Comparing 2010 and 2013 Federal Government Spending

Late last week, the Washington Post's David Fahrenthold published a piece claiming that "big government is mostly unchanged" since 2010, when lawmakers turned their attention towards fiscal issues and Republicans took control of the House. One of the facts Fahrenthold used is the nominal dollar level of spending, which is roughly the same in 2013 as it was in 2010 ($3.455 trillion versus $3.457 trillion, respectively). Some commentators took issue with using this measure to show that there was little change in the size of government, since it does not account for inflation or express figures against the size of the economy (although it does say that the inflation-adjusted decline in spending is about 5 percent). Using those measures would show federal spending shrinking in the past three years. In this blog, we'll take a close look at these numbers and provide additional context.

Meaningfully comparing numbers from recent years can be difficult due to the effects of the Great Recession and the resulting policy response. A number of temporary factors can greatly affect the numbers when removed. For example, the graph below shows outlays in billions of dollars and outlays excluding "automatic stabilizers" which are automatic policy responses to the business cycle, the 2009 stimulus, TARP, Fannie Mae and Freddie Mac support, and extensions of unemployment insurance. The numbers are presented both in nominal dollars and inflation-adjusted 2013 dollars. As you can see, the lines tell different stories, with a smoother growth rate of federal spending when the financial and fiscal response to the Great Recession is removed.

^{Source: CBO}

It is true that the more common way to compare budget numbers across different years is as a percentage of GDP (adjusting numbers for inflation is another way). In that case, spending has declined by 2.6 percentage points, from 24.1 percent of GDP in 2010 to 21.5 percent in 2013. This decline has occurred in both discretionary and mandatory spending, although 70 percent of the decline is concentrated in the discretionary portion. Interest spending as a percent of GDP has remained roughly stable as lower interest rates have offset the increase in debt. 

^{Source: CBO}

If we were to examine the nominal dollar calculations, though, there are a few things to consider. One thing, which we have pointed out before, is that financial-type spending, particularly for TARP and the FDIC, may distort some of these totals. In 2010, TARP recorded a huge negative outlay of $110 billion as the CBO drastically adjusted their cost estimate of the program downward. In addition, the FDIC required that member banks prepay premiums for the next three years, a timing shift which showed up in FY 2010. These temporary factors resulted in a $140 billion swing which essentially deflates 2010 spending relative to 2013.

There are also factors which have the opposite effect, mostly related to stimulus spending and the recession. Some temporary discretionary stimulus spending would show up in 2010, but would have mostly been spent by 2013. Some other programs, in particular unemployment insurance and Medicaid, have a lower nominal level of spending since 2010 as temporary stimulus spending has expired or economic conditions have resulted in lower outlays.

There have been many other non-stimulus/recession-related factors which come into play as well. The spending caps and sequester adopted in 2011 have been reducing discretionary spending. In addition, war spending has continued to decrease, with that effect also showing up in the discretionary budget. Social Security and Medicare spending have continued to increase, although the pace of the growth of the latter has slowed in recent years. It remains to be seen whether the Affordable Care Act, as it takes effect, or other structural health care changes will play an even greater role in slowing the growth of health spending.

Note: All spending-to-GDP ratios use old GDP numbers since CBO has not officially released budget data for 2013 with the new GDP numbers.