Monday, May 11, 2009

Big government gets way bigger

For the period 1980-2008, federal, state, and local government spending averaged about 35% of GDP. In the current fiscal year, it is projected to surge to 45%! This is just mind-boggling, if not downright scary. Virtually all of the surge in spending this year will be covered by borrowing money. The latest estimate of the federal deficit for this year is $1.8 trillion, about 12.5% of GDP. With the exception of WWII, these numbers are literally off the charts. We are truly in uncharted territory. Some of the recent surge in spending will go away next year (with spending projected to fall to about 40% of GDP), but nevertheless we will be left with government that is significantly larger than it has ever been in the postwar period. The higher taxes necessary to fund this permanent government expansion have not yet been found, and higher tax rates will not necessarily make them appear. Obama has already created his signature accomplishment, something he, and his supporters, may soon come to regret.

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