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Inflation-Adjusted Federal Spending Has Fallen Under President Obama

October 20, 2016

It is an article of conservative faith that federal spending under President Obama is "out of control." As the 2016 GOP Platform states in an amazing revision of recent history:

The Administration's policies systematically crippled economic growth and job creation, driving up government costs and driving down revenues. When Congressional Republicans tried to reverse course, the Administration manufactured fiscal crises -- phony government shutdowns -- to demand excessive spending.

As the data and history show, every claim in those two sentences is flat-out wrong. (As an aside, don't overlook the 800-pound donkey in the room: the economy almost always performs better under Democratic presidents.) And just last week, the nonpartisan Congressional Budget Office once again demolished the last one. Taking inflation into account, federal spending has actually declined under Barack Obama.

Of course, that truth is not apparent from the recent headlines. While the Wall Street Journal predictably warned "U.S. budget deficit rose in fiscal year 2016, first time in five years," the Associated Press led with this cautionary note:

The government ran a $587 billion budget deficit for the just-completed fiscal year, a 34 percent spike over last year after significant improvement from the record deficits of President Barack Obama's first years in office.
Friday's deficit news, while sobering, does not appear bad enough to jolt a gridlocked Washington into action to stem the flow of red ink.

But there's good reason that action isn't called for now. Even with outlays exceeding tax revenue by $600 billion, deficits of 3 percent of GDP and persistent low interest rates on U.S. Treasury bonds, Dean Baker of the Center for Economic and Policy Research explained, "It's totally manageable. There's literally nothing there to worry about." (It's also worth noting that the larger deficit in FY 2016 was largely the predictable result of the December 2015 deal on so-called "tax extenders" which will drain $650 billion in revenue over the next decade.")
In its report on monthly spending in September, CBO delivered its preliminary assessment that FY 2016 outlays would rise to $3.86 trillion dollars, up from $3.69 trillion in 2015. Revenues, meanwhile, are expected to reach $3.27 trillion, compared to $3.25 trillion last year. But taking inflation into account by using constant FY 2009 dollars (see OMB historical table 1.3) shows a different picture. At, $3.42 trillion, inflation-adjusted FY 2016 spending will still be lower than on Barack Obama's first inauguration day. As I noted previously:

On January 7, 2009, CNN reported on the latest long-term budget forecast from the CBO. Two weeks before President Bush ambled out of the Oval Office, CNN explained "the U.S. budget deficit in 2009 is projected to spike to a record $1.2 trillion, or 8.3% of gross domestic product." With the recession in full swing and the massive TARP program passed the previous fall, CBO predicted in January 2009 that federal spending would spike to $3.543 trillion dollars while tax revenue would plummet to an anemic to $2,357 trillion. As it turned out, the final deficit figure for the 2009 fiscal year which ended on September 30, 2009 reached $1.413 trillion because of worse-than-expected tax collections ($2,105 trillion.)

If you're looking for a big spender, look no further than George W. Bush.
Several other points in recent CBO data are worth highlighting. Simply put, Washington does not have a near-term spending problem. As a share of the U.S. economy, non-defense discretionary spending (that is, everything outside of Medicare, Medicaid, Social Security, the Pentagon and interest on the national debt) is already at its lowest level in 50 years. As CBO has repeatedly shown,Obamacare reduces the national debt. It is the aging American population in general and Medicare spending in particular (along with a presumption of higher interest rates on the national debt) that causes deficits to begin to increase again starting in FY 2019.

If anything, Barack Obama has been a tax-and-not-spend liberal. After all, stimulus spending largely ended by 2011. Over 40 percent of that $800 billion program was tax cuts. Annual deficits have been slashed by two-thirds during Obama's presidency. The good news is that the higher income and capital gains tax rates on the rich that Obama signed into law in 2013 have refilled the United States Treasury, but as predicted had no negative impact on economic growth and job creation. But as has been documented elsewhere, the recovery from the Great Recession would have been quicker and more robust if the federal government had spent more to offset the "anti-stimulus" of shrinking state and local governments. As the Economic Policy Institute lamented in a recent analysis, it is that austerity which has made the recent recovery the slowest in four decades:

All of which is why President Obama isn't a big spender. He is, however, the man who saved the American economy despite the Republicans' all-out effort to kill it.


About

Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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