Federal Budget in Uncharted Territory

click to enlarge

As these charts should make clear, we are in uncharted territory when it comes to the federal budget. Revenues are down 15% in the past 12 months, the steepest decline on record, while spending has soared 26% over the same period, also a record. The budget deficit is now 10% of GDP, $1.4 trillion: Federal spending is now 25.5% of GDP, while tax receipts are a mere 15.4%.

Some of the spending this year will roll off next year, but if Obama's budget is passed, spending will most likely remain at a new high plateau of about 24% of GDP, which is roughly 20% higher than it has averaged over the past 40 years.

If the healthcare bill is passed in its current form, spending would certainly rise significantly, and the outlook for the deficit could deteriorate further, since the projections for savings from an expanded government-run healthcare system are most likely being overstated, and the potential costs are likely being understated.

If the cap and trade bill passes, it is almost axiomatic that the future growth rate of the U.S. economy will be negatively impacted, with the only question being by how much. Cap and trade can only achieve its stated purpose—significantly reduced carbon emissions—if carbon-based fuels become radically more expensive, and that means much higher costs for electricity and transportation fuels. That in turn will result in an economy that is much more expensive to run, and that means we will have much less growth than we would have otherwise. This is not a partisan rant, it is a simple statement of economic fact.

To me this all looks not only unsustainable but like a non-starter politically. I think that the more people see and ponder charts and consequences like these, the more they will demand smaller government. I think that process is already underway, and it helps explain the rather significant erosion in Obama's approval ratings of late, and the growing opposition to both the cap and trade and healthcare legislation.

Comments

[Dave Wrixon:]

Am I the only one having difficulty understanding why Government's cut of GDP is down 15% when GDP itself is supposedly only down a few percentage points? Somebody here is struggling to do the Maths. Is it really me?

Jul 13 04:36 PM

[morph366:]

!Revenues are down 15% in the past 12 months, the steepest decline on record, while spending has soared 26% over the same period, also a record."

If the US government was subject to analysis as a commercial enterprise (which increasingly it should be) monitoring the monthly change in revenues collected would be the big key data point each month and would underline the real issue of a tax-less recovery

Jul 14 01:55 AM

[awake09:]

This is not a political rant either-- "RIGHT ON!!!"

But should we expect the voting automatons who support character actors like the current Democratic leaders to CHANGE? Forget it.

Jul 14 12:44 PM