Who's to Blame for the Deficit Numbers?

[K1Warrior 0]

SOURCE: AP/Haraz N. Ghanbari Former President George W. Bush, seated, signed the Tax Relief and Health Care Act of 2006 in the Eisenhower Executive Office Building in Washington. The policies of the Bush administration, which included tax cuts during a time of war and a floundering economy, are clearly the primary source of the current deficits.

By Michael Ettlinger, Michael Linden

The revised deficit numbers reported by the Congressional Budget Office and the Office of Management and Budget today show a lower deficit than previously estimated for 2009, with higher deficits for 2010 and beyond. Political opportunists will be busy looking for chances to score points over these numbers—pinning the dismal fiscal picture on the Obama administration.

The real story is, however, fairly obvious. The policies of the Bush administration, which included tax cuts during a time of war and a floundering economy, are clearly the primary source of the current deficits. The Obama administration policies that are beginning to give the economy a needed jumpstart—the American Recovery and Reinvestment Act in particular—place a distant third in contributing to the 2009 and 2010 deficit numbers. The deficit picture for the years beyond still needs to be painted.

To come to these conclusions, we calculated the relative importance of the several factors contributing to the 2009 and 2010 deficits by looking at the impact in those years of various policies. A detailed description of our approach is at the end of this column. Below is the percentage share of the major contributing factors to the total deterioration from the surpluses projected in 2000 to the current deficits according to our analysis. The policies of President George W. Bush make up the largest share, followed by the current economic downturn, and then President Barack Obama's policies.

Shares of contribution to fiscal deterioration 2009 and 2010

CAUSE......................................................PERCENT OF TOTAL

President Bush's Policies....................................40%

Current economic downturn...............................20%

President Obama's policies.................................12%

Financial rescues begun by President Bush..........12%

All other..........................................................12%

Before explaining these further, it should be said that the generally worse deficit numbers reported today aren't all that surprising. Since the last projections in May, it's been plain that this recession has been worse than most analysts thought. With a weak economy comes lower tax revenue and higher safety net expenditures—with the loss in tax revenue causing the lion's share of the deficit problem. The effects of a deeper recession have a long-lasting impact. Even as growth is restored, it is growth from a reduced starting point—a smaller economy in 2009 usually means a smaller economy than previously predicted for several years hence. Encouragingly, there have been signs of late that the administration's policies to end the recession are starting to take hold. Without such efforts, the picture would be much gloomier, particularly in the short term. One piece of good news is that the government is no longer expecting to spend another $250 billion rescuing financial institutions through the Troubled Assets Relief Program—which explains the improved deficit picture for 2009. And the projections for economic recovery would be far more pessimistic if the American Recovery and Reinvestment Act policies were not starting to get traction.

As for the deficit's cause, the single most important factor is the legacy of President George W. Bush's legislative agenda. Overall, changes in federal law during the Bush administration are responsible for 40 percent of the short-term fiscal problem. For example, we estimate that the tax cuts passed during the Bush presidency are reducing government revenue collections by $231 billion in 2009. Also, because of the additions to the federal debt due to Bush administration policies, the government will be paying $218 billion more in interest payments in 2009.

Had President Bush not cut taxes while simultaneously prosecuting two foreign wars and adopting other programs without paying for them, the current deficit would be only 4.7 percent of gross domestic product this year, instead of the eye-catching 11.2 percent—despite the weak economy and the costly efforts taken to restore it. In 2010, the deficit would be 3.2 percent instead of 9.6 percent.

The weak economy also plays a major role in the deficit picture. The failure of Bush economic policies—fiscal irresponsibility, regulatory indifference, fueling of an asset and credit bubble, a failure to focus on jobs and incomes, and inaction as the economy started slipping—contributed mightily to the nation's current economic situation. When the economy contracts, tax revenues decline and outlays increase for programs designed to keep people from falling deep into poverty (with the tax impact much larger than the spending impact). All told, the weak economy is responsible for 20 percent of the fiscal problems we face in 2009 and 2010.

President Obama's policies have also contributed to the federal deficit—but only 16 percent of the projected budget deterioration for 2009 and 2010 are attributable to those policies. The American Recovery and Reinvestment Act, designed to help bring the economy out of the recession is, by far, the largest single additional public spending under this administration.

The cumulative cost of the financial sector rescue, mostly initiated under President Bush in response to the financial markets collapse, is also significant—contributing to 12 percent of the problem. A variety of other changes, described in the methodology section, are also contributors.

For the longer term, it's a bit disingenuous to assign any responsibility for the deficits. That's a story yet to be told, and CBO and OMB provide a selection of numbers to choose from for the long run. Much will depend on how the economy fares. If the Bush tax cuts, scheduled to expire at the end of 2010, were to be continued in their entirety there would be large deficits. If, as the Obama administration has proposed, they are only extended for those making under $250,000, then they still contribute to the deficit but not as substantially.

There are a number of similar budget items that have a long history for which one can, with equal legitimacy, assign responsibility to either their originators or current policymakers for continuing them. New Obama program initiatives, it's important to note, contribute little to future deficits. The administration has insisted that its additional spending, especially on health care, be fully paid for with savings elsewhere in the budget and additional revenues. In fact, to address our budget challenges it is critical to reform health care which, through Medicare, Medicaid, and other programs, is the single biggest budget headache in the long run.

Regardless of responsibility, of course, the long-run deficit situation is one that needs to be addressed.

Michael Ettlinger is the Vice President for Economic Policy and Michael Linden is the Associate Director for Tax and Budget Policy at American Progress.

http://www.americanprogress.org/issues/200...it_numbers.html

Congress has much more control over fiscal policy than the president regardless of who is in office. Regardless of political party Congress is out of control!

[ready4ONE 5,400]

Obama's 09 deficit exceeds all eight years of Bush red ink

By: Mark Tapscott

Editorial Page Editor

08/25/09 3:08 PM EDT

How much is President Obama boosting federal spending? The Heritage Foundation's Brian Riedl puts a little perspective on the numbers made public today:

· This year, Washington will spend $30,958 per household, tax $17,576 per household, and borrow $13,392 per household. This spending is not just temporary: President Obama would permanently keep annual spending between $5,000 and $8,000 per household higher than it had been under President Bush.

· The 22 percent spending increase projected for 2009 represents the largest government expansion since the 1952 height of the Korean War (adjusted for inflation). Federal spending is up 57 percent since 2001.

· The 2009 budget deficit will be larger than all budget deficits from 2002 through 2007 combined. More than 43 cents of every dollar Washington spends in 2009 will have been borrowed.

· One would expect the post-recession deficit to revert back to the $150 billion to $350 billion budget deficits that were typical before the recession. Instead, by 2019, the President forecasts a $917 billion budget deficit, a public debt of 77 percent of GDP, and annual net interest spending of $774 billion.

· The White House projects $10.6 trillion in new deficits between 2009 and 2019—nearly $80,000 per household in new borrowing.

· None of these estimates include the cost of health reform.

· The White House underestimates future budget deficits by trillions of dollars by (1) assuming that discretionary spending will be frozen to inflation for the next decade, (2) assuming that cap-and-trade revenues will be available to finance a Make Work Pay credit (the House-passed bill allocates those revenues elsewhere), (3) assuming health care reform will be deficit-neutral, and (4) assuming certain tax increases that are unlikely to be enacted.

Source? Editorial page from what exactly?

[Heracles 417]

The president is always the scapegoat. Obama's inability to push health care reform illustrates exactly how little power the president actually has.

The fact is the United States is involved in two major wars and the repubs never bothered to figure out how we are going to pay for it. Furthermore, they cut taxes. I have not found a single conservative abroad that does not see a problem with this.

War = money pit (E.G. collapse of soviet union )

Awesome documentary to watch.

Edited August 28, 2009 by haza