Republicans love to claim they will cut “out-of-control” federal spending. They say it often enough many believe out of control spending actually exists.
Except it doesn’t.
Since Ronald Reagan took office in 1981, there has been insignificant growth in federal outlays as a percentage of gross national product.
In fact, excluding Social Security and Medicare spending, the rest of the federal government has shrunk when compared to our economy as a whole.
The Federal Reserve Bank of St. Louis keeps track of federal outlays in a handy graph. (See illustration.)
In 1981, federal spending was 21.2% of gross national product (GDP). In 2023, federal spending was 22.1% of GDP.
So, yes, federal spending has inched up almost 1 percentage point of GDP over 42 years.
But the story is a bit more complicated. As the baby boomers have aged and retired, spending on Social Security and Medicare have increased. From 1981 to 2023, Social Security benefits increased from 4.5% of GDP to 5.1% of GDP. The growth of Medicare spending was even more dramatic, from 1.4% of GDP in 1981 to 3.8% in 2023. Taken together, Social Security and Medicare spending, as a percentage of GDP, increased by 3%.
This means that federal spending on everything else — defense, environmental protection, law enforcement, border security, Medicaid, Food Stamps, the Inflation Reduction Act, interest on the national debt, and more — decreased from 15.3% of GDP to 13.2% of GDP.
This trend is reflected in the size of the federal workforce. In 1981, when Reagan took office, we had 2,961,000 federal employees. In December, 2024, federal employees totaled 3,010,000. From 1981 to 2024, the U.S. population grew by 50%, but the number of people employed by the government to serve that population barely grew at all.
The growth in outlays for Social Security and Medicare is not a surprise. Everyone knew that when the baby boomers retired, spending for those retirement programs would expand enormously, so we planned for that. In 1983, President Reagan signed bipartisan legislation that increased the Social Security tax rate, and delayed the full retirement from age 65 to age 67. Social Security ran a surplus for over 30 years.
The interesting question is: How can the federal deficit be so huge if Social Security ran a surplus for so many years, and the rest of the government has grown more slowly than the economy?
The answer becomes clear when you look at both spending and revenue. The federal deficit is mostly due to decreased revenue, not increased spending.
In 2000, federal tax receipts were 20% of GDP, and the federal government enjoyed a surplus. In 2023, federal tax receipts were just 16.5% of GDP, and the deficit was $1.7 trillion.
If federal government receipts went back up to 20% of GDP, the federal deficit would be cut by more than half — something we could easily accomplish by increasing taxes on the wealthiest 5% of Americans.
We don’t have runaway federal spending. We have runaway tax cuts for the wealthy that endanger the fiscal health of our country.
Republican calls for massive cuts in federal spending are part of a recurring pattern. Over the last 45 years, each time Republicans have taken control of the White House, they have cut taxes for the wealthy. Each time, the deficit ballooned. Ronald Reagan, George W. Bush and Donald Trump each left office with a much higher deficit than when he took office. And each called for big spending cuts, to reduce the deficit he created.
You would think that Republicans would learn from this history, and understand that their repeated tax cuts for the wealthy is the main driver of the deficit. But in the upside-down world of Republican politics, taxes for the wealthy will be cut again, and Republicans will blame everyone but themselves when the deficit increases.
Mark Fernald is a former state senator, and a former Democratic candidate for governor. He can be reached at mark@markfernald.com.
