Watch out for raging misinformation about the federal budget.
Here’s Scott Moody from the Maine Heritage Policy Center, making a claim that doesn’t stand up to scrutiny:
Federal spending has grown tremendously in the last few years…As a percent of Gross Domestic Product (GDP), federal spending jumped to 24.1 percent in FY 2011 from 20.1 percent in FY 2006. The historic average over the last four decades is 20.7 percent of GDP…[The] federal government is growing as a percent of the economy.
Above Moody uses the correct metric — federal spending as a percent of the gross domestic product (GDP), a measure of what’s produced by the economy.
But the statement is wrong, both for simple and more complex reasons.
Here’s the simple reason: In the last fiscal year, federal spending as a percent of GDP didn’t increase. Instead, it fell.
Moody gets it wrong because he uses data from the Congressional Budget Office (CBO) through fiscal year 2011, not 2012. Fiscal years end at the end of September and in November 2012 CBO said the following:
As a share of GDP, outlays fell in 2012—to 22.8 percent, which was less than the 24.1 percent recorded in 2011 and 2010 but still above the 40-year average of 21.0 percent.
Moreover, the federal deficit also declined in fiscal year 2012.
As a share of the nation’s gross domestic product (GDP), the deficit declined—from 8.7 percent in 2011 to 7.0 percent in 2012.
Rather than growing, federal spending and the deficit are falling.
What’s the more complex issue here?
Well, since federal spending is best understood as a percentage of the overall economy (as measured by the gross domestic product), there are two main ways for that percentage to increase or decrease.
This goes back to basic arithmetic, the sort we all learned around fourth grade. It’s basically that whenever you’re talking about a fraction (and, of course, that’s what percentages are), there is both a numerator and a denominator.
Dollars spent (the numerator) could decrease as a portion of the GDP even if it doesn’t change, simply by having the economy (the denominator) grow. Or spending/GDP could decline if the amount of money spent decreased while the GDP is stable.
In fact, both happened. Dollars spent decreased in fiscal year 2012 and the GDP grew.
Federal outlays fell by $61 billion, 1.7% less than the previous year. According to the CBO, nearly half of the decline ($30 billion) was due to a decrease in spending for unemployment insurance.
Also the growth of the economy led to more money being taken in from taxes, decreasing the deficit.
Revenues rose by about 6 percent in fiscal year 2012, in part because of a significant influx of corporate income tax receipts. Although the government’s receipts increased (in nominal terms) for the third consecutive year, they still were 5 percent below their peak in 2007. As a share of GDP, receipts rose from 15.4 percent in 2011 to 15.8 percent in 2012 but remained well below the 40-year average of about 18 percent of GDP. [Source]
Read that closely. Revenues increased recently but are below the high in tax receipts, which occurred back in 2007. This was of course before Obama took office. More important, in terms of economics, it was before the severe recession began.
And, of course, the recession affected the increase in spending and decrease in revenues. People out of work don’t pay as much in taxes. And, as usual, in tough economic times, federal spending goes up because more people are on unemployment insurance, Medicaid, and food stamps. Older people who lose their jobs are more likely to retire early, increasing Social Security costs.
And, to be sure, programs related to economic difficulty like TARP, the bailouts of the financial industry and auto companies, and the stimulus raised costs. These were on top of costs for the two wars started and the new pharmaceutical benefit for which there was no funding source devised by the Bush administration.
In the short term, economic growth should continue to cause federal spending and the deficit to shrink, as it is already.
Now, the longer term budget situation is more complicated and there are issues, particularly when it comes to paying health care costs.
But any claim that federal spending is currently surging or out of control, well, it’s simply not true. It’s false political rhetoric, not a factual statement.
Getting this right matters
Two months from now, Congress and President Obama have to come to an agreement to turn off the automatic across-the-board cuts in the sequester. Unless changed, these would be evenly divided between military and domestic policy. Obama says he will insist on going beyond cuts to include new revenues, while Sen. McConnell says he won’t allow an increase in taxes.
Spending has to be examined and some items shouldn’t be part of the federal budget. For my part, I’d prioritize programs promoting opportunity and supporting the poor, old and infirm. Others would stress military spending, seeing national security as most important.
Different approaches are to be expected, since there are different philosophies about what government should do.
But as the saying goes, while you’re entitled to your own opinions, you’re not entitled to your own facts.
And the fact is, federal spending isn’t surging. It’s falling — and so is the deficit.