Thursday, June 11, 2009

Where did the federal deficit come from?

The Federal Government is now running massive deficits, and is expected to do so for several years into the future. Why is this the case, and how much of it is the responsibility of the Obama administration which took over the reins of power in January of this year? The New York Times has investigated this and reported. Here are some key excerpts from that report.
There are two basic truths about the enormous deficits that the federal government will run in the coming years.

The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.

The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it.

[...]

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 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.
The Bush administration was terribly profligate with the government's money and the result is that the taxpayers are going to get caught holding the stick. It's really that simple.

What won't be simple will be HOW we dig out of the mess the Republicans have left behind. Two wars and a recession on top of failure to manage government resources has left a horrible residue after eight years. Bush came in and spent money like a drunken sailor in a foreign port. But accountants and tax collectors do not live in the fantasy alternate universe that Rupert Murdoch is so respected for creating on FOX "News" Neither do the rest of us, as is becoming rapidly more clear. The complaints are coming from people who felt happy, war and protected there, but are now being evicted for not paying the rent.

It's long past time for the evictions. It'll be interesting to see what form the Republican Party takes, if any, once the necessary move back to reality is accepted.

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