The current conservative narrative is that the budget deficit is the result of irresponsible spending by the Obama administration. The primary message of the Republican Party for November is that they are the responsible party and will return fiscal discipline to the federal government.
There is a bit of truth in that claim. They ARE responsible. When you look at the numbers in detail, you can allocate virtually the entire deficit for the next ten years to three causes, the economic downturn, the Bush tax cuts, and spending on the wars in Iraq and Afghanistan.
Here are the facts on the ground today.
The deficit for FY 2009 was $1.4T. That represents almost 10% of GDP. This is the largest percentage since WWII. Barring changes in current policies, that will likely continue for 2010 and remain in the $1T range for the next decade. So the current administration IS responsible for engineering an economic recovery AND reducing the debt. I’ve already posted in some detail what those plans are and how they appear to be having the desired effect.
The important question for the November election is whether the Obama administration is also responsible for the CURRENT size of the deficit.
Here are a few more facts.
By the time President Obama formally took office in January of 2009; Fannie Mae, Freddie Mac, AIG, and Lehman Bros. already collapsed. The National Bureau of Economic Research confirmed that the recession started in December 2007. Before President Obama proposed any spending, the CBO forecast a 2009 deficit north of $1T.
In response the economic downturn, the Bush administration passed the TARP bill which together with the aid provided to Fannie and Freddie added $245B to the 2009 deficit. It also saved the world-wide financial system from meltdown.
The Obama administration passed the ARRA bill and other smaller stimulus measures which saved the domestic auto industry and by recent CBO reports added between 2M and 3M jobs. The cost of that is somewhere around $1.1T in deficit spending over the next ten years including debt service.
So now let’s compare those numbers to the other factors that I mentioned.
The tax cuts and war spending accounted for a third ($500B) of the deficit in 2009 and are responsible for $7T of the deficit over the next ten years. This figure does not include the impact from the prescription drug benefit added to Medicare in 2003 because it isn’t clear yet what the impact will be. It could add as much as another $880B. This spending easily dwarfs the onetime costs of both the stimulus and financial rescue bills. That’s because these Bush policies impact the budget every year.
If you subtract the costs of the recession and Bush administration policies (war, tax cuts, and Medicare expansion), the current Obama administration policies produce a balanced budget over the next ten years. Doesn’t sound like the same guy that they describe daily on Fox News.
In practical terms; we don’t have a balanced budget. We have to accept that the wars, tax cuts, and Medicaid expansion are current realities. We also have to evaluate the Obama administration’s plans to reduce the deficit going forward, rather than just blame it on past irresponsibility. The CBPP analysis projects deficit reductions in the 2011-2020 period of $1.3T. Clearly more is needed, but when you add it all up, the Obama administration IS acting in a fiscally responsible manner on the spending that it can control AND has already taken steps to rein in the ballooning deficit policies that they inherited.
It is an unfortunate fact in today’s political climate that a number of voters will simply reject these facts because they call into question a whole set of characterizations that they have already accepted about this President and his administration.