Team Obama says the President’s budget would reduce the deficit.  CBO says the President’s budget would increase the deficit.  What the heck is going on?  Who is right?

Let’s use Budget Bubble Graphs to see if we can understand what’s going on.

We begin by reminding ourselves that federal spending, taxes, and budget deficits have remained surprisingly stable over time.  Over the past fifty years the federal government has, on average:

• taken 18.0% of GDP in taxes;
• spent 20.3% of GDP; and
• run a deficit of 2.3% of GDP.

While there are annual fluctuations and short-term trends, these long-term averages are incredibly stable.  I believe they represent a sort of implicit political consensus about the appropriate role of government in American society, or at least a roughly stable political balancing point.

One lonely bubble

Here is that 50-year average on a simple Budget Bubble Graph.  As always, you can click on any graph to see a larger version.

As a reminder, the 20.3% of spending is plotted on the x-axis.  This 20.3% of spending must be apportioned between current taxes and deficits (= future taxes).  On average, we have collected 18.0% in current taxes, which we graph on the y-axis.  The 2.3% average annual budget deficit over the past fifty years is represented by the size of the bubble.  That size won’t mean much until we have another bubble for comparison.

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