.

It is payroll taxes that largely fund the oversize Social Security and Medicare programs. I recommend a 10 percent across-the-board cut in SS payments, and then raising the retirement age to 70.

The Veterans Department alone is now a $150 billion program, totally unfunded, with zero beneficiary contributions, and doubling every 10 years. Beneficiaries can received lifetime pensions and medical care after 20 years of service---benefits that would make a French railway worker blush.

In the next 10 years, income taxpayers will send $2 trillion to the VA. That's about $6,000 for every man woman and child in the United States.

But, there are a lot of votes attached to the VA.

Thus, I have little faith in the right-wing or the left wing to bring the federal budget monster under control.

On the federal budget, we have met the enemy, and he is us.


marmico said...

To be sure, entitlement spending promises to reverse this in coming years

That is certainly not cast in stone. Medicare/Medicaid spending (expressed as transfer payments)relative to GDP is flattish since the 2009 recession trough.

marmico said...

In other words, every income tax dollar you send to DC goes into the warfare state.

Dead on. Stiglitz was way ahead of the curve (sorry Bill Luby, Grannis was way behind the curve on federal spending) the unfunded $3 Trillion Dollar War.

Hans said...

Ben Jamin, I love how you always leave out the Department of Welfare or HHS, close to a trillion dollar budget.

It is not great after FIVE YEARS, we are now seeing a declining federal deficient! Perhaps a NoBell praise for home economies is in order.

As Mr Moore has noted, this decline of the deficient comes after exploding spending from Bushneck, BOCO and CONgress.

Hats off also, to Mr Moore, for not using the misused word - austerity...

Hans said...

http://www.heritage.org/research/reports/2012/10/federal-spending-by-the-numbers-2012

Sorry, left out the link!

marmico said...

Sorry, left out the link!

You certainly did. According to Heritage, DoD and VA spent $982 billion in 2012.

Income security, transportation, fed.gov retirement & benefits, food stamps & other nutrition, unemployment benefits, K-12 & vocational education, international affairs, administration of justice, other educational training and employment and community and regional development was $973 billion.

The war machine sucks up personal and corporate taxes.

I'll wager a guess. Federal spending as a percentage of GDP under Obama will be lower than Reagan when the history books are written

Hans said...

Marmico, whatever it is, it is too high, whether it is Raygun or BOCO.

http://www.deptofnumbers.com/misc/debt-revenue-and-expenditures-as-a-fraction-of-gdp/

Hans said...

We are over the debt limit; "No we are not" said a spokesperson from the Treasury Department...

Who do you believe?

http://cnsnews.com/news/article/treasury-ran-98-billion-deficit-july-debt-stayed-exactly-16699396000000

And why do they still call it the Treasury, when in fact it has none?

Hans said...

Please, I ax my fellow cohorts to read and debate this subject.

Figures lie and liars figure.

http://www.acting-man.com/?p=25310#more-25310

Hans said...
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