Small Business Fact of the Week

  Obama's Spending: Responsible?

When his 2010-11 budget plan was released on February 1, President Barack Obama said: "We simply cannot continue to spend as if deficits don't have consequences; as if waste doesn't matter; as if the hard-earned tax dollars of the American people can be treated like Monopoly money; as if we can ignore this challenge for another generation.  We can't."

Is the President serious? Looking at the spending realities in his proposed budget, it is evident that he is not.

Consider the following:

•  The first step on the spending front should be to rein in the vast increases of recent years. For example, federal outlays jumped by 28.9 percent over the two-year period from FY2007 to FY2009. The spending increase in FY2010 is projected at 5.8 percent. But the President proposes a spending hike of 3.0 percent for FY2011. Federal outlays stood at $2.73 trillion in FY2007, and under the Obama budget, would hit $3.83 trillion in FY2011. That's a four-year increase of 40.3 percent.

•  As a share of GDP, federal outlays came in at 24.7 percent in FY2009. Outlays are expected to reach 25.4 percent this year. Those are the highest levels since World War II. The Obama budget projects federal outlays will come in at 25.1 percent of GDP in FY2011.

•  In the out years, the President's budget actually calls for a one-year decline in spending from $3.83 trillion in FY2011 to $3.75 trillion in FY2012. However, then the growth in spending resumes, topping $4 trillion in FY2014 ($4.2 trillion) and then $4.4 trillion in FY2015.

•  From the projected 25.1 percent of GDP in FY2011, federal outlays as a share of GDP would drop to the 22.8 percent to 23.1 percent range for the FY2012-FY2015 period. But those are still historically high levels of spending. Over the seven-year period from FY2009-FY2015, this would the longest stretch on record at such high levels of federal spending.

•  At the same time, federal budget deficits would persist at record levels. In FY2009, the deficit came in at $1.4 trillion, or 9.9 percent of GDP. It is projected to be $1.6 trillion, or 10.6 percent of GDP, in FY2010. The President's budget plan offers a deficit of $1.3 trillion, or 8.3 percent of GDP, in FY2011. Again, these are levels not seen since World War II. For the following years, federal deficits come in at $828.5 billion (5.1% of GDP) in FY2012; $727.3 billion (4.2% of GDP) in FY2013; $705.8 billion (3.9% of GDP) in FY2014; and $751.9 billion (3.9% of GDP) in FY2015.

In reality, these unprecedented levels of federal spending - which play the key role in creating huge federal deficits, and in turn, threaten large tax hikes down the road - are all about waste and treating taxpayer dollars like play money. And that translates into additional negatives for the economy in the near term and over the long haul.

Raymond J. Keating, Chief Economist