Justin Fox, blogging at Reuters, has provided an insightful look at the current Federal deficit which was $1.294 trillion for the recently concluded 2010 fiscal year ($2.162 trillion in receipts v. $3.456 trillion in expenditures). As he notes, and is illustrated in the chart below, current expenditures grew at a quicker pace from 2008 to 2010 then they did from 2000 to 2007. While this has contributed to the large recent deficits, expenditures are only half of the deficit equation. Also significantly contributing to the recent shortfalls are the dramatic drop in yearly tax receipts since 2007.
Justin asks the question, is the deficit mainly the result of the collapse in tax receipts or the increase in expenditures? His answer:
In my no-financial-crisis, no-bailout, no-recession, no-stimulus scenario, spending kept growing at 6.22% a year, and revenue kept growing at 3.45% [the trend from 2000-2007]. You can see from the difference between the two numbers that this was an unsustainable path. But it clearly could have been sustained for a few more years.
Where would it have left us in fiscal 2010? With $2.843 trillion in federal revenue and $3.270 trillion in spending, leaving a deficit of $427 billion. The actual revenue and spending totals for 2010 were $2.162 trillion and $3.456 trillion. So spending was $186 billion higher than if we’d stuck to the trend, and revenue was $681 billion lower. In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending.In the end the large deficit and rising level of U.S. debt is a combination of three factors, an unsustainable deficit trend stretching back to 2000, an increase in expenditures and a dramatic decrease in tax receipts.