What better way to kick off Barack Obama’s first full budget year as President than with a deficit that exceeded the White House’s own projections as well as analysts’ expectations? The federal government busted the budget worse than last October by $20 billion with a deficit of $176.36 billion for the month. That used to be considered a decent deficit target … for an entire year:
The federal government kicked off fiscal year 2010 by posting its widest-ever October budget deficit, the Treasury Department said Thursday.
The $176.36 billion gap is more than $20 billion wider than the shortfall recorded in October 2008, driven up by lower tax receipts, stimulus-related revenue reductions and consistently high government outlays.
Treasury’s monthly budget statement shows receipts were $135.33 billion in October, down 18% from a year earlier and at the lowest level since October 2002. Meanwhile, outlays were $311.69 billion, down 3% from a year earlier and at their second-highest monthly level on record.
When revenues drop 18% and outlays only drop 3%, it’s not hard to hit record deficits. It’s roughly four times as large as September’s deficit, which closed out FY2009 with an annual deficit just under $1.4 trillion. September’s deficit of $46 billion will serve as a nostalgia point in the coming months of the FY2010 budget.
Higher deficits mean more borrowing. More borrowing means more debt service. As deficits continue to rise, the federal government will have to direct more and more of its revenues to paying the interest on the accumulated debt. In September, that came to over $17 billion — just for the interest, not for principle reduction. Investors Business Daily warns that Obama’s spending spree will eventually force Washington to spend 40% of its revenues on debt service:
Here is one key datapoint: From 2008 to 2019, federal revenues are projected to grow by $1.45 trillion, but extra interest payments on the public debt of $550 billion will soak up nearly 40% of those extra tax dollars.
Here is another: Consider that in 2008, Washington spent about half as much on interest payments ($253 billion) as it did on the nondefense programs that it budgets on an annual basis ($508 billion).
Those nondefense outlays cover homeland security, education, job training, housing assistance, veterans’ health, science, workplace safety, transportation, the environment and foreign aid.
But by 2019, interest costs would reach $800 billion under the Obama budget compared with $720 billion in spending on nondefense discretionary programs.
From 2008 to 2019, interest costs are projected to grow more than twice as fast as the economy, from 1.8% of GDP to 3.8%. That extra 2% of GDP is roughly equal to the projected cost of Medicaid in 2019.
In other words, we’ve created a new entitlement program equal to Medicare, and with about the same financial stability. And the problem will get worse as government creates new programs in health care, energy production, and more. The inefficiencies of government programs will force the government into ever-increasing borrowing.
Obama now says he wants to attack the deficit, but without serious spending cuts and reduction in the size of government, any such reductions would have to rely on heavier taxation — which would kill the economy, reduce federal revenues, and put us even further behind on debt reduction. The only way to fix the problem is to dismantle Leviathan, and unfortunately Obama is headed in the opposite direction.