Spending Explosions, not Tax Cuts, Driving Deficits

Conn Carroll / September 15, 2008

Last week the Congressional Budget Office reported that the federal deficit will reach $407 billion this year. This actually is not as groundbreaking as it sounds. The best way to measure budget deficits is as a percentage of GDP, the 2008 budget deficit is 2.9% of GDP compared to 30.3% during WW II and 6% in 1983.

That does not mean there is no concern for what is scheduled to happen in the future. Since 2001, federal spending has surged by 59 percent—6.8 percent per year on average. Had spending increases been limited to 37 percent—4.6 percent annually—the budget would already be in balance. The wars in Iraq and Afghanistan are not to blame. Defense spending is currently 4.3 percent GDP, up from 3.0 percent when President Bush took office. However, it remains well below the 40-year average of 5.1 percent of GDP and lower than it had been at anytime during the Cold War.

The real problem: Social Security, Medicare, and Medicaid. Medicare spending has surged by 59 percent over the past five years. Over the next decade, the CBO projects that Medicaid will expand by 8 percent annually, Medicare by 7 percent annually, and Social Security by 6 percent annually.