Latest numbers on the current fiscal year offer little hope for positive change

Raymond Keating

Raymond Keating

If you’re concerned about how high federal government spending and debt have reached in recent years, the latest numbers on the current fiscal year offer little hope for positive change.

To review, federal outlays jumped from $2.73 trillion in 2007 to $2.98 trillion in 2008, and $3.52 trillion in 2009. This vast increase in spending was billed an emergency, temporary stimulus. We saw a brief breather in 2010, with outlays actually declining slightly to $3.46 trillion. In 2011, spending resumed its growth to $3.6 trillion.

At the same time, the federal deficit increased from $160.7 billion in 2007 to $1.41 trillion in 2009, $1.29 trillion in 2010 and $1.3 trillion in 2011.

Gross federal debt jumped from $8.95 trillion in 2007 to $14.76 trillion in 2011. The portion of debt held by the public moved from $5.03 trillion in 2007 to $10.13 trillion in 2011.

According to the Congressional Budget Office, the federal budget deficit through the first 10 months of the 2012 fiscal year compared to the same period in 2011 was down slightly — from $1.1 trillion to $975 billion. That decline reflected a 6 percent increase in federal revenue as spending remained flat. This increase in revenue reflected some expansion in the economy, but not enough to make a real difference in terms of jobs, confidence and strong government revenue growth. Meanwhile, no real change in federal spending points to government continuing at historically unprecedented levels.

Looking ahead to the close of the current fiscal year at the end of September, federal outlays are expected to increase versus last year to $3.65 trillion, with a small increase in revenue. The result on the deficit front would be another staggering shortfall of more than $1.2 trillion.

It is important to keep in mind how federal spending and deficits of this size affect the economy.

First, spending drains resources away from productive, private-sector endeavors — whether through borrowing or taxing — and funnels it to politically driven government spending. That’s a negative for the economy.

Second, federal budget deficit and debt numbers at such fantastic levels affect current and future economic growth through expectations regarding potential tax increases — on top of already scheduled tax hikes. Again, this serves as a dampener on current and future growth.

When looking out to 2013 projections, it’s more of the same. Federal outlays are expected to increase to $3.75 trillion, with a deficit of $991 billion, gross debt hitting $17.5 trillion and debt held by the public rising to $11.1 trillion.

Over the past five years, the U.S. has remained on a dangerous fiscal path. Vast, unprecedented spending increases were billed as good for the economy. Predictably, the result has been the exact opposite. Without spending cuts, the U.S. faces a dubious fiscal and economic future, one of greatly diminished entrepreneurship, investment and economic growth. The U.S. is in peril of becoming Europe, a slow-growth economy facing even more serious fiscal troubles.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. Reach him through the Web site at www.sbecouncil.org.
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Posted by on Aug 21 2012. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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