FEDERAL BUDGET AND SPENDING

Federal Budget and Spending
Is Is Is ues 2010 • The C 40 andidate’s Briefing Book
Notes
spending has expanded 74 percent faster than inflation as a result of large defense and domestic spending hikes. Entitlement spending has reached a record 13 percent of GD GD P—not even counting the additional 5 percent of GD GD P spent on financial bailouts this year. Other areas receiving large increases since 2001 include: anti-poverty programs (57 percent faster than inflation), K–12 education (169 percent), veterans spending (72 percent), and Medicare (59 percent). And despite all the pressing national priorities, lawmakers approved over 10,000 earmarks last year at a cost of $20 billion. Simply put, all parts of government are growing.
Consequently, Washington has run a 2009 budget deficit of $1.4 trillion. While deficits naturally rise during recessions, one would expect them to eventually return back to the $100 billion to $400 billion range that prevailed before the recession. However, the President’s budget shows annual budget deficits averaging just under $1 trillion over the next decade—a period in which the national debt would double. These deficits would not only raise interest rates, they would also nearly quintuple the net interest costs of the national debt over the next decade.
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f course, not all future spending is inevitable. In the 1980s and 1990s, Washington consistently spent $21,000 per household (adjusted for inflation). Simply returning to that level would balance the budget by 2012 without any tax hikes. Alternatively, returning to the $25,000 per household level (adjusted for inflation) that Washington spent before the current recession would likely balance the budget by 2019 without any tax hikes.
Reco eco eco mmendatio atio atio atio ns
1. Mandate that spending cuts go toward deficit reduction. As Congress works to identify budget savings, it should mandate that 100 percent of savings go toward deficit reductions rather than new spending. This way Congress can guarantee that cuts will go toward reducing the federal deficit.
2. Go further to stop government growth. The budget deficits are forecast to average $1 trillion annually for the next decade. The need for restraint could not be clearer. The President has proposed spending cuts in his budget and called on his Cabinet to identify other savings. Congress should use these proposals as a starting point to eliminate wasteful spending such as:
$55 billion in annual program overpayments; •
$60 billion for corporate welfare;•
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Notes
$13 billion on 9,287 earmarks; •
$25 billion in unused federal property;•
$123 billion on government programs that have consistently failed to • accomplish their mission;
$140 billion in potential savings identified in the Congressional Budget • Office “Budget Options” book;
Massive program redundancy: 342 economic development programs, • 130 programs serving the disabled, 130 at-risk youth programs, and 90 early childhood development programs.
3. Continue tax cuts. Higher taxes on small businesses and higher taxes on investment capital weakens the economy under any circumstances. Congress should instead extend the 2001 and 2003 tax cuts rather than let them expire and eliminate the death tax completely, not rejuvenate it in 2011. The most effective way to spur economic recovery is to increase the incentives that drive economic growth.
Source: White House Office of Management and Budget and Congressional Budget Office.Debt Held by the Public as a Percentage of GDP01940194519501955196019651970197519801985199019952000200520102015201920%40%60%80%100%120%108.6%82.4%40.8%Obama’s BudgetIn 2008, publicly held debt as a percentage of the economy (GDP) was 40.8 percent, nearly five points below thehistorical average. Under President Obama’s budget, this figure would more than double to 82.4 percent by 2019, and interest payments alone on this debt would be $100 billion more than Obama projects to spend on the entireDepartment of Defense.Obama’s Budget Would Send Debt to Levels Not Seen Since World War II
domestic policy cy • Federal Budget and Spending
Is Is Is ues 2010 • The C 42 andidate’s Briefing Book
Notes
Facts acts acts acts and Figures res res
Budget and Spending
n The projected $1,845 billion budget deficit represents a staggering 13.1 percent of GD GD P. This is more than double the previous postwar record of 6.0 percent of GD GD P in 1983. More than 46 cents of every dollar Washington spends in 2009 will be borrowed.
n From 2001 to 2009, real federal spending increased from $20,848 per household to $33,932 per household.
n In 2009, the federal government will spend $33,932 per household, collect taxes of $18,297 per household, and run a budget deficit of $15,635 per household.
n Under President Obama’s budget, total budget deficits from 2009 to 2019 would total $84,352 per household.
n Federal spending has grown 72 percent faster than inflation since 2001.
The Growing Deficit
n The projected $1,845 billion budget deficit represents a staggering 13.1 percent of GD GD P.
n President Bush left a $1,186 billion deficit for 2009. President Obama has added $659 billion to it.
n President Bush’s budget deficits averaged $446 billion. President Obama’s budget shows average deficits of $855 billion over the next decade.
n President Obama’s budget would double the publicly held national debt by 2019.
Additio itio itio itio nal Reso eso eso urces rces rces
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rian M. Riedl, “Federal Spending by the Numbers 2009,” Heritage Foundation Special Report
No. 63, July 27, 2009, at http://www.heritage.org/Research/Budget/sr0063.cfm
J.D. Foster and William W. Beach, “Economic Recovery: How Best to End the Recession, Heritage Foundation WebMemo No. 2191, revised January 26, 2009, at http://www.heritage.org/Research/Economy/wm2191.cfm
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rian M. Riedl, “President’s Budget Cuts Should Go Towards Deficit Reduction,” Heritage Foundation WebMemo No. 2427, May 7, 2009, at http://www.heritage.org/Research/budget/wm2427.cfm
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ffice of Management and Budget, Budget of the United States Government, Fiscal Year 2010,
at http://www.gpoaccess.gov/usbudget/fy10/browse.html
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Notes
Herita erita erita erita erita ge Experts erts erts erts
William W. Beach
J. D. Foster, Ph.D.
Stuart M. Butler, Ph.D.
Ernest Istook
Rea S. Hederman, Jr.
Alison Acosta Fraser
Ronald D. Utt, Ph.D.
Brian M. Riedl
Elaine Chao
Baker Spring
domestic policy cy • Federal Budget and Spending