Turning Points Rotating Header Image

What Is Causing the Deficit?

I found an interesting article, courtesy of The Baseline Scenario, that counters the right-wing populist assertion that the soaring national deficit is all because of Obama’s out-of-control spending. The Center for Budget and Policy Priorities, which is obviously not a conservative think tank, nonetheless produces substantive, well-researched reports. I am posting a portion of a report from their website so that the next time someone who drinks the Koolade offered by the Beck/Palin/Limbaugh crowd explains why we are in such dire circumstances you can counter intelligently. For the full report, please click on the link. You can download an Adobe Acrobat file of the full report by clicking the icon under the title of the report, if you are interested.

cbbp.jpg

President Obama Largely Inherited Today’s Huge Deficits
Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers

By Kathy Ruffing and James R. Horney

December 16, 2009

Some critics charge that the new policies pursued by President Obama and the 111th Congress generated the huge federal budget deficits that the nation now faces. In fact, the tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years (see Figure 1).

The deficit for fiscal 2009 was $1.4 trillion and, at an estimated 10 percent of Gross Domestic Product (GDP), was the largest deficit relative to the size of the economy since the end of World War II. Under current policies, deficits will likely exceed $1 trillion in 2010 and 2011 and remain near that figure thereafter.

The events and policies that have pushed deficits to astronomical levels in the near term, however, were largely outside the new Administration’s control. If not for the tax cuts enacted during the Presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that began during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term.

While President Obama inherited a bad fiscal legacy, that does not diminish his responsibility to propose policies to address our fiscal imbalance and put the weight of his office behind them. Although policymakers should not tighten fiscal policy in the near term while the economy remains fragile, they and the nation at large must come to grips with the nation’s deficit problem. But we should all recognize how we got where we are today.

2 Comments on “What Is Causing the Deficit?”

  1. #1 Mark Thomas
    on Dec 25th, 2009 at 11:08 am

    I would question the wisdom of looking at the deficit (income less expenses) rather than simply spending (expenses only).

    Two of the large items (both blue) are “Economic downturn” and “Bush-era tax cuts”. These both represent taxes that the government would have liked to collect, but isn’t able to. Using this logic, one could also blame the deficit on any policy anyone claims could generate revenue–drilling in ANWAR, for example.

    Governments will try to collect as much tax from the current economy as they can. When this isn’t enough, they will borrow against future tax collections. If they want more and have control of the monetary system, they will simply issue new money and use it to outbid anyone else in the market for the goods and services they want under their control.

    “Current government spending” is a more direct way to measure the growth of government. I won’t look up the figures now, but I believe the Republicans spend about one and a half times what the Democrats do when their guy is president, for what its worth.

    –Mark (whom you would think would have better things to do on Christmas, but is waiting for a home DVD to copy on his computer!)

  2. #2 Jeff
    on Dec 25th, 2009 at 4:46 pm

    Mark,

    Well, I’m not a logician, but I think your example of ANWAR vs. expected income doesn’t work very well. Correct me if I’m wrong, but I don’t think there is any drilling in ANWAR – yet. A business (which government is, if you think about it) budgets for the future based on the past. In this case, the government projects revenue in the future based on revenue received in the past. Both the economic downturn and the Bush-era tax cuts took money out of the till, money that the government cannot spend. If government is a business, its only option now, if it wants to continue to spend, is to borrow, which is what deficit spending is. I’m not an economist or a logician, but this chart looks reasonable to me. I wonder if perhaps you are looking at this issue through your libertarian glasses and seeing more than is there?

    Nota Bene (note well): I’m not getting into whether government is legitimate, efficient, or anything else. We both have our opinions about that – opinions that don’t have much to do with the points made in this report. I haven’t read the report, but I don’t think that it concerns itself with “the growth of government.”

Leave a Comment