The Housing Chronicles Blog: These federal deficits were years in the making

Thursday, June 11, 2009

These federal deficits were years in the making

Lately, it seems to be the criticism du jour to pin the entire (rising) federal deficit at the feet of Barack Obama, who has only been in office since January.

Meanwhile, I continue to get somewhat unhinged email blasts from some of my more conservative friends who, quite frankly, don't know what they're talking about when they drone on about Obama's policies being the end of civilization as we know it (as well as the apparent end of baseball and apple pie). Of course I want to reply, "Perhaps you should get that pesky bankruptcy off your credit report before throwing stones at Obama's fiscal house!" but I'm simply too polite to do so.

And, while I'm certainly no fan of the entire array of the policy prescriptions of the Obama Administration (and think his lack of a business background is beginning to show), the truth is that these deficits took years to build up, and they won't disappear simply because Sarah Palin is now pulling a new string on her back that quacks, "I told you so!" From a New York Times story:

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...

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.

That is the legacy of our trillion-dollar deficits. Erasing them will be one of the great political issues of the coming decade.

And something that won't be addressed simply by "Drill, baby, drill!"

1 comment:

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