The Federal Debt

The spending levels of the Federal Government defy effective description, while Democrat as well as Republican, talk only of additional Spending. Present rates of of expenditure insist on sale of almost $60 billion worth of Treasuries per month. Bush, through his policies, has already scheduled this amount to be increased, and intends for more to be added. No one in the Beltway even suggests a Cutback in any program, and all propose more.

(The following Quotes all come from 'October 13, 2004 EPI Briefing Paper #153')

The historically low level of current revenues must be considered in light of the sharp rise in payroll taxes since 1959. The creation of Medicare and increases in Social Security benefits were the primary reasons that payroll taxes swelled from 2.4% of GDP in FY1959 to 6.3% in FY2004 (see Figure 2). In 2004, individual income taxes are expected to decline to 7.0% of GDP, lower than any year since FY1951. As a source of revenue, corporate income taxes have eroded from about 4% of GDP through 1970 to less than 2% in recent years.

Federal spending (excluding interest) has expanded from 16.1% of GDP in 2000 to 18.4% in FY2004 (CBO 2004c).

In January 2001, the Congressional Budget Office (CBO 2001) projected 10-year cumulative surpluses of $5.6 trillion between FY2002 and FY2011. Putting aside tax cuts and spending increases since 2000, budget analysts have revised their assumptions and believe that the 10-year surplus estimate should have been $2.2 trillion.2 The CBO estimates that under current policies, with tax cuts extended as promised by the Bush Administration and the congressional majority, the 10-year outlook is now for a cumulative deficit of $4.5 trillion. Thus, policy changes in the past three-and-a-half years have caused the 10-year budget balance to decline by $7 trillion, an average of $670 billion a year.

With expiring tax cuts extended and the AMT fixed on a modest scale, revenues would reach just 17.6% of GDP in 2014

The CBO's baseline for total spending remains within a few tenths of a percent of 20% of GDP throughout the next decade, 2.5 percentage points above the level of revenues with prevailing policy in 2014 (CBO 2004c)

The Bush Administration's budget proposal of February 2004 specifies non-security discretionary spending levels only through FY2009, the next five years. It calls for NSD spending to increase by only 1% nominally over five years, despite expected inflation of 11% and population growth of 5% over that period

If NSD spending does not grow with population, in real per capita terms it would fall to $1,499a drop of 21% relative to present-day levels.

Simply allowing NSD spending to keep pace with inflation would require additional financing equivalent to 3.2% of GDP in 2014. Cutting NSD spending enough to achieve a balanced budget without changes in current policy on taxes and other spending would require NSD spending of only 1.2% of GDP in 2014.

The CBO projects that entitlements will remain under 12% of GDP for the next decade. After that, the combination of the retirement of the baby boom and the escalation of health care costs will cause entitlement spending to rise substantially relative to GDP. Over the next 75 years, the projected expansion is between 10% and 15% of GDP (CBO 2003).

With 2% productivity gains and gains in potential output of 81% over three decades, the working-age population could "sacrifice" relatively modest contributions to the elderly to meet the projected costs for retirement benefits and still enjoy rising after-tax incomes.

Historical experience shows the implausibility of balancing the budget with revenues at only 17.6% of GDP. Total spending is now running at 19.8% of GDP and has exceeded 17.6% every year since 1965 (OMB 2004). Over the past two decades, the ratio of federal spending to GDP has averaged 20.7%.

Historical experience shows the implausibility of balancing the budget with revenues at only 17.6% of GDP. Total spending is now running at 19.8% of GDP and has exceeded 17.6% every year since 1965 (OMB 2004). Over the past two decades, the ratio of federal spending to GDP has averaged 20.7%.
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Can the American Economy sustain Federal spending in excess of Federal revenues of 2.5% of GDP ad infinitum? The Answer is No! Sheer accumulation of such Funds to borrow would require a bureaucracy of Thousands Worldwide (a foreign bureaucracy) simply to get their hands on the Cash, which current Policy-makers expect them to lend to Us. They might ask eventually, "Why should We lend the largest Economy in the World some 2.5% of their GDP yearly? Why don't We spend it on Our own economic development?"

We could answer that We need the money, but they might ask why We need the money. Our sole answer to this secondary question would be: "We don't want to tax Ourselves as much as you do Yourselves, because We do not want to pay for Our own existence; it is much nicer for Us if We can live above Our means, by suggesting you live below your means. It does not matter that convincing evidence exists denying the theory that Deficit spending propels economic growth, We would rather spend than pay Taxes. lgl