'Get serious' on debt, Obama told
WASHINGTON —Senate Republican leader Mitch McConnell says it's time for the president to “get serious about spending.” The budget numbers suggest President Obama has — with beneficial effects on the deficit.
Federal outlays over the past three years grew at their slowest pace since 1953-56, when Dwight D. Eisenhower was president. Expenditures as a share of the economy sank last year to 22.8 percent, their lowest level since 2008, according to Congressional Budget Office data. That's down from 24.1 percent in 2011 and a 64-year high of 25.2 percent in 2009, when Obama pushed through an $831 billion stimulus package.
“If you strip out the stimulus, discretionary spending over the last few years has been quite modest and is scheduled to go to levels we haven't experienced in modern times,” said Robert Reischauer, a former director of the CBO. “Obama signed on to that,” partly in response to Republican pressure.
The slowdown in government spending has helped bring down the budget deficit, especially when measured against the size of the economy.
The shortfall fell to $1.1 trillion, or 7 percent of gross domestic product, in the 2012 fiscal year ended Sept. 30, from $1.3 trillion, or 8.7 percent of GDP in 2011. In fiscal 2009, it was $1.4 trillion, or 10.1 percent of the economy, the highest since World War II.
The deficit probably will fall to $500 billion, or just below 3 percent of GDP, by 2015, as businesses and consumers step up their spending since bringing their own debts down, said Jan Hatzius, chief economist at Goldman Sachs. The improving economy will increase tax receipts while lowering government expenditures for benefits including food stamps and unemployment compensation.
“Concerns about the federal deficit are likely to diminish over the next few years,” the New York-based economist wrote in a Jan. 11 report to clients.
Michael Darda, chief economist at MKM Partners in Stamford, Conn., says much the same. He blamed the elevated budget gap on the recession and the slow recovery that followed.
“In the next few years, if growth really picks up, the deficit will simply melt away” to low levels, he said.
A budget gap of about 3 percent of GDP, such as Hatzius envisions, would be enough to stabilize federal debt as a share of the economy, said Donald Marron, who was acting CBO director in 2006 and who heads the Urban-Brookings Tax Policy Center in Washington.
Outstanding marketable debt, which excludes bonds held by the Social Security pension fund and other government entities, stood at $11.3 trillion, or 73 percent of GDP, on Sept. 30, according to the CBO. As a share of the economy, that's the most since 1950.