Federal Budget Trends
August 9, 2012

The Entrepreneurial View

 

Federal Budget Woes: An Update

by Raymond J. Keating

 

If you’re concerned about how high federal government spending and debt have reached in recent years, the latest numbers on the current fiscal year offer little hope for positive change.

As a quick review, federal outlays jumped from $2.73 trillion in 2007 to $2.98 trillion in 2008, and $3.52 trillion in 2009. This vast increase in spending was billed an emergency, temporary stimulus. We saw a brief breather in 2010, with outlays actually declining slightly to $3.46 trillion. In 2011, spending resumed its growth to $3.60 trillion.

At the same time, the federal deficit leaped from $160.7 billion in 2007 to $1.41 trillion in 2009, $1.29 trillion in 2010, and $1.3 trillion in 2011.

Finally, in terms of gross federal debt, it jumped from $8.95 trillion in 2007 to $14.76 trillion in 2011. As for the portion of debt held by the public, it moved from $5.03 trillion in 2007 to $10.13 trillion in 2011.

According to the Congressional Budget Office’s “Monthly Budget Review,” the latest edition released on August 7, through the first ten months of 2012 compared to the same period in 2011, the federal budget deficit was down slightly – from $1.1 trillion to $975 billion.

That decline came about due to a 6 percent increase in federal revenue, and federal outlays essentially being flat. This increase in federal revenue reflects some expansion in the economy, but not enough to make a real difference in terms of jobs, confidence and strong government revenue growth. Meanwhile, no real change in federal spending points to government continuing at historically unprecedented levels.

Looking ahead to the close of the current budget year at the end of September, federal outlays are expected to increase versus last year (to $3.65 trillion), with a small increase in revenue. The result on the deficit front would be another staggering shortfall of more than $1.2 trillion.

It is important to keep in mind how federal spending and deficits of this size actually affect the economy.

First, the main problem is spending, with resources being drained away from productive, private sector endeavors – whether via borrowing or taxing – and funneled to politically driven government spending. That’s a negative for the economy.

Second, federal budget deficit and debt numbers at such fantastic levels impact current and future economic growth through expectations regarding potential tax increases – on top of already scheduled tax hikes. Again, this serves as a dampener on current and future growth.

When looking out to 2013 projections, it’s more of the same. Federal outlays are expected to increase to $3.75 trillion, with a deficit of $991 billion, and gross debt hitting $17.5 trillion and debt held by the public to $11.1 trillion.

Over the past five years, the U.S. has been on a very dangerous fiscal path. Vast, unprecedented spending increases were billed as good for the economy. Predictably, the result has been the exact opposite, i.e., being real and significant negatives for the economy. Without actual spending cuts, the U.S. faces a dubious fiscal and economic future – one of greatly diminished entrepreneurship, investment and economic growth. The U.S. is in peril of becoming Europe, i.e., a slow growth economy facing even more serious fiscal troubles.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

 
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