With the debt ceiling debate over, now is a good time to step back and look at the federal government’s spending history. Table 1 displays Expenses and Receipts as a percentage of Gross Domestic Product (GDP) for Fiscal Year (FY) 1900-2015. FY2011-2015 numbers are estimates taken from the Executive Office of Management and Budget (OMB) FY2011 budget proposal.
To provide a bit of prior historical context, the U.S. was in good financial shape in 1900. The FY1900 debt of $2.1 billion was 11% of GDP (we were at 92% at the end of FY2010). Expenses were 2.7% of GDP, a bit lower than the 3.2% historical average from FY1791-FY1899.
The chart reveals a few interesting patterns. As we’d expect, major wars are expensive (e.g., WWI, WWII) - as was the Great Depression and, seemingly, the Cold War efforts of President Reagan in the 1980s. Another interesting pattern is the sustained rise in spending relative to the economy. Since 1975, annual expenses have averaged 20% of GDP (with a 23% average during the last 3 years). Compare that to FY1900-FY1974, when annual expenses averaged 12% of GDP - and that includes both World Wars. Since 1975, we’ve had only 4 surpluses – meaning we balanced our budget 1 out of every 9 years. If we remove the surpluses from the Social Security/Medicare receipts that were never actually invested, we haven’t had a balanced budget since 1957.
Is this a spending problem, or an income problem? In my next several posts, I will drill into the different receipt and spending categories. In the meantime, visit www.UnderstandingTheUSDebt.com to learn more.