Fund Your Utopia Without Me.™

01 February 2013

Austerity? Federal Spending Set To Climb 2% This Year

Political Cartoons by Nate Beeler

By John Merline

In the wake of Wednesday's news that the economy contracted slightly in the last three months of 2012, Senate Majority Leader Harry Reid laid the blame on budget cuts.

"The economy was rejecting the austerity and brinksmanship," he said.

That theme — that spending cuts are putting economic growth at risk — has been gaining traction these days, particularly among those on the left.

Rep. Chris Van Hollen, D-Md., said the GDP drop showed that pushing "big austerity measures now will hurt the recovery."

Former Obama economic adviser Jared Bernstein asserted U.S. policy has been based on "austerity at (a) time when we need a fiscal push."

And the liberal Center for American Progress complained that "fiscal austerity threatens the U.S. economy."

On the surface, it might look that way.

In its GDP report, for example, the Bureau of Economic Analysis said government spending dropped 6.6% in Q4. And unless Congress acts, more than $1 trillion in automatic spending cuts will start to kick in as part of the so-called sequester.

But dig a little deeper, and there's little to back up all this austerity talk.

Spending: Up

According to monthly spending data from the Treasury Dept., total federal spending — which includes transfer payments and other federal outlays not counted by the BEA — increased by $98 billion in Q4 compared with Q3. And spending was up $31 billion when compared with Q4 2011.

For the entire year, spending in 2012 was virtually unchanged from 2011, and was up $86 billion over 2010, a year when the government was still spending stimulus money in earnest.

Plus, the "fiscal cliff" deal worked out between President Obama and the Republicans actually added almost $50 billion to planned spending in 2013, and a total of $332 billion over the next decade, according to the Congressional Budget Office.

Almost half of the 2013 increase will go to pay extended unemployment benefits, which Democrats have long argued are highly stimulative.

Reid himself has said that unemployment benefits "help our economy because recipients spend the cash they receive on the things they need right away."

In addition, even if the "sequester" should go through, federal spending will continue to climb.

No Real 'Cuts'

In fact, if nothing else changes, spending in 2013 will be $3.6 trillion, an increase of nearly 2% over 2012, according to data from the CBO. That's because the sequester's "cuts" are actually just reductions in planned spending hikes.

Nor is the federal government operating anything close to an austere budget when looked at as a share of the economy. According to the CBO, spending this year will account for 22.4% of GDP, a level reached only eight times since 1946 — four of which occurred under Obama.

Plus, the government keeps running massive deficits, which are also supposed to be stimulative. Deficits topped $1 trillion in 2012 — for the fourth year in a row — and are on track to reach that level again this year.

And the government has already racked up $292.4 billion of deficits in just the first three months of the 2013 fiscal year, which began last October, according to a Treasury report.

Another way to look at it is: Federal spending in 2012 was $121 billion higher than it would have been had the government just been left on autopilot during Obama's entire first term.

And it will be $23 billion higher this year.

Nor has austerity gripped state budgets, despite often repeated claims of "draconian" state spending cuts. In fact, state "general fund" spending climbed 3.4% last year and 3.5% the year before that, and is expected to increase 2.2% this year, according to the National Association of State Budget Officers.

Total state spending in 2012 was 12.5% higher than it was in 2008, NASBO data show.

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