The Reality Of Government Spending

Apr 17 2012 @ 10:38am


Josh Barro ponders the above chart on US government spending over time. And again, he shows how ideology distorts reality. The reason the government spends more as a proportion of GDP is partly the welfare state and partly demography. Put the two together, and it's delusional to believe you could bring spending much below 30 percent, especially facing the boomer retirement years. The fiscal resonance of this is that revenues have to go up some. I'd rather entitlements and defense took bigger cuts, but it's crazy not to have revenues as part of the solution. Actually to reduce revenues even more, which appears to be Romney's (check watch) position is a recipe for default. Barro's bottom line:

[G]overnment spending as a percentage of GDP cannot be expected to stay flat over time. That doesn’t mean we should just say “eh, whatever” and balance the budget entirely on the tax side. But it does mean we should expect the federal budget to be a bigger share of the economy in 2020 than it was in 2000, and structure the tax code accordingly.

Don Taylor makes related points:

It is of course mathematically possible to shrink spending to meet the historical level of tax collection. However, it is important to realize that we spent more than 21 percent of GDP (the target for revenue/spending balance in around 2035 suggested by Simpson-Bowles) in 1970, 1975, 1980 and 1985—and the baby boomers were mostly working and paying taxes then, and not moving into eligibility for Medicare and Social Security.