Government Spending

Highlights of Obama's 2013 Budget Plan: Flat spending, Higher Taxes

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Go here for the full document (pdf). This is the budget "blueprint" or what the president would like to see spent, raised, etc. for the fiscal year that starts on October 1, 2012 and runs through September 2013.

The most important stuff—that is often maddeingly left out of articles about government spending—is the basic breakdown of overall outlays and revenues.

My first thought is that I'm glad to see spending (outlays) up by just a few nickels from last year: Obama is proposing spending $3.803 trillion dollars in the next year, up from $3.796 trillion this year. If we keep spending $3.8 trillion a year for the next 10 years, the budget would basically be balanced without having to change any current revenue streams (a.k.a. taxes). (For more on this, see "The 19 Percent Solution.")

Keeping 2013 spending flat still means the feds would be spending 23.3 percent of GDP, down as a percentage from the past two years but it's a number that would have been virtually unthinkable even five years ago. 

For much of the post-World War II era, the feds rarely cracked the 20 percent-of-GDP figure when it came to spending (check table 1.3 here). Then came the 1970s and the 1980s and part of the 1990s. But between 1997 and 2005, spending didn't crack the 20 percent figure. The normalizing of such high levels of expenditures ain't good—government spending crowds out private spending and restricts the choices of supposedly free people. Big spending is especially bad when it's financed by debt, which is easy to get into and tough to get out of, both as an individual and as a country. As I've noted elsewhere, the best five-year-run of revenue (1997-2001) in the post-war era averaged receipts of 19.8 percent of GDP; the typical year came in around 18 percent. Look at the estimates above and you'll see that through 2022 even Obama is estimating nothing but big gaps between receipts and outlays. As a percentage of GDP, debt held by the public will be higher than it is right now. And these are under the rosiest projections imaginable.

In the budget, Obama proposes increasing revenue through a variety of measures that are already in play, including ending the current tax rates on high-income earners (i.e. the Bush "tax cuts" that have been in place for a decade), employing "the Buffet rule" (which will force millionaires to pay effective rates of at least 30 percent), some changes in tax expenditures, tax breaks, and eligibility requirements for some other spending. None of that gets us close to balancing the budget because, as the table above shows, spending goes up in each year. And its increase outpaces the growth in receipts.

Yesterday, Obama chief of staff Jack Lew said that "the time for austerity is not today." He's right in at least one way: The time for austerity was yesterday. We've witnessed gratuitous increases in spending by the federal government for at least the past decade.

That was a mistake that will continue to have big consequences for years to come. But Obama's budget makes it clear that despite the president campaigning back in 2008 on a "net spending cut" and telling us all that we were going to have to stop spending like drunken sailors, we're not going to have to make any seriously tough choices for the next decade. Spending will continue above 22 percent of GDP for the foreseeable future with no way to pay for it, other than taxing future generations. Or getting lucky in Powerball.

NEXT: Obama's War on Whistle Blowers Could Send Investigative Journalism Back to the Stone Age

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  1. When a government tries to make money off the lottery, luck is not a factor.

  2. It’s nothing that can’t be solved with good old fashioned inflation.

    1. “Old-fashioned inflation” is far too slow. We need to ramp it up to be able to solve it.

      1. SuperHyperInflation FTW?

  3. Dude, we’re going to become Greece. My suggestion is… well, I’d say guns, but there will be a lot of zombiesrioters to kill.

    1. It’s a good thing that The Walking Dead started up again last night, then.

      1. Good? haven’t watched it yet.

        1. It’s always good, in my opinion. You know what else is fucking good? Chronicle. The final telekinetic battle in and around the Space Needle is fucking awesome.

        2. They still haven’t moved an inch. The early season promos featuring some writers claimed they were going to “explore the world”. But they’re just sitting around that damn farm with everything making it seem likely that they will not be going anywhere else. This is just the same old Lost story.

          1. A zombie apocalypse show with no budget for zombies.

            Retarded.

            1. Just read the comic. A lot more happens and you don’t have to waste time waiting for it to happen. You will have to drop some dough or steal digital copies of it though.

      2. Booooooring. It’s feels like what would have been spawned if Robert Jordan had written a zombie tv show.

    2. So buy lots of ammo too, and practice.

  4. Spending will continue above 22 percent of GDP for the foreseeable future

    No, it won’t. That level of spending is unsustainable. “Unsustainable” means “won’t go on indefinitely”. It is quite foreseeable that we will reap what we have sown within the next 10 years.

    1. I wonder what happens if we have another recession-inducing crisis? Say a major spike in oil prices (perhaps caused by yet another war), a collapse of the commercial real estate market, or several other bleak possibilities? Or even just Europe blowing up?

    2. The spending will continue as long as people purchase treasury notes.

      The only thing that will slow spending is people refusing to finance the debt.

      That’s it.

      1. When you say “refusing to finance the debt” you imply a choice. I doubt it. First, we will just continue printing the money to finance the debt. Second, if needed, the government will start mandating treasury purchases. Want a tax-free retirement account? Have to buy treasuries. And so forth.

        1. Inflation is one option. Another is insanely high taxes. Probably a combo is what we’ll happen if treasuries stop getting bought.

          1. Another is insanely high taxes.

            You can impose all the taxes you want.

            Collecting them, now, that’s a different kettle of fish.

            1. That won’t stop them from trying.

          2. The only thing that will stop treasuries from getting bought is the dissolution of the Fed.

            1. Imagine Treasury Notes replacing Federal Reserve Notes.

              Anyway, that’s one way to end the Fed anyway.

              1. Imagine no possessions.
                I wonder if you can.

                1. What Indian, quit spoofing Pro Lib!

                  1. No, it’s me. I’m just practicing. I’m not wearing glasses anymore, either. Just in case.

        2. Inflation is inevitable.
          However even if treasury purchases were mandated, there simply does not exist enough wealth in this country to cover the debt.

          1. M2 rose 9.6% in 2011. Inflation is here.

            BTW, M1 was up 18.1%. You cant triple M0 without expecting inflation.

            Oh, and Im going to go ahead and precall anyone that responds that inflation is about prices and idiot.

            Inflation is monetary.

            1. and idiot

              I strike again!!

              1. recent real inflation rates (change in M2, Dec to Dec)

                2011 9.59%
                2010 3.31
                2009 3.43
                2008 9.98
                2007 6.02
                2006 5.88
                2005 4.11
                2004 5.71
                2003 5.03
                2002 6.34

            2. It’s both. Words can have multiple meanings. The inflation that people feel is price inflation.

              Of course, one could argue that monetary inflation is a very reliable omen for price inflation down the road (though it’s certainly not a perfect one).

              1. Yes, they can. The terms are inflation and price inflation.

                Inflation, without any qualifiers, is monetary inflation, when being used in a discussion of economics.


              2. Of course, one could argue that monetary inflation is a very reliable omen for price inflation down the road (though it’s certainly not a perfect one).

                I think its more accurate than the CPI. Which is amusing, since the CPI is supposed to be a measure of price inflation.

      2. Basically, as long as the dollar is the world’s reserve currency we can spend at whatever rate we want. I think we’re safe for another generation or so. The world will be willing to accept higher debt-to-GDP ratios from the US than from any other nation. Of course, when we finally do crash it will be long and hard.

        1. Currency is fungible. The reserve currency thing has no real effect.

          1. So demand for a given currency has no effect on the value of that currency? Please explain.

            1. Currency isnt a product…there is not “demand” for currency. Currency is fungible, as long as currency is fungible.

              As long as I can easily and cheapily convert, it doesnt matter if my currency is in dollars or euros or yen.

              I prefer dollars to avoid the transaction costs of having to convert yen to dollars before every purchase. but on a worldwide reserve currency level, that is negligible.

              1. Currency is often used as a store of value. Therefore there is “demand” for specific currencies. The level of demand depends on the perceived value of the currency.

                You prefer dollars because they are liquid where you live. Others prefer dollars because they are expected to have a stable value over a given time period.

                1. But the point is, they are nearly 100% fungible. If the euro becomes a better store of value versue the dollar, then there will be a slow shift from dollars to euros in the store house.

                  All currencies are reserve currencies, just in varying amounts. The shift in amount of currency held is a RESULT of change in perceived value, not a cause of the change.

                  1. The shift in amount of currency held is a RESULT of change in perceived value, not a cause of the change.

                    I see what you are saying and I agree. I wasn’t trying to say that our currency has value because other people want it.

                    I am under the impression, though that we are facing a double whammy. On the one side, people will stop buying our debt. On the other side, all our currency will come flooding home. Isn’t this a worse situation than if all our currency were still sitting in country?

                    1. It can only come flooding home by purchasing goods in the US.

                      Which would be a good thing. So it balances out.

                    2. Purchasing goods in the US is generally a good thing for Americans. Purchasing goods in the US only because no one else will take your lousy dollars is not so good for anyone. As R C Dean says, it tends to increase inflation.

                    3. On the one side, people will stop buying our debt.

                      That’s good, yes.

                      On the other side, all our currency will come flooding home.

                      When all those reserves get dumped because they are no longer, well, reserves, that will cause quite the inflation. Those reserves aren’t circulating now – when they start circulating, that’s an increase in money supply.

                      I think that money will eventually make it back to our shores, but at a severely inflated level. I don’t really see an ex-inflation benefit of any kind to losing reserve currency status.

      3. The spending will continue as long as people purchase treasury notes.

        Oh, it will go on ever after that, for awhile. When the bond market refuses to clear our debt auctions, the Fed will step in with freshly printed dollars.

        What’s that? They already have? Who knew?

  5. Hands up all those people who think that spending will only go up by 0.2% in the next fiscal year.

    1. *chirp* *chirp*

      1. People raising their hands is pretty quiet, so the crickets could still be heard.

    2. My thinking exactly. It’s a load of crap.

  6. Deficit reduction effort in the budget:

    Extend IRS math error authority in certain circumstances

    This one’s for you, Timmy!

  7. Next year is just a blip. Average 5.5% increase in spending per year. Yuck.

  8. I can hardly wait to see what kind of spittle-flecked rage Karl Denninger gets into over this budget over at Market Ticker.

    1. Funny. I read through his fleck a few times – not worth it.

      I can’t find a readable conservative economist other than Bartlett who is very good but he seems to be out of favor here.

  9. Jack Lew said that “the time for austerity is not today.”

    Jack Lew also said that the Senate can’t pass a budget because it requires a supermajority and the Republicans are blocking it. (It doesn’t, 51 votes passes the budget.) Jack Lew is even more full of crap than your usual political hack.

    1. Lew forgets to mention that PROPOSING a budget requires neither a supermajority nor any Repub contribution. But that would mean Harry would have to get back on his meds so we could understand his mumblings.

  10. My first thought is that I’m glad to see spending (outlays) up by just a few nickels from last year

    What are the nickels made out of, unobtainium? Spending is up by 7 billion dollars.

    1. I think a “nickel” is slang for $5B.

      Just like a dime bag doesnt cost 10 cents.

  11. This is the key fact, right here:

    spending goes up in each year. And its increase outpaces the growth in receipts.

    And, at 5.5% increases YoY, it increases faster than the growth in the tax base.*

    That is unsustainability, defined. When the rate of growth in expenses is faster than the rate of growth in the tax base, you have locked in compounding increases in debt.

    Consider: You make $100K/year, and spend $140K/year, for a deficit of $40K. Next year, you will make $103K (3% rate of growth), and will spend $148K (5.5% rate of growth), for a deficit of $45K. And so forth, with the deficit growing ever faster.

    We’re climbing an asymptotal curve to complete fiscal collapse. And we’re further up the curve than anyone seems to realize (present company, well, some of you anyway, excepted).

    *Unless you think we can clock average increases of 5.5%/year in private sector GDP for the better part of a decade.

    1. You know what would help? A $1T cut next year.

      1. Amen, brother.

  12. “If we keep spending $3.8 trillion a year for the next 10 years, the budget would basically be balanced without having to change any current revenue streams.”

    Right, if it were politically feasible to freeze mandatory spending for one year, much less ten. And assuming that our debt servicing costs don’t spiral out of control as we continue to borrow, espectially when interest rates begin to rise.

    1. assuming that our debt servicing costs don’t spiral out of control as we continue to borrow, espectially when interest rates begin to rise.

      This is the ticking time bomb in the budget, right here.

      I keep hoping Ms. de Rugy will do a piece on what an increase in our borrowing costs would mean to the budget. Just a reversion to the mean from our current absurdly low borrowing costs, which strikes me as a very optimistic assumption, would be a Bad Thing.

  13. So if they can balance the budget in ten years simply by not increasing spending then how is it that we can’t possibly afford to pay for medicare/medicaid and social security?

    Do those programs not become a problem until after 2022?

    1. That’s global spending that reason is talking about capping.

      By 2022, SocSec, Medicare, and Defense would consume the entire budget if it were capped. Probably before then, in fact.

      1. Yep. Maintaining SS and Medicare/caid unchanged without increasing spending would require cuts in other spending areas (like defense!).

  14. stop spending like drunken sailors

    As a former drunken sailor, I am outraged. Whenever I ran out of money I had still had enough sense to stop drinking.

  15. Obama is such an egg head!

    http://www.anon-stuff.tk

  16. Imposing taxes on high-income earners is a discriminating measure following the unreasonable steps that Obama has recently taken. He refused to build the Keystone pipeline which would reduce the federal budget deficit without these long-term tax increases. The Canadian energy sector has recently been on the rise so the revenue could be increased in the following decades. But now the Chinese are in the leading role and Obama is left with little alternative but to discriminate the wealthy and certain corporations that contribute to the normal functioning of our economy.

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