The Treasury Department announced today a monthly budget deficit of $165 billion for July. The budget year-to-date deficit is now amounts to $1.17 trillion.
According to the Office of Management and Budget, the total deficit for the 2010 budget year is expected to be $1.47 trillion, the highest since WWII, adjusted for inflation. This is simply unsustainable. As numerous economists have warned, we face an unprecedented fiscal disaster if overspending is not reined in.
In a must-read story, The Washington Times this morning uses the analogy of a family budget to put in perspective the nation’s budget crisis:
In their paper “Growth in a Time of Debt,” economists Kenneth S. Rogoff and Carmen M. Reinhart argue that advanced economies tend to see economic growth stagnate when their ratio of debt to gross domestic product (GDP) exceeds 90 percent.
According to just-released numbers from the U.S. Bureau of Economic Analysis, our debt just hit this red line: The bureau’s estimate for the nation’s second-quarter GDP is $14.597 trillion, while our total debt is $13.302 trillion. That gives us a ratio of just over 90 percent.
And we show no signs of slowing down.
Besides sounding ominous, what does it really mean?
Today, the United States is like a family with a very big mortgage, right at the edge of being able to pay its other bills. On the outside, things look pretty good. We’ve got a nice car, a swimming pool and a big-screen TV that’s the envy of the neighborhood. But at the end of every month, there’s just not enough money to go around, so we borrow a little more or defer paying off our debts. It’s a vicious cycle.
Defaulting on a home loan is painful enough, but defaulting on a nation’s debt? That’s a disaster of unthinkable proportions. We are rapidly approaching a point where we have never been before. Congress must take bold action now to stop promising benefits we can’t afford and spending money we don’t have.
Click here to read the full article.
The Budget and Accounting Act of 1921 requires the President of the United States to submit a budget to the Congress for its consideration. This document does not have the force of law, but lays out the President’s spending and tax priorities for the next fiscal year. The document is issued each year in the early spring by the President’s Office of Management and Budget.
The budget for this fiscal year, and for recent years, can be found here.
The Administration today released its update to the President’s annual budget proposal. The Mid-Session Review (MSR) doesn’t bring much good news for those worried about government overspending. Here are a few highlights:
According to today’s release, under current law, assuming Congress does not enact new fiscal policies, spending in fiscal year 2010 will be $3.547 trillion dollars (this is roughly the same as it was estimated to be in the Administration’s initial budget released in 2009). This would put spending at about $30 billion more than 2009 levels.
If Congress follows all of the President’s proposals, spending in 2010 would be $3.6 trillion – about $85 billion more than last year.
Today marks the 100th day since Congress’ deadline for passing a budget has passed. Earlier this month, the House passed a budget “outline” that set next year’s spending levels but lacks any of the tough decisions or politically undesirable votes necessary for a real budget resolution.
This abandonment of long-term budgeting responsibilities is just one more example of Congress refusing to take fiscal responsibility seriously.
In today’s Washington Post, David Broder laments Congress abandonment of its long-term budgeting responsibilities.
On June 30, the Congressional Budget Office issued its long-term outlook, predicting that deficits would come down for the next few years as the need for counter-recession spending eased and revenue improved. But then, it warned, “unsustainable” red ink would flow again, creating debts not seen since World War II.
The next day the House of Representatives passed a one-year budget resolution rather than the normal blueprint committing the government to a fiscal plan of at least five years.
For all the publicity that goes to earmarks and other spending gimmicks, this was a far worse dereliction of duty. And the cynicism of the maneuver just made it worse.
The terrible irony in all this? More and more people are seeing that what this agonizing situation requires is a limited and temporary measure to pump more life into the economy and create jobs, along with a serious commitment to impose real spending discipline and hold down deficits in the long term — exactly what a five-year budget resolution could provide.
Of all the times for Congress to abandon its responsibility for long-term fiscal planning, this is the worst.
Click here to read the full column.
Reading the federal budget is overwhelming…and confusing. The Office of Management and Budget’s historical budget tables list two different categories that relate to federal spending: budget authority and outlays.
What is the difference?
Budget Authority is the amount Congress authorizes each agency to spend, usually through the annual appropriations process. Just as in a family budget – budget authority would be the amount you allocate to spend on various categories, such as vacations and morning lattes.
Outlays are the actual spending levels. Outlays occur when money leaves the U.S. Treasury in the form of checks or cash. Going back to the family budget, this would be the number you actually spent on vacations and your morning cup of joe.
In honor of our nation’s birthday, we thought it would be fun to look back at how much the federal government spent at its start, compared to what it spends today.
Instead of providing year-by-year spending, the historic tables in the budget just provide a total for what was spent between 1789-1849. In those 60 years, the federal government used up a little more than a billion dollars. That’s about what the federal government today spends every two and a half hours.
Between 1850-1900, the government spent $15.5 billion. That’s what the federal government now spends in less than two days.
The Historical Statistics of the United States does provide year-by-year data going back all the way to the founding. For 1789 to 1781, when the government was in its infancy, spending is aggregated and was just $4.3 million. By 1800, the federal government was spending $10.8 million per year.
Even when you take into account population growth, the difference in spending levels is staggering. In 1800, Census estimated that there were 5.3 million people living in the country. Today, there are almost 310 million. So if you adjust for population size, spending in 1800 was the equivalent of about $632 million.
Those numbers don’t account for inflation. Inflation wasn’t really a factor for the first 150 years of the nation’s history, and the Bureau of Labor Statistics provides data so that we can control for inflation beginning in 1913. In that year, nearly a century ago, the federal government spent $724.5 million. Adjusting for inflation, that is the equivalent of $16 billion in today’s dollars. America had about 102.4 million citizens compared to 305 million today, so adjusting for the size of the population, that’s total spending of $48 billion – or just 1.4 percent of what is being spent today.
Anyway you look at it, it’s obvious that our nation’s founders would be shocked by just how much our federal government spends today.
We don’t have to go back to the spending levels of the nation’s founding—or a hundred years ago for that matter—to make take a big step toward fiscal responsibility. Simply returning the federal government to the average per-household spending levels of the 1990s (adjusted for inflation), hardly a time of austerity or minimalist government, and we could balance our budget in less than three years.
Yesterday, for the first time in eight years, Pennsylvania state lawmakers met the deadline for adopting a budget plan for the next fiscal year. Equally significant is the new spending legislation does not include any new taxes. The state houses of both Pennsylvania and New Jersey, which passed its budget on Tuesday, should be applauded for getting a plan in place to tackle their states’ fiscal challenges – on time. If only Congress could take this responsibility as seriously.
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