Government disaster is approaching...

Tim Zank is a smart Republican and a great participant of this blog. He strikes me as being both smart and well informed…

He has created a couple of posts asking me why I am so appalled by the fiscal ignorance of our politicians and the bleak economic future I predict.

This post will explain the problem… All of the statistics in this post come DIRECTLY from The Federal Government unless otherwise noted.

GDP is Gross Domestic Product. It is the easiest way to measure the size of the US economy. I think it is important for people to understand how much of the total US economy is spent by our Government. The more money the Government spends, the less money the rest of us spend…

Year % of GDP spent by Federal Government % of GDP spent by State and local
1947 14.8% 4.7%
1960 17.8% 7.1%
1983 (PEAK) 23.5% 10%
2003 19.9% 10.7%
2006 20.5% 10.8%

Since 1975 our government has spent an average of about 31% of the total GDP. During that same time the government has taxed at about 29% of GDP. This has caused the government to run at a deficit for a long time. This has caused the current National debt to approach 9 TRILLION dollars and most of the States, Cities, etc have their own debts to deal with that are not discussed here.

The Federal government spent the following percentage of GDP in 2006:
Total spent 20.5% of GDP
Total Entitlement Spending 10.9% of GDP
Spent on Defense 4% of GDP
All Other Discretionary Spending 3.5% of GDP
Interest on National Debt 1.7% of GDP
Homeland Security .2% of GDP
Katrina Relief .2% of GDP

The above does NOT count deficit spending for 2006. The Federal revenues are higher then expected, so we also borrowed another 1.9% of the total GDP and directly added that amount to The Federal Debt this year.

The above figures are taken straight from Federal Government sources and show a bleak picture for my kids and grand kids…

I am not sure which Party will be in power in a couple of years…

The Republicans are running national ads everyday talking about how The Democrats want to raise our taxes. If The Republicans retain power I think that taxes will stay the same and we will continue to spend more money and deficit spend. Spending has increased at an average annual rate of 7.8% per year under The Republicans…

If The Democrats regain power I think we will see a small increase in taxes and spending will remain about the same…

Assuming there is not a recession the economy grows every year. For the purpose of this next projection I am going to make some assumptions:

1. Federal taxes will stay about the same percentage as they have been in the past.
2. Federal spending will continue to grow at levels similar to that seen in the last 30
years.
3. The Federal Government will NOT cut Social Security, Medicare, or Medicaid until
the Country is nearly broke…
4. I assume the Federal Government will continue to deficit spend and will rack up a
massive national Debt rather then increase taxes or cut spending in any significant
way.

The below estimate uses the current actual projections used by The Congressional Budget Office for the next ten years. These assumptions assume that we will STOP spending a bunch of money overseas in Iraq or Afghanistan, that we will not start any new conflicts, that there will not be a major recession, and the Government will not start any new large Federal programs. Most importantly these assumptions assume that the Alternative Minimum Tax (AMT) will be allowed to eat into the middle class and not be fixed (NOTE this is a terrible assumption). These estimates also assume that the Government will start trimming spending on many items which has not historically been the case…

The projected national Debt will have risen to 18 trillion dollars. It will more then double in the next ten years.

The Federal government would spend the following percentage of GDP in 2016:
Total spent 21.5% of GDP +1% over 2006
Total Entitlement Spending 12.1% of GDP +1.3% over 2006
Spent on Defense 3.7% of GDP .3% under 2006
All Other Discretionary Spending 3.2% of GDP .3% under 2006
Interest on National Debt 2.3% of GDP +.6% over 2006
Homeland Security .2% of GDP No change

Today the United States has a GDP of 13 trillion dollars. Our debt is about 67% of our GDP.
The Congressional Budget Office is predicting a GDP of 20.8 trillion dollars. Our projected debt will have grown to 87% of GDP. In other words we will be even more in debt in ten years then we are now. We will be passing even more debt on to our children…

This ten year projection should scare the crap out of you! The assumptions of the CBO are way too optimistic and I think we will be in a worse position then they are projecting. I do not even want to think about what interest rates will be… They are assuming they will remain near historic lows forever…

Per the Congressional Budget Office:
The total cost of Entitlement spending will hit 18.9% of GDP by 2050 and Federal Program spending is projected to hit 27.6% of GDP by 2050.
The CBO projects that interest on the debt and deficit spending will consume another 9% of GDP by 2050.
So the CBO is projecting we will spend 36.6% of GDP per year. Note this assumes the economy grows by over 4% a year, no foreign conflicts, no new tax cuts, not fixing AMT, and that The Government will start cutting spending… Also they are projecting that interest rates will stay near historic lows for the next 45 years! None of which are a good bet unless we elect Libertarians…

I look forward to reading your comments…