Monday, April 13, 2015

Federal budget deficit < 3% of GDP

For the 12 months ending March, 2015, the federal budget deficit was $510 billion, up from a post-recession low of $436 billion last November, and down by almost two thirds from its record high of $1.48 trillion just over five years ago. From the looks of things, both spending and revenues are growing about 6-7% a year. If this keeps up we're unlikely to see lower nominal deficit numbers, but the deficit is likely to shrink somewhat relative to GDP as the year progresses. 

The past five years were remarkable ones for federal finances: spending was relatively unchanged while revenues surged by more than 50%. Things are now reverting to their long-term trends, with spending and revenues growing 6-7% per year.

The major source of rising federal revenues was individual income tax payments. This in turn was driven by increasing employment, higher incomes, and capital gains realizations. Economic growth proved much more lucrative for the government than higher tax rates.

The budget deficit is now just under 3% of GDP and may shrink a bit further as the year progresses. This is a very manageable figure. Over the long haul, however, rising entitlement spending threatens to swell the budget deficit again, unless Congress can muster some restraint. We don't need to actually cut spending, we just need to slow the growth of spending and keep the economy growing in order to reduce the deficit further.


Benjamin Cole said...

The United States is spending $1 trillion a year on national security---financed by income and capital gains taxes.
CATO Institute says that could be cut in half.

Cuts in Medicare and Social Security could allow for cuts in FICA taxes.

Scott Grannis said...

Re: spending on national security. Last year total spending on national defense was about $600 billion. Add in veterans benefits and services and it totals $660 billion, which was about 56% of all discretionary spending.

About two-thirds of all federal spending consists of transfer payments (e.g., social security, medicare, welfare, etc).

Unknown said...

10 year swap spreads go higher?

Frozen in the North said...

Benjamin what a douchbag comment to make.

Grechster said...

Scott: Your $660 billion is wildly off the mark since that figure doesn't include a lot of items that would be properly included in "defense." The Dept of Homeland Security should be included. (And, of course, this one didn't even exist pre-9/11 so it always screws up historical comparisons.) All of the intelligence spending - which isn't even disclosed - should be added. This line item has exploded in recent years. The nuclear maintenance budget is included in the Dept of Energy. As you alluded to, the veterans' benefits are accounted for in the Dept of Treasury. (Ask yourself why there are all these different buckets outside of the official DoD budget.) And then, of course, there are all the ever-present extra spending items that aren't quoted in the official DoD numbers, the annual one-timers. In fact, accounted for properly, Benjamin is exactly right - we spend about $1 trillion a year on national security. (And this when we face no existential threat.)

erne lewis said...

The attached article How Big Is Government in the United States by Bob Higgs published at the Independent Institute provides information I believe you will enjoy.

Scott Grannis said...

Erne: thanks for the link. Interesting, sobering, and depressing analysis.

Benjamin Cole said...

Add DoD, VA, DHS and black budget spending, you get close to $1 trillion. Add in half of debt payments and we top $1 trillion for national security.
For the United States, the world is much safer than in the USSR days.
Every federal agency tends to ossify and bloat. Why should military agencies be any different?
Rand Paul is a fascinating candidate---a far better choice than his probable rival.

Benjamin Cole said...

Scott--the VA budget was about $150 billion last I checked.