The Myth of the Exploding Federal Government, Part 1

October 30, 2013 at 1:15 pm

Two sets of negotiations on Capitol Hill — on the budget’s spending and tax priorities and on the Farm Bill, which includes renewing SNAP — raise important questions about the size and role of government.  People who believe that future deficit reduction must come solely from spending cuts sometimes claim that the federal government is exploding in size.   Similarly, people who favor big cuts in safety net programs like SNAP sometimes claim that these programs are growing out of control.  We’ve updated two papers showing that the data don’t support either the first claim or the second one.

Let’s look at the first claim first.  (We’ll address the second in part 2.)  While total federal spending as a share of the economy rose considerably in the recession, it has already fallen dramatically from its 2009 peak.


If we continue current policies, federal spending outside of interest payments on the debt is projected to decline in the decade ahead as the economy recovers.  In fact, this spending (which analysts call “primary outlays”) has already fallen from 23.9 percent of gross domestic product (GDP) in 2009 — at the bottom of the recession — to a projected 20.2 percent of GDP in 2013.  It is projected to fall further, to 19.5 percent of GDP or lower in the latter part of this decade.

While total federal spending will remain high throughout the coming decade under current policies, that’s mostly because of a marked increase in interest payments.  In particular, as the economy recovers, interest rates will also rise, simultaneously increasing the interest we must pay on any given amount of debt.

Total non-interest spending outside of Social Security and Medicare — two programs whose costs are driven up by the aging of the population and the rise in health care costs throughout the U.S. health care system — will fall well below its 50-year historical average in the decade ahead.

By 2023, it will fall to 10.5 percent of GDP, compared to an average over the 1963-2012 period of 13.0 percent.  These figures do not count any spending cuts from the sequestration required under the Budget Control Act after fiscal year 2013; if those cuts are counted, non-interest spending outside Social Security and Medicare will fall even further below the historical average.

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7 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Alan McIntire #
    1

    Spending on interest on the debt, Social Security, and Medicare are the big DRIVERS of spending. Stating that government spending is going down except for THOSE itemes is like saying, “Mrs Lincoln had a great time, and really enjoyed the play, except for that one incident.”

  2. Jacob #
    2

    I am not sure that complaints about the size of government and the size of spending relative to gdp are quite the same thing. in particular, a government could legislate regulatory burdens without significantly increasing spending. I think most equate big government with the degree to which they perceive there being government interference to their conducting the business of living their lives. Funnily enough its local government that frequently does that most.

  3. Scott #
    3

    Can I assume the this projection involves the sequester as it was the law at the time of the projection? Also, what is the projected GDP? In January, the Democrats want to break the sequester, so why don’t we put this chart side by side with any new projections if the sequester is broken. Case Closed. You are welcome.

  4. Murray Duffin #
    4

    What would the chart look like if military spending were also separated out?

    • Richard Kogan #
      5

      Nice question. Suppose the chart had separated the ‘all other’ category between defense and non-defense programs. You would see defense falling from about 9% of GDP at the start of the 1960s (and at the height of the Vietnam War), to about 4% today, to less than 3% by the end of the decade as (we assume) fighting in Afghanistan or elsewhere shrinks significantly. Meanwhile, you would see the non-defense category grow from about 6% in the early 1960s to about 7% by the early 1970s, as the Great Society programs and other related programs were created or expanded. That total then bounces around, with distinct bump-ups during recessions (when the costs of unemployment insurance and related programs are unusually high and the denominator of the fraction, GDP, is unusually low). But the trend is pretty flat: these programs averaged about 8% of GDP in the 1970s, were 8% in 2013, and are expected to average the same 8% over the coming ten years. They were at their low point, just below 7%, during the last years of the Clinton Administration.”

  5. 6

    Total spending as a percentage of GDP will still be higher than our *record* tax revenue as a percentage of GDP (20.9%), and spending is projected to get *much* worse once we get past the next decade. Spending over the

    We should be paying down our debt in preparation for the coming entitlement tidal wave that is coming, but instead we are continuing to run large deficits.

  6. Dean Scourtes #
    7

    This reduction in primary outlays is only a positive trend in the narrow and static context of reducing the growth in the aggregate size of national debt. It may be a negative trend when seen in the more dynamic context of debt-to-national income. Reductions in primary outlays could result in a failure to make public investments in those areas such as infrastructure, education and social insurance which maintain US economic competitiveness, support aggregate demand, and which enable our economy to operate at capacity and grow. In other words, debt levels may level off or fall, but if national economic output falls even more, then our ability to service our debt will become more difficult. Conversely, if debt increases but economic output increases at a greater rate, our ability to service our debt improves and the debt itself becomes less worrisome.



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