The deficit is more than just a 2010 campaign issue
Lawmakers, including Republicans who have been in Washington for decades, are extremely concerned this year with the nation’s budget deficit. Part of that concern is driven by the tea party movement, which emphasizes fiscal discipline. For most Republicans and tea partiers the problem is largely the “out of control spending” unleashed by the Obama administration. The reality is that the Obama-era spending isn’t the problem. The Center on Budget and Policy Priorities begs Americans to look at the numbers. “We should not mistake the causes of our predicament,” write Kathy Ruffing and James Horney in a report on the deficit and economic recovery.
The authors made a chart worth (more than) 1000 words.
If we are to end the budget crisis, say Ruffing and Horney, we have to reckon with the fact that the deficit is not due to any Obama one-off programs like the stimulus. The deficit and the continuing upward trajectory of the deficit is due to the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq. Those three factors, the authors write, “explain virtually the entire deficit over the next ten years.”
The report reads like a correction of most of the stump speeches aired on cable news this year:
The government put Fannie Mae and Freddie Mac into conservatorship in September 2008. In October of that year, the Bush Administration and Congress enacted a rescue package to stabilize the financial system by creating the Troubled Assets Relief Program (TARP). Together, TARP and the GSEs accounted for $245 billion (including extra debt-service costs) of fiscal 2009’s record deficit. Their contribution then fades quickly (see Figure 1).
In February 2009, the new Obama Administration and Congress enacted a major package — the American Recovery and Reinvestment Act (ARRA) — to arrest the economy’s plunge. Mainstream economists overwhelmingly argued that, to combat the recession, the federal government should loosen its purse strings temporarily to spur demand, with a mix of assistance to the unemployed, aid to strapped state and local governments, tax cuts, spending on infrastructure, and other measures. By design, this package added to the deficit. Since then, policymakers have enacted several smaller measures to spur recovery and aid the unemployed. By our reckoning, the combination of ARRA and these other measures account for $1.1 trillion in deficits over the 2009-2019 period (including the associated debt service). Their effects are highly concentrated in 2009 through 2011 and fade thereafter, delivering a boost to the economy during its most vulnerable period.
Some commentators blame recent legislation — the stimulus bill and the financial rescues — for today’s record deficits. Yet those costs pale next to other policies enacted since 2001 that have swollen the deficit. Those other policies may be less conspicuous now, because many were enacted years ago and they have long since been absorbed into CBO’s and other organizations’ budget projections.
Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for almost $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs.  (The prescription drug benefit enacted in 2003 accounts for further substantial increases in deficits and debt, which we are unable to quantify due to data limitations.) These impacts easily dwarf the stimulus and financial rescues. Furthermore, unlike those temporary costs, these inherited policies (especially the tax cuts and the drug benefit) do not fade away as the economy recovers (see Figure 1).
Without the economic downturn and the fiscal policies of the previous Administration, the budget would be roughly in balance over the next decade. That would have put the nation on a much sounder footing to address the demographic challenges and the cost pressures in health care that darken the long-run fiscal outlook.
Hat tip to the Brad Blog.
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