Spending Projections and Spending Reality

The President’s budget was released this week. Since 2009, spending as a share of the economy has been at an all-time, post-WWII high. As a share of the economy, spending averaged 20.8 percent from 1970 to 2010. In FY2011, it is projected to be 25.3 percent (or 22 percent above average). According to the CBO’s alternative fiscal scenario, it will reach 35.2 percent by 2035.

Not to worry, though, the White House Office of Management and Budget projects that—starting around 2012—things will turn around. Through a combination of rapid economic expansion (they assume nominal GDP will grow at an average annual rate of 5.6 from 2012 to 2016) and “responsible” budget cuts, they plan to get spending as a share of the economy down to around 22.5 percent by 2013. (They do not foresee spending ever returning to its historical average).

What are the odds they will succeed?

As one data point, the curious may want to see what the OMB was projecting two years ago when the spending spree began. My colleague, Jakina Debnam, and I do just that with this chart. Two years ago, they were promising that the spending increase would be “timely, targeted, and temporary.” As such, they projected that in 2011, spending as a share of the economy would already have fallen to 23.4 percent.

This is nearly 2 percentage points lower than they now are willing to countenance.

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