Serious Solution to Balance Budget Requires Less Spending

February 23, 2011

During fiscal year 2010 the government spent around $3.6 trillion, or 25 percent of gross domestic product (GDP), while collecting $2.1 trillion in tax revenue, or 14.5 percent of GDP.  The resulting deficit was $1.5 trillion.  The total debt held by the public -- the sum of all accumulated annual deficits and interest payments -- reached 63 percent of GDP.  You have to go back to 1946 to find spending that was as large a percentage of GDP, say Nick Gillespie, editor-in-chief of reason.com, and Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.

  • In 2007, the debt was just 36.2 percent of GDP.
  • If current trends continue, the Congressional Budget Office (CBO) projects, the number will reach 87 percent in 2020.

Annual federal revenue since 1950 has averaged just under 18 percent of GDP.  Under the CBO's basic projection federal revenue will rise to 20 percent of GDP in 2015 and then climb even higher, reaching 21 percent in 2020 and 22.3 percent in 2030.  Under the CBO's more realistic "alternative scenario," federal revenue will equal about 19 percent of GDP within a few years and then stay around that level.

In absolute dollars, getting to 19 percent immediately would mean cutting $829 billion out of the budget, which isn't a politically realistic target at the moment.  Getting to 19 percent within a few years, though, would require a series of far smaller cuts because of the expected economic recovery, say Gillespie and de Rugy.

Until federal spending is brought down to 19 percent of the economy or less -- something that was accomplished with little trouble for the years 1997 through 2002, not to mention most of the period between 1950 and 1970 -- no serious solution to balance the budget will be possible.

Source: Nick Gillespie and Veronique de Rugy, "The 19 Percent Solution," Reason Magazine, March 2011.

For text:

http://reason.com/archives/2011/02/14/the-19-percent-solution/print

 

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