Yesterday the Treasury Department released federal budget data through April, and they weren't pretty. The deficit in April was $82.7 billion, the worst April on record and almost four times larger than a year ago. Normally, tax revenues in the month of April create surplus, but spending has been so out of control over the past couple years, that April has been in deficit for the past two years. Not since 1983 has this happened. Most journalists and pundits were quick to cite the drop in revenues as the cause for the large deficit. But the problem isn't revenues, it's spending. Federal outlays in April were the third highest month on record.
For a little perspective on just how big this deficit is, so far for the 2010 fiscal year (October through April), the federal government has spent $800 billion more than it has brought in. If the fiscal year were to end right now, 2010 would go down as the world's second largest deficit ever. From 1960-2007, the federal government ran an average annual deficit of $96.3 billion. By comparison, the deficit for just the first seven months of the 2010 fiscal year is over eight times larger than this long-term average.
The deficit outlook for the rest of 2010 is not improving very much. While First Trust projects a deficit slightly less than $1.5 trillion for the full 2010 fiscal year, the Obama Administration projects a record deficit of $1.56 trillion. The difference is that we expect more revenues as the V-shaped recovery continues.
But, no matter how much revenue picks up as the economy recovers, there is no time in history that the US has been able to raise much more than 20% of GDP in taxes. So, as long as spending remains at 24% of GDP or above, monster deficits will be a fixture as the Treasury repeats its data, month after month. If we want to solve the deficit issue, spending cuts are absolutely essential.
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Posted on Thursday, May 13, 2010 @ 2:05 PM
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