Wednesday, October 17, 2007

Update on the Federal Budget

This graphic, from the homepage of the Congressional Budget Office, shows estimated year-to-year growth rates in federal outlays and receipts.

The figures do not correct for inflation, nor do they take into account population growth or economic growth. A natural comparison is to the growth rate in nominal potential GDP, which is about 5 to 6 percent. For example, in 2005 and 2006, outlays were growing faster than this benchmark, so the government was growing relative to the economy. In 2007, outlays were growing less rapidly, so government's share of the pie was shrinking.

Also, CBO reports,
the federal budget deficit was about $161 billion in fiscal year 2007, $87 billion less than the shortfall recorded in 2006. Relative to the size of the economy, that deficit was equal to 1.2 percent of gross domestic product, down from 1.9 percent in 2006.
For comparison, note that the average budget deficit over the past forty years is about 2.4 percent of GDP.

Of course, there is still a looming long-run fiscal gap. The short-run fiscal picture, however, does not look historically anomalous.