Federal Government Expenditures: Serious effort needed to get spending under control

By SBE Council at 23 April, 2026, 2:08 pm

by Raymond J. Keating -

The latest Congressional Budget Office Monthly Budget Review provides a look at the state of the federal budget through the first six months of the current 2026 fiscal year.

While inflation ran at roughly 3.4 percent annualized over those six months - from October 2025 to March 2026 - total federal government outlays grew by 2.4 percent over the period compared to the same period in the previous year. So, in real terms, federal spending declined. That's a positive.

At the same time, federal revenues increased by 10 percent. The bulk of that rise in revenues came via customs duties (including tariffs). As the CBO reported: "Collections of customs duties, including those from tariffs, were nearly four times the amount recorded in the first half of last year-an increase of $123 billion. After a ruling by the Supreme Court on February 20, 2026, the Administration ended collections of certain tariffs that had been put in place in 2025. Subsequently, the Administration imposed new tariffs on numerous goods from many countries."

In the end, tariff increases are tax increases on American businesses and consumers. So, this revenue increase is an economic negative.

Overall, much work needs to be done to get the size of the federal government under control.

While real spending declined during the first half of FY2026, the reality remains that federal outlays are draining far too much from the private sector.

When it comes to federal spending's effects on the economy, the first concern is how much government is taking from the private sector whether via taxes or borrowing. Second, the level and make up of taxes will have varying negative consequences on economic growth. And third, federal borrowing is a kind of double hit in that resources are taken from the private sector via the initial borrowing, and later effectively imposing further costs on future taxpayers in terms of debt service.

Source: Federal Reserve Bank of St. Louis, FRED

As noted in the above chart, federal outlays as a share of the economy (GDP) registered 22.8 percent in FY2025. While that's down from pandemic levels, it's still notably above pre-pandemic levels (for example, 19.9 percent in 2018), and well above pre-Great Recession levels (such as 18.9 percent in 2007, and 17.5 percent in 2000).

Current and future Congresses, along with presidential administrations, need to undertake serious program reforms, and put in place institutional restraints (such as a cap on federal outlays as a share of GDP, and zero-based budgeting) in order to avoid the otherwise inevitable further descent into bigger government that will worsen a real, severe drag on economic opportunity and growth.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of " The Weekly Economist " book series, and 10 Points from Walt Disney on Entrepreneurship .