Over the next 10 years, federal spending is projected to remain at historically high levels, revenues are projected to rise from their current post-World War II lows to near postwar highs, and ongoing federal deficits are projected to add $10 trillion to the federal debt. This according to the latest analysis from White House’s Office of Management and Budget.

Source for Projections: Mid-Session Review, FY 2010, Office of Management and Budget. (Click to enlarge chart.)

Federal tax receipts will be roughly 15 percent of GDP this year – the lowest level since 1950. This recession has hit them harder than most downturns. However, the Obama administration projects that receipts will rebound sharply and eventually reach 19 percent of GDP. Revenues have rarely been that high for a sustained period in the post-World War II era. The major sources of the extra revenue are projected to be rebounding income taxes and “climate revenues” (from policies designed to curb carbon emissions).

On the spending side, outlays are now at 25 percent of GDP, the highest since World War II. This percentage is projected to fall as the economy rebounds and the financial crisis passes, leveling off at 23 percent of GDP, which again would be unusually high in historical terms.

One source of higher outlays will be rising interest payments on the ballooning federal debt. By 2019, the government is projected to spend more on interest payments than on national defense. Defense spending is projected to drop back, as a share of GDP, to a post-World War II low, roughly to the level reached during the “peace dividend” years of the late 1990s (the brief interlude between the end of the Cold War and the attacks of 9/11).

The federal deficit – the gap between spending and outlays – is projected to decline from 11 percent of GDP this year to about 4 percent of GDP from 2015 onward. Aside from Worl War II, the U.S. has never run such large deficits for so long, with no expected improvement in sight. In the past, large deficits were usually driven by increased in military spending – sometimes a huge increase, as in World Wars I and II, sometimes a smaller one, as in Vietnam and the 1980s. This time, that’s not the case.

Moreover, these projections stop in 2019, before the full wave of baby-boom retirements hits Social Security and Medicare. So the longer-term budget outlook is actually even worse. Barring some unexpected improvement or a stretch of exceptionally rapid economic growth, it would appear that some combination of higher taxes, reduced spending, or increased inflating (printing more money) is inevitable.

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