Center on Budget and Policy Priorities

Budget — Federal

Federal Spending Target of 21% of GDP Is Inappropriate Benchmark

Some have suggested that the President’s Commission on Fiscal Responsibility and Reform should target spending at no more than 21 percent of GDP, the historical average of the last four decades.

Such recommendations, however, fail to take account of fundamental changes in society and government — the aging of the population, substantial increases in health care costs, and new federal responsibilities in areas such as homeland security, education, and prescription drug coverage for seniors. These factors make the expenditure levels of several decades ago inapplicable today.

Targeting federal expenditures at their average level for decades back to 1970 risks draconian cuts in Social Security, Medicare, and an array of other vital federal activities.

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Causes of Today’s Large Deficits

“Some critics continue to assert that President George W. Bush’s policies bear little responsibility for the deficits the nation faces over the coming decade — that, instead, the new policies of President Barack Obama and the 111th Congress are to blame. Most recently, a Heritage Foundation paper downplayed the role of Bush-era policies…. Nevertheless, the fact remains: Together with the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.”

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Topics

Basics

The federal budget outlines the U.S. government’s spending plans for the coming fiscal year and how it plans to pay for that spending. The three biggest areas of federal spending in 2007 were defense and security, Social Security, and public health insurance programs, each of which made up roughly one-fifth of the budget. About 75 percent of the money used to pay for these programs came from individuals, through income and payroll taxes. Most of the rest came from business owners, though 6 percent came from borrowing.

Policy Basics:
- Where Do Our Tax Dollars Go?
- Introduction to the Federal Budget Process
- Deficits, Debt, and Interest
- Congress's "Pay-As-You-Go" Budget Rule

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James Horney

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The Center informs the debate over federal budget priorities by analyzing the President’s budget and major congressional proposals throughout the annual budget process. We pay particular attention to the adequacy of funding for programs that assist low- and moderate-income families. We also analyze long-term budget challenges and measures to address them. In addition, we promote measures to improve fiscal responsibility.