In the aftermath of a record $1.3 trillion federal spending deal, the latest report in the Pacific Research Institute’s Beyond the New Normal series makes the case that such record spending levels hurts economic growth and American prosperity.
The new report released today, “The 15 Percent Solution: Defining the Affordable Level of Government,” argues that restricting spending to a growth-maximizing level would mean more money to invest in jobs, and 3-4 percent annual growth rates becoming a regular occurrence.
“Washington continues to increase federal spending to record levels, yet policymakers fail to realize that overspending hurts economic growth and job opportunities,” said Dr. Wayne Winegarden, PRI Senior Fellow in Business and Economics, and author of Beyond the New Normal.
In March, Congress enacted – and the President signed into law – a record $1.3 trillion omnibus spending bill. Absent a line item veto, the Trump Administration is reportedly considering asking Congress to invoke little-used rescission powers to cut back some of this new spending.
Among Winegarden’s findings:
- Current federal spending levels are around 24 percent of national income. Combined federal, state, and local spending levels are 39.1 percent of national income.
- To maximize growth, Winegarden recommends policymakers sticking to a growth-optimizing spending level of between 14 and 16 percent of national income. Combined federal, state, and local spending should be restricted to between 23 and 27 percent.
- When government exceeds this growth-optimizing spending level, money is taken away from individuals and employers that could otherwise be spent more efficiently by them, boosting the private sector economy.
“If Congress were to restrict spending to a growth-maximizing level, Americans would have more money in their pockets to invest in their families and businesses, and faster annual economic growth rates would become the ‘new normal’ once again,” Winegarden concluded.
Last year, PRI released Parts 1-4 of Beyond the New Normal series, written by Winegarden and Niles Chura. The series makes the case that future U.S. economic growth can meet – or exceed – past growth trends if the right economic policies are adopted. Click on the hyperlinks to read Part 1, Part 2, Part 3, and Part 4 of the series.
Today’s release and forthcoming releases kick off a series of “How Much Should We Spend?” reports, which will explore the optimal spending level and spending priorities to maximize economic growth in the United States.
Dr. Wayne Winegarden is a Senior Fellow in Business and Economics at Pacific Research Institute. He is also the Principal of Capitol Economic Advisors and a Managing Editor for EconoSTATS.