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  • Another Year of Trillion-Dollar Deficits

    Preliminary figures from the Congressional Budget Office (CBO) show that Washington ran a $1.291 trillion deficit in 2010, just slightly less than last year’s $1.416 trillion.

    To put these figures in perspective, the annual budget deficit between 1789 and 2008 never reached $500 billion. As a percentage of the gross domestic product (GDP), the past two years’ deficits of 10.0 and 8.9 dwarf all other deficits since World War II.

    Recession-damped revenues continued to contribute to the budget deficit, coming in at 14.7 percent of GDP. However, low revenues are only a temporary contributor to the budget deficit. CBO data shows that once the recession ends, revenues should converge back toward their historical average of 18 percent of the economy.

    The surging spending will likely be permanent. Federal spending this past year reached 23.6 percent of the economy, which, along with last year’s 25.4 percent, are the highest spending levels in American history outside of World War II. And President Obama’s budget would permanently maintain federal spending at these high levels.

    Putting these revenue and spending trends together shows that long-term deficits will be driven exclusively by above-average spending. After all, if revenues revert back to their historical average, yet spending remains 5–6 percent of GDP above its historical average, then it will not take a mathematician or economist to determine which variable is driving the deficit upwards.

    Spending dipped 2 percent in 2010, from $3.520 trillion to $3.453 trillion. Unfortunately, this was not the result of actual, repeatable spending restraint. After costing $154 billion in 2009, repayments to TARP lead to a $108 billion “profit” this past year. The cost of bailing out Fannie Mae and Freddie Mac dropped from $91 billion to $40 billion. Deposit insurance costs declined $55 billion. Each of these savings represents one-time offsets from the cost of previous financial bailouts. These better-than-projected results should not, however, be confused with good policy.

    The rest of the budget leaped 9 percent last year, driven by steep cost increases in Medicaid, unemployment benefits, and other “stimulus”-related costs. Over the past two years, Medicare costs have jumped 16 percent, Medicaid spending has increased 36 percent, and unemployment costs have soared 272 percent. And under President Obama’s budget, federal spending is set to continue growing, especially with the implementation of Obamacare.

    Current spending trends are set to double the national debt and leave permanent trillion-dollar deficits. Responsible lawmakers who wish to avoid drowning future generations in taxes and debt should enact immediate spending cuts while also beginning fundamental Social Security and Medicare reform.

    Posted in Economics [slideshow_deploy]

    13 Responses to Another Year of Trillion-Dollar Deficits

    1. George Colgrove, VA says:

      According to the graph, lets get spending back to 2000 levels and not the 2008 as proposed by the GOP. It was the only time revenues topped spending. With that formula, we can pay down the debt and reduce taxes at the same time.

    2. hsr0601 says:

      Equation :

      Depression : New Deal = Great Recession : Stimulus Package (Groundwork) + Incomplete Energy Independence or A Jobs law

      The Problem = The destructive war & military waste + Stimulus Package

      Therefore = Incomplete Energy Independence or A Jobs law – The destructive war & military waste

      Criticism = Stimulus Package (Groundwork)

      Conclusion = Gambling on Iraq Oil + weapon sell Again + Double-dip Depression

      Cure = Slashing the destructive war & military waste + Completion of Energy Independence or A Jobs law

      Anger at These :

      ?

      Gambling on Iraq Oil Again : A Drop in the Bucket Vs. Growing Population & Demand World-wide. The Age of Cheap Oil = A Thing of the Past.

      ?

      1. At this time, it looks like the oil-friendly country is gambling on Iraq oil again, citing a big government & deficit, and therefore the world-wide stimulus package worth trillions and health care reform in America are now at stake.

      ?

      2. Of the money by the money for the money is getting a society nowhere near prosperity.

      Gambling on party of "no idea" is sure to be much like Throwing an Egg of Economy Against a Rock.

      ?

      The outcome of government take-over :

      ?

      1. In banking industry, the result of government take-over is big bonus parties backed by the tax-payer's invaluable cash.

      ?

      2. In healcare reform, the outcome of government take-over is to dump ill children when needed most.

      ?

      3. In oil spill, the administration should be held responsible for its deregulation, urging a big government

      ?

      Chanting deficit :

      ?

      1. Amid chanting deficit, the same old failed policy.

      ?

      2. Amid chanting deficit, hands-off approach over huge trade deficit from oil money spill & trade imbalance with China from remorseless health care premium.

      ?

      3. Unfortunately, as a direct consequence of remorseless health care premium, numerous folks have no choice but to hang onto affordable offerings, since one in two households is said to face a hard decision between necessity & drug.

      ?

      4. Inaction cost in relation to health care reform totals $9trillion over the next decade.

      ?

      5. Over the next 10 years, total Bush tax cut costs will equal $3.9 trillion, …. the tax cuts would increase deficits by nearly $4 trillion between 2005 and 2014.

      ?

      The most critical debt : Personal Bankruptcy

      ?

      1. The current recession came from Personal Bankruptcy largely as a consequence of the relentless health care costs, pain at the pump, and the subsequent subprime mortgage crisis.

      ?

      Facing huge trade deficit from oil money spill & trade imbalance with China, the primary economic policy of previous administration was " spending baby "to the great delight of republicans' sponsors.

      ?

      2. By comparison, the recovered stock market value alone, around $1.5 trillion, is nearly twice as much as the stimulus package, set aside all the other benefits.

      ?

      As always, the republicans and unqualified media let folks locked in a box. ruling out the positive effects.

      ?

      ?

      The most promising deficit-cut of government : Slashing the destructive war & military waste

      ?

      1. Slashing the destructive war & military waste alone supposedly could be enough to balance the budget.

      ?

      ?

      Energy Independence : An Only Way to Desperately-Needed Job Growth

      ?

      1. My response to the question : where are jobs ?

      In the trade deficit, exactly in the severe and persistent oil money spill, taboo of " do not add to the deficit" party.

      ?

      2. Under the existing Bush tax cut for lavish bonus parties, a sole job plan for the republicans, the country already saw millions of job cuts.

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    10. David, Seattle,WA says:

      I like the idea. But also getting rid of regulations which have been enacted since 1990 should also be considered. Regulations that cost more money to the company to comply than any gain from doing the regulation. Or cleaning up regulations so that the cost to businesses in the Nation which currently cost businesses over a trillion dollars a year. If they had an increase in profits of a trillion dollars Look at the tax dollars that would roll in.

      Regulation reform should be high including the spending cuts. 2008 is a base but Goal is 2000. The areas where this can not take place are Medicare and SSN. But they are considered off budget items but moderate reform can make a big difference in their costs.

      Plus the politicians have to sell the idea we are saving our childrens future by taking control of the spending expansion. Sure Democrats will claim we are killing the children. OR Killing Grandma. All they have to point to is we make tough choices now and be considerate of various things. But GOvernment has gotten too big. Also Total number of employees in Government should be lowered to 1990 levels. That will be a big lower in costs. Essential groups protected and those agencies that provide no value to improve the life of American people would be cut in half immediately. And they have to prove they are doing something good for the Country overall.

      The business climate has to be improved and get the feds out of the way.

    11. Stirling, Pennsylvan says:

      Until the government gets serious about "cutting" both spending AND taxes the result will LESS revenue and HIGHER deficits. History shows that those that HAVE money will move it elsewhere when they are being targeted by the government.

    12. walter, Raleigh says:

      The large, permanent and growing gap between spending and taxes proposed and being pushed by Obama and the Democrats is the reason why they love the idea of a VAT style tax. According to the graph, historical tax policy will not generate more than 19-20% tax revenue as a percent of GDP, it has a big impact upon the growth rate of GDP which impacts total tax dollars. So in order to generate more tax revenue as a percent of GDP one needs a whole new tax tool and thats where the VAT comes in. A 5% VAT will have a significant negative impact upon the economy and its growth rate but it will generate more revenue but no where near whats required to close this humongous budget gap.

      Recall that debt=(spending-tax collections) and tax collections is a limited and finite quantity controlled by the tax payers through their actions, whereas the spending is an unbounded and limitless number controlled by the politicians. One must and always has to get spending under control. I feel we need a bill to tie congressional spending to a percentage of the average of the prior years GDP only over ruled by a super majority vote as unique circumstances require (war).

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