Fiscal Year 2010 ended last Thursday but no one was popping champagne corks. Little wonder. For the second year in a row, the federal government ran a budget deficit well in excess of one trillion dollars.
Final figures will be announced later this month, but it seems likely that the FY 2010 deficit was about $1.3 trillion or 9 percent of gross domestic product (GDP). Regardless of the exact number, there is little doubt that the deficit will be the second largest as a share of GDP since the end of World War II. If there is any good news in this, it is that the deficit came down from the previous year’s total, which at $1.4 trillion (9.9 percent of GDP) was the largest of the post-WWII era.
This might not be as bad as it sounds if the deficit were projected to shrink as the economy recovers. After all, much of the huge spike in red ink can be attributed to reduced revenues and higher spending caused by the recent recession and attempts to deal with it. As these factors fade, the deficit will come down. However, projections for the next several years don’t get much better.
As the new fiscal year began on Friday, the most recent projection by the Congressional Budget Office (CBO) showed a deficit of $1.1 trillion for this fiscal year and cumulative deficits of $6.2 trillion over the coming decade. That,...