This was supposed to be the year the economic recovery took off. Last December, the lame duck Congress and the Obama administration agreed to cut payroll taxes and gave new tax breaks to business in order to boost an economy already showing signs of faltering.
Then came the Japanese earthquake, the run-up in oil prices, confidence-shaking clashes with Republicans in Congress over spending and the debt ceiling, and the European sovereign debt crisis. The result was a slow growing economy that ran another $1.3 trillion in red ink in fiscal 2011, the same as the year before, the government reported Friday. The deficit’s share of the slow growing economy fell to 8.7 percent, down from 9.0 percent in 2010.
“We cannot waste any time in jumpstarting economic growth and job creation to lay the foundation for a stronger economy and lower future deficits,” Office of Management and Budget director Jacob Lew said in a prepared statement accompanying the final post-mortem on fiscal 2011, which ended September 30.
There were a few positive signs in the report. Despite the two percentage point cut in payroll taxes, total receipts were $141 billion higher last year than in 2010, an increase of 6.5 percent. Increases in income taxes, excise taxes and custom duties outweighed the declines in social insurance contributions and payroll taxes.
Yet total revenue collections continued to lag well behind historic levels, with the total tax take equally just 15.4 percent of gross domestic product, up slightly from the 15.1 percent of GDP collected the previous year. Federal revenue collections averaged about 18 percent of GDP for most of the past two decades.
On the spending side, 2011 marked a year of a sharp shift in the composition of spending, tilting away from domestic discretionary programs like education, labor and housing while spending on the military, Medicare and Social Security – the largest components of the federal budget – continued to push ahead.
The Education Department took the biggest hit with spending falling $28.6 billion in 2011, down 30.8 percent from fiscal 2010 after expiration of the 2009 stimulus act’s aid to states to keep teachers and other school personnel on the payroll. The largest component of the half million state and local workers who’ve lost jobs in the past year worked in the schools, with some districts starting to put 40 or more children per classroom, according to recent news reports.
Labor Department spending fell $38 billion or 22.0 percent as spending on unemployment insurance declined across the country. While long-term unemployed saw their benefits extended, the number of newly unemployed fell last year as the unemployment fell by about a percentage point to its current 9.1 percent.
Smaller department that experienced sharp declines included Housing and Urban Development, down $3.1 billion or 5.2 percent and Commerce, which spent $3.3 billion or 25 percent less than it spent in 2010. The administration blamed the slow roll out of its broadband technology initiative for the decline at Commerce.
Military spending, meanwhile, continued its upward march despite the drawdown of troops in Iraq. The Pentagon added $11.3 billion to its 2010 spending, bringing the total in 2011 to $678 billion as activities in Afghanistan expanded the brass with Obama administration backing continued most military hardware modernization programs.
And, as usual, spending on health care continued its upward march, well beyond the pace of the economy and inflation combined. Medicare spending increased $39.7 billion or 7.6 percent in 2011 to $565.3 billion. The rest of the Health and Human Services Department’s budget fell, however, with spending on Medicaid and children’s health insurance posting only minor increases.
Social Security spending rose 3.4 percent to $599.4 billion, while the program’s spending on the disabled rose 4.0 percent to $131.6 billion.