NCPA - National Center for Policy Analysis


September 10, 2008

According to the Congressional Budget Office (CBO), federal expenditures on everything from roads to homeland security to health care will reach 21.5 percent of gross domestic product (GDP) next year.  Federal outlays could be higher as a share of the economy than at anytime since World War II, says the Wall Street Journal.

In this decade alone, federal spending has increased by almost $1.2 trillion, or 57 percent.  And the federal deficit is expected to hit $407 billion for fiscal 2008 and $438 billion next year.  However, the deficit is expected to be only 3 percent of GDP, which is in line with the average of the last 30 years.

Contrary to popular belief, the Bush tax cuts and the war on terror are not the reason for the budget crisis, says the Journal:

  • Until this year federal tax collections have been surging, and since the 2003 tax cuts have become law, tax receipts exploded by $785 billion.
  • This year, revenues have declined by.8 percent due to the $150 billion bipartisan tax rebate that hit the Treasury.
  • Without these nonstimulating rebates, federal tax payments would have climbed another 2.5 percent.
  • Defense spending is $605 billion this year, or about 4.5 percent of GDP.
  • That only seems large by comparison to the holiday from history of the 1990s, when defense fell to 3 percent of GDP.
  • As recently as 1986, defense spending was 6.2 percent of GDP.

The real problem is a "substantial increase in spending" that is "on an unsustainable path," says the CBO.  This year alone, federal agencies have lifted their spending by 8.1 percent, with another 7 percent raise expected for 2009.  In the two years that Democrats have run Congress, federal expenditures are up $429 billion -- to $3.158 trillion.

Rather than sort through priorities, Congress is just spending more on everything, adds the Journal.

Source: Editorial, "The Spending Explosion," Wall Street Journal, September 10, 2008; based upon: Congressional Budget Office, "The Budget and Economic Outlook: An Update," Congressional Budget Office, September 2008.

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