The Consequences of U.S. Government Expenditures Outpacing Revenue

One fact of little debate is the U.S. continues to spend at a rate far outpacing the amount of revenue it receives. The consequence of this level of spending is the U.S. government continues to take on a greater amount of debt each year. Further complicating this mismatch between revenue and expenditures is the level of "mandatory" expenditures is growing at a 7% rate according to the OMB. A recent report by Charles Schwab and Argus Research notes:

• Government outlays soared from 20.1% of GDP in the last Bush term to 24.4% in 2009-12. Meanwhile, government receipts fell from 17.9% of GDP in the last Bush years to 15.3% in the Obama years.

• Over half the drop in receipts has been due to lower payroll taxes.

• After 2013, the Office of Management and Budget projects interest on publicly held debt will jump
  from 8.8% to 14.5% of total receipts.

• OMB also projects that “mandatory” federal spending will rise at a 7% annual rate, from 2011 to 2017— as fast as it did in the past six years.

• The deficit is expected to decline to 3% of GDP over time, but that is based on the assumption that individual and corporate income taxes rise by rates of 10% and 17%, respectively.

From The Blog of HORAN Capital Advisors