NCPA - National Center for Policy Analysis


July 17, 2009

The question that President Obama ought to be asking -- that we all should be asking -- is this: how big a government do we want?  A new report from the Congressional Budget Office ("The Long-Term Budget Outlook") makes that crystal-clear, says economics columnist Robert J. Samuelson.

The easiest way to measure the size of government is to compare the federal budget with the overall economy, or gross domestic product (GDP).  The CBO's estimates are daunting, according to Samuelson:

  • For the past half century, federal spending has averaged about 20 percent of GDP, federal taxes about 18 percent of GDP, and the budget deficit 2 percent of GDP.
  • The CBO projection for 2020 -- which assumes the economy has returned to "full employment" -- puts spending at 26 percent of GDP, taxes at a bit less than 19 percent of GDP, and a deficit above 7 percent of GDP.
  • Future spending and deficit figures continue to grow after 2020.

These statistics mean that:

  • Balancing the budget in 2020 would require a tax increase of almost 50 percent from the past half century's average.
  • To get from 18 to 26 percent of GDP (spending in 2020) would require another 8 percent of GDP in taxes.
  • In today's dollars, that would be about $1.1 trillion, a 44 percent annual tax increase.

Even these figures may be optimistic, because the CBO's projections for defense and "nondefense discretionary spending" may be unrealistically low.  This last category covers everything from environmental regulation to aid to education to homeland security.

Whatever the case, the major causes of the budget blowout are well known: an aging population and rapid increases in health spending, says Samuelson:

  • In 2000, Social Security, Medicare and Medicaid -- the main programs providing income and health care for the 65-and-older population -- totaled nearly 8 percent of GDP.
  • In 2020, the CBO projects that will reach almost 12 percent of GDP and continue to increase.

Source: Robert J. Samuelson, "We Want More Government, Just Don't Ask Us to Pay for It," Newsweek, July 11, 2009; and Statement of Douglas W. Elmendorf before the Committee on the Budget, United States Senate, "The Long-Term Budget Outlook," Congressional Budget Office, July 16, 2009.

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