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Even prior to the financial crisis, it was not unusual for politicians and pundits to assert that government spending is out of control. That government just keeps growing and growing and growing.

Did you ever wonder if it was true?

Last year the U.S. GDP was $13.8 trillion.

As of September 2008, the total U.S. federal debt was approximately $9.7 trillion. Of this amount, debt held by the public was roughly $5.3 trillion. (Where is the other $4.4 trillion? Its already been spent by your parents’ generation but they’ve left little IOU’s in the U.S. Treasury telling us that they’d find some way to pay the Treasury back when the time comes for them to retire.)

As of 2005, total U.S. household debt, including mortgage loan and consumer debt, was $11.4 trillion in 2005.

As of 2005, total U.S. household assets, including real estate, equipment, and financial instruments such as mutual funds, was $62.5 trillion in 2005.

In 2007, total governmental debt amounted to 65.5 percent of GDP. The CIA ranked the total percentage as 26th in the world.

Country Public debt
(% of GDP)
Country Public debt
(% of GDP)
Japan 195 Germany 63
Italy 104 Austria 59
Belgium 85 Netherlands 46
Israel 81 United Kingdom 43
Norway 75 Sweden 41 41
Canada 69 Spain 35
United States 66 South Korea 33
France 64 Finland 31
Portugal 64

We’re more or less in the same boat as the other OECD countries. Probably in better shape if you compare our demographics to Europe’s and Japan’s.

Below, I’ve provided selected Federal Debt information from the Congessional Budget Office and the Treasury.

I’ve limited the number of years for simplicity’s sake but have picked these years for specific reasons. The federal debt exploded after 1980 under Reagan. 1986 produced the largest federal deficit as a percentage of GDP. 1992 was the tipping point year after which the deficit was reduced under Clinton. 2000 was the high-point of government surplus. 2004 was the largest Bush II deficit.

Basic Federal Budget Facts
Year GDP Fed
Budg.
Def. % GDP Public
Debt
% GDP Total
Debt
% GDP
1980 $2.7 t $0.6 t -$74 b -2.7% $0.7 t 26% $0.9 t 33%
1986 $4.4 $1.0 -$221 b -5.0% $1.7 39% $2.1 48%
1992 $6.2 $1.4 $-290 b -4.5% $3.0 48% $4.1 66%
2000 $9.7 $1.8 $236 b 2.5% $3.4 35% $5.7 62%
2004 $11.5 $2.3 -$413 b -3.6% $4.3 37% $7.4 64%
2007 $13.6 $2.7 $-161 b -1.2% $5.0 37% $9.0 66%

Items of Note:

  • I don’t have a strong opinion as to which debt number, Public or Total, more accurately conveys the current situation. Probably, the more accurate numbers are either Public Debt or total unfunded future liabilities (i.e. all future Medicare and Social Security, etc. payments) which amounts to approximately $60 trillion.The difference between total debt and public debt is only really useful as a means to quantify the higher amount of social security taxes which my generation will have to pay than my parents generation as a result of their prolifigacy.

    Look at it like this. Your parents chose to use excess social security taxes for general funding purposes. Eventually, either income taxes have to go up or social security benefits have to go down in order to reverse that gap and fund that portion which they refused to set aside when they were younger. This is why, no matter your ideological leanings, Barack Obama’s panderings to reduce taxes on the elderly is asinine.

    On the other hand, that $4 trillion in “debt” is a drop in the bucket as to the total social transfers which will be made over the next century. About 6% of the total. In that light, its really not that bad.

  • Public Debt: For all of the hand-wringing about the national debt, as a percentage of GDP, it has only risen from 26% to 37% over the last 28 years. That’s it folks. The public debt is only 11% more of GDP than it was three decades ago. Its less than it was 20 years ago.
  • Total debt on the other hand has doubled. For whatever that’s worth.
  • The next table breaks down federal government revenues by source as a percentage of GDP for the same six years.

    Federal Receipts by Source as % GDP
    Year Individual Corporate Social Sec. Other Borrowing Total
    1980 9.0 2.4 5.8 1.9 2.7 19.0
    1986 7.9 1.4 6.4 1.7 5.0 17.5
    1992 7.6 1.6 6.6 1.6 4.5 17.5
    2000 10.3 2.1 6.7 1.6 -2.5 20.9
    2004 7.0 1.6 6.4 1.3 3.6 16.3
    2007 8.5 2.7 6.4 1.3 1.2 18.8

    Items of note:

  • In 2007 corporations contributed more revenue to the federal government than at any time over the last thirty years. Significantly more. I’ll examine this issue further, but I suspect we’ll discover that basic economic principles say that McCain’s corporate tax cut proposals are better than Obama’s leave them the same proposals.
  • In 2007, the federal deficit was not that bad. 2007 will be the high-point of this economic cycle, but I suspect that most economists would not have a real problem with an ongoing 1.2% federal budget deficit.
  • Between the Bush tax cuts and a recession, federal government receipts from individuals fell from 10.3% of GDP in 2000 to 7.0% of GDP in 2004.
  • The next table separates government spending into discretionary and mandatory spending.

    Federal Spending as % of GDP
    Year Discretionary Mandatory Offsetting
    Receipts
    Net Interest Total
    1980 10.1 10.7 -1.1 1.9 21.7
    1986 10.0 10.5 -1.0 3.1 22.5
    1992 8.6 11.5 -1.1 3.2 22.1
    2000 6.3 10.6 -0.8 2.3 18.4
    2004 7.8 11.7 -0.9 1.4 19.9
    2007 7.6 11.9 -1.3 1.7 20.0

    Items of note:

  • Federal government spending as a percentage of GDP fell from 22.5% of GDP in 1986 to 18.4 percent of GDP in 2000 and has since risen back to 20%.
  • Discretionary spending has gone from 10.1% of GDP in 1980, down to 6.3% in 2000, and back up to 7.6% in 2007.
  • Interest on the National Debt amounts to only 1.7% of GDP. In 2007, the deficit was 1.2%, meaning that taxes used to satisfy interest on the National Debt amounted to only 0.5% of GDP.
  • The next table is discretionary spending only.

    Discretionary Spending as % of GDP
    Year Defense International Domestic Total
    1980 4.9 0.5 4.7 10.1
    1986 6.2 0.4 3.3 10.0
    1992 4.8 0.3 3.4 8.6
    2000 3.0 0.2 3.1 6.3
    2004 3.9 0.3 3.5 7.8
    2007 4.0 0.3 3.4 7.6

    Items of note:

  • Defense spending has risen from 3% of GDP to 4% of GDP in the last seven years. Even then, in the middle of fighting two wars, it is 1/3 less than it was in 1986.
  • Defense aside, federal discretionary spending is only 0.3% more of GDP than it was in 2000.
  • Finally, we have mandatory spending.

    Mandatory Spending as % of GDP
    Year Social Security Medicare Medicaid Other Offsetting
    Receipts
    Total
    1980 4.3 1.2 0.5 4.6 -1.1 9.6
    1986 4.5 1.7 0.6 3.7 -1.1 9.4
    1992 4.6 2.1 1.1 3.8 -1.1 10 .4
    2000 4.2 2.2 1.2 3.4 -0.8 9.8
    2004 4.3 2.6 1.5 3.4 -0.9 10.8
    2007 4.3 3.2 1.5 3.1 -1.3 10.6

    Items of note:

  • Medicaire and Medicaid spending keeps growing and growing, from 1.7% of GDP in 1980 to 4.7% today.
  • John McCain

    So, what have we learned about McCain’s statements that the real problem is spending, not lower taxes?

    He is correct in that Federal spending as a percentage of GDP has risen from 18.4% of GDP to 20.0% of GDP. That’s an extra 1.6% for the math impaired. The source of that increase is obvious: Defense (+ 1.0%) and Medicare/Medicaid (+1.3%). All other government spending has fallen 0.7% during that time.