by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Over the past several years, the gap between tax revenue and spending has been unusually wide. In fiscal year 2009, coinciding with the Great Depression, federal receipts as a share of nominal gross domestic product ran 14.6%, then a 69-year low, while outlays came to 24.4%, a 74-year high. Accordingly, the budget deficit in FY ’09 ran a stunning $1.4 trillion, triple its previous record, which had been set the year before.
The deficit has since been in a gradual decline, finally falling below $1 trillion for the first time in FY 2013 and declining again in 2014. In his 2014 State of the Union Address, President Obama took credit for the fact that the budget deficit had been “cut by more than half.” So we can assume he realized that, whatever could be said about the economic stimulus from trillion-dollar deficits when the economy was pulling out of recession, for the government to live so far beyond its means was no longer such a good idea after the economy had recovered.
In fact, the nonpartisan Congressional Budget Office has been warning that surging debt and deficits could eventually destabilize the economy. The deficit in 2015 will also be down by more than half against the 2009 peak of $1.4 trillion. But the Treasury reported last week that the downtrend now seems to be reversing. In the first six months of the 2015 federal fiscal year, from October through March, the deficit was up 6% from the six-month level a year earlier.
The news was unexpected. As recently as last month, the CBO had projected no further decrease in the deficit in FY 2015, but no increase. Based on last week’s report from the Treasury, the CBO was wrong, mainly because it underestimated the increase in spending. If the last six months of the fiscal year run similar to the first six months, the deficit for the full year will start rising again.
THIS UPTICK IN THE DEFICIT may seem no bigger than a man’s hand. But it’s part of a long-term trend much larger than us all.
How much larger? Try a 183 percent debt-to-GDP ratio in 25 years.