By Cliff Montgomery – May 29th, 2011
The Center on Budget and Policy Priorities (CBPP), a Washington, DC-based think tank specializing in economic policy, earlier this month released a 10-page study on America’s public debt problem.
The verdict? “The economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.”
It’s a clear retort to conservatives who want to blame our economic mess on everything else except their casino capitalism and fruitless nation-building.
The American Spark helps set the record straight by offering the following quotes from this crisp, engaging report:
“Some lawmakers, pundits, and others continue to say that President George W. Bush’s policies did not drive the projected federal deficits of the coming decade — that, instead, it was the policies of President Obama and Congress in 2009 and 2010. But, the fact remains: the economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.
“The deficit for fiscal year 2009 — which began more than three months before President Obama’s inauguration — was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), the largest deficit relative to the economy since the end of World War II. At $1.3 trillion and nearly 9 percent of GDP, the deficit in 2010 was only slightly lower.
“If current policies remain in place, deficits will likely resemble those figures in 2011 and hover near $1 trillion a year for the next decade.
“The events and policies that pushed deficits to these high levels in the near term were, for the most part, not of President Obama’s making. If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers’ actions to combat it), we would not be facing these huge deficits in the near term.
“By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019.
“The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.
“President Obama, however, still has a responsibility to propose, and put the weight of his office behind, policies that will address our key long-term fiscal challenge — preventing the relentless rise of debt as a share of GDP that will occur under current policies.
“The President and Congress could make major progress toward stabilizing the debt for the coming decade by letting all of the Bush tax cuts expire on schedule at the end of 2012. That would just be a first (although a substantial) step.
“To keep the debt stable over the longer run, when the fiscal impacts of an aging population and rising health care costs will continue to mount, policymakers will need to take large additional steps on both the expenditure and revenue sides of the budget.
“Having said that, policymakers should not mistake the causes of the swollen deficits that we face in the decade ahead — nor make policy based on mistaken impressions.
Recession Caused Sharp Deterioration in Budget Outlook
“Whoever won the presidency in 2008 was going to face a grim fiscal situation, a fact already well known as the presidential campaign got underway. The Congressional Budget Office (CBO) presented a sobering outlook in its 2008 summer update, and during the autumn, the news got relentlessly worse.
“Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that became embroiled in the housing meltdown, failed in early September. Two big financial firms — AIG and Lehman Brothers — collapsed soon thereafter, and others teetered. In December 2008, the National Bureau of Economic Research confirmed that the nation was in recession and pegged the starting date as December 2007.
“By the time CBO issued its new projections on January 7, 2009 — two weeks before [Obama’s]Inauguration Day — it had already put the 2009 deficit at well over $1 trillion.
“The recession battered the budget, driving down tax revenues and swelling outlays for unemployment insurance, food stamps, and other safety-net programs. Using CBO’s August 2008 projections as a benchmark, we calculate that the changed economic outlook alone accounts for over $400 billion of the deficit each year in 2009 through 2011 and slightly smaller amounts in subsequent years.
“Those effects persist – even in 2018, the deterioration in the economy since the summer of 2008 will account for over $300 billion in added deficits, much of it in the form of additional debt-service costs. […]
Tax Cuts, War Costs Do Lasting Harm to Budget Outlook
“Some commentators blame major legislation adopted in 2008-2010 — the stimulus bill and other recovery measures and the financial rescues — for today’s record deficits. Yet those costs pale next to other policies enacted since 2001 that have swollen the deficit. Those other policies may be less conspicuous now, because many were enacted some years ago and they have long since been absorbed into CBO’s and other organizations’ budget projections.
“Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs.
“By 2019, we estimate that these two policies will account for almost half — nearly $10 trillion — of the $20 trillion in debt that will be owed under current policies. (The Medicare prescription drug benefit enacted in 2003 also will substantially increase deficits and debt, but we are unable to quantify these impacts due to data limitations.)
“These impacts easily dwarf the stimulus and financial rescues, which will account for less than $2 trillion (less than 10 percent) of the debt at that time.
“Furthermore, unlike those temporary costs, these inherited policies (especially the tax cuts and the drug benefit) do not fade away as the economy recovers.
“Without the economic downturn and the fiscal policies of the previous [i.e., Bush] Administration, the budget would be roughly in balance over the next decade. That would have put the nation on a much sounder footing to address the demographic challenges and the cost pressures in health care that darken the long-run fiscal outlook.”
