Yesterday the White House updated its budget estimates by releasing the annual “Midsession Review.” Media reports have focused on the projected budget deficits of $389 billion this year and $482 billion in 2009. As always, larger truths have been left out:
- Reports calling next year’s projected budget deficit of $482 billion a “record high” are not credible because they fail to adjust for inflation and for the size of the economy. In fact, at 3.3 percent of GDP, the 2009 budget deficit would which be only the 12th largest since 1983. By comparison, budget deficits during World War II topped 30 percent of GDP.
- The public debt of 38 percent of GDP remains below the post-war average of 42 percent, and below the average level of the 1990s.
- Had spending growth since 2001 been limited to 4.3 percent annually, the budget would be balanced. Instead, it grew 7 percent annually. Thus, FY 2009 spending is projected to reach 21.1 percent of GDP – the highest level since 1993.
- Over the past three years, runaway spending has been covered up by surging tax revenues growth of 15 percent, 12 percent, and 7 percent respectively. Revenues could not keep this pace forever, and that means the rapid spending hikes would eventually be exposed and push up the budget deficit.
- The budget is unlikely to be balanced again until Social Security, Medicare, and Medicaid are reformed. These programs are growing at annual rates of 6 percent, 9 percent, and 8 percent, respectively. There is no way revenues can keep up with these entitlement spending growth rates. The next President’s spending legacy will be defined by how he deals with these exploding costs, resulting from 77 million retiring baby boomers.
It is time for elected officials to begin setting priorities and making trade-offs.
