The New York Times today offers an analysis of the budget deficit and growing debt that should shut up Congressional Republicans, but won’t.
The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.
You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.
The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.
About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.
Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.
About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.
If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits.
The analysis talks about the impact the debt could have down the road:
“Things will get worse gradually,” Mr. Auerbach predicts, “unless they get worse quickly.” Either a solution will be put off, or foreign lenders, spooked by the rising debt, will send interest rates higher and create a crisis.
The solution, though, is no mystery. It will involve some combination of tax increases and spending cuts. And it won’t be limited to pay-as-you-go rules, tax increases on somebody else, or a crackdown on waste, fraud and abuse. Your taxes will probably go up, and some government programs you favor will become less generous.
One economist quoted in the analysis — Alan Auerbach, at the University of California, Berkeley,
describes the situation like so: “Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it.”
“And,” he added, “not fixing it is, in a sense, making it worse.”
That seems harsh, especially when focusing on the deficit could be the worst thing to do at the present time. Focusing on deficit reduction — by cutting federal spending and increasing taxes — will deepen the recession, which will further deplete revenues (remember, 37 percent of the debt generated since 2001 is tied to the business cycle); not doing so could leave the government with a time bomb down the road.
I think it’s clear — as many, if not most, economists have said — that we must continue to run deficits to get ourselves out of our economic mess. But we need to keep in mind that there is a difference between deficits of the sort we have seen under Bush and productive deficits. The Bush tax cuts reduced revenue without anything to show for it, while the Obama spending plans are designed to pump money into the economy.
I’d like our national budget to be balanced at some point, but let’s get ourselves out of what promises to be a long and painful recession first.
