We continue to be amused, then depressed, by the debate over federal spending. While loud voices complain over radical/extreme/dangerous reductions in federal spending, the reality is federal spending is still, and is projected to remain elevated, for quite some time.
From fiscal 2006 through fiscal 2011 US Government outlays increased from 2.654 trillion to 3.601 trillion. That is a 35.7% increase. This increase is far in excess of GDP growth, median household income growth, median weekly wages and inflation. The 36% increase in government spending is more than twice the 14.7% increase in GDP. It is about 5 times greater than the increase in median household income. It is 3x higher than the median weekly wage increase. It is almost 3x greater than the increase in the consumer price index.
But what about the cuts we keep hearing about. The cuts that will jeopardize our weak recovery. The cuts that will result in layoffs for teachers and fireman and police officers. There are no cuts. The Office of Management and Budget (OMB), which "assists the President in overseeing the preparation of the Federal budget and evaluates the effectiveness of agency programs, policies, and procedures," in its September 2011 "Fiscal 2012 Mid Session Review" puts federal spending at 4.391 trillion in fiscal 2016, 21% higher than fiscal 2011 levels and at $5.6 trillion in fiscal 2021, 27% higher than fiscal 2016. (Table 6. page 22).
The projected growth in government outlays from fiscal 2011 to fiscal 2016 of 21% is lower than the 30% projected growth of GDP, but the projected 28% growth of government spending from fiscal 2016 to fiscal 2021 is higher than the 25% projected growth of GDP. As a percent of GDP federal spending is set to fall from 24% in fiscal 2011 to 22% in fiscal 2016 and rise again to 23% in fiscal 2021.
There was, and remains, a loud wail from Washington about severe budget cuts. Much of this related to the Budget Control Act (BCA) which mandates $1.5 trillion of deficit reduction over the next 10 years. The Select Committee which was tasked with coming up with a plan to meet this mandate was unable to reach agreement. The BCA, in this case, calls for automatic cuts about equally shared between defense and non-defense discretionary spending. That is, no change to entitlements, which are primarily Social Security, Medicare and Medicaid.
Let's assume the $1.5 trillion actually gets cut, and let's assume it is cut equally over the 10-year time horizon called for in the BCA. That's a cut of $150 billion per year to the projected outlays. So instead of federal outlays rising 21% from fiscal 2011 to fiscal 2016 they will rise 16%. Expenditures in the fiscal 2016 to fiscal 2021 time period will continue to increase 28%. Like we said, "What cuts?"
We've come to believe the reason there is such a loud puling from Washington over "The 1%" and income inequality and the millionaires and billionaires not paying their "fair share" is a tactic to divert attention from the very large pig, aka, the Federal Government, chowing down at the trough. What has consistently grown faster than your wages, your household income, inflation and GDP? The Federal Government.
