So what caused the string of federal deficits? It’s not what you think.
By D.J. McGuire | Wednesday, July 14th, 2010 | Policy
The greatest obstacle to a Republican recovery is the domestic performance of the Bush II Administration – particularly regarding government spending. That said, there is a myth that has grown regarding Bush’s policies and how each one affected the federal government’s fiscal standing – a myth Brian Riedl partially debunks in the Wall Street Journal.
The myth is that Bush sank the budget surpluses through tax cuts and wars:
Sen. John Kerry (D., Mass.), for example, has long blamed the tax cuts for having “taken a $5.6 trillion surplus and turned it into deficits as far as the eye can see.” That $5.6 trillion surplus never existed. It was a projection by the Congressional Budget Office (CBO) in January 2001 to cover the next decade.
. . .
The projected $5.6 trillion surplus between 2002 and 2011 will more likely be a $6.1 trillion deficit through September 2011. So what was the cause of this dizzying, $11.7 trillion swing?
That’s the important question. Riedl goes through the numbers and breaks it down thusly:
- “economic and technical revisions”: 33% ($3.9T)
- “other new spending”: 32% ($3.7T)
- Bush tax cuts of 2001 and 2003: 14% ($1.7T)
- “net interest on the debt”: 12% ($1.4T)
- Obama stimulus: 6% ($702B)
- “other tax cuts”: 3% ($351B)
Reidl, just looking at the tax cut effect, declares Bush acquitted:
If there were no Bush tax cuts, runaway spending and economic factors would have guaranteed more than $4 trillion in deficits over the decade and kept the budget in deficit every year except 2007.
There’s a little more to it, though. Added net interest on the debt, for example, is really caused by everything else. After all, new spending requires new borrowing, and new interest payments. This is especially true given that interest rates were relatively stable for much of this decade before falling during the Great Recession. So, one should really increase each remaining category by 14% (12/88), which bring us to . . .
- “economic and technical revisions”: 38% ($4.4T)
- “other new spending”: 36% ($4.3T)
- Bush tax cuts of 2001 and 2003: 16% ($1.9T)
- Obama stimulus: 7% ($798B)
- “other tax cuts”: 3% ($399B)
I would also add “other tax cuts,” given that most were probably under Bush’s watch. Thus, the tax cuts turned $5.6T in accumulated surpluses into . . . $3.3T in accumulated surpluses (keep in mind, this is with “static scoring,” i.e., we assume no benefits to the economy – and federal revenues – due to the tax reductions). So, in the worst case scenario, cutting taxes this decade didn’t even reduce surpluses in half – let alone knock the federal government into deficit territory.
Ah, say Bush critics, but what about Afghanistan and Iraq? A fair question, which Riedl doesn’t address. As it turns out, the Congressional Research Service has compiled numbers for the cost of the war through FY10 (save the $37B in supplemental funds soon to be approved) – $1.08T. Assuming the $37B goes through, and the spending in FY11 stays on the same course (FY10 war spending, supplemental included, was $25B higher than FY09), the total comes to $1.32T – $1.5T if interest is added (using the aforementioned 14% factor).
So . . . the tax cut and two wars, which the Democrats insist set us careening into red-ink land, turned $5.6T of accumulated surpluses into $1.8T in accumulated surpluses. On average, this would have $180B a year – higher than any budget surplus but one: FY2000.
So what happened?
For starters, spending happened. For a defense of Bush’s domestic spending spree, go somewhere else. In total (including the Obama stimulus), spending hikes took a $3.3T bite out of the fiscal picture – larger than the wars or the tax cut, and just $500B lss than both combined.
However, even that comes in second to “economic and technical adjustments” – a fancy way of the CBO saying: ya know about those numbers we gave you earlier? Never mind.
To wit (Reidl again):
It assumed that late-1990s economic growth and the stock-market bubble (which had already peaked) would continue forever and generate record-high tax revenues. It assumed no recessions, no terrorist attacks, no wars, no natural disasters, and that all discretionary spending would fall to 1930s levels.
To recap, since the CBO’s $5.6T surpluses-over-the-decade projection, we’ve seen two recessions, 9/11/01, the denoument of the tech bubble bursting, and the housing bubble building and bursting.
In other words, while the left accuses the former President of ruining the fiscal health of the nation with tax cuts and wars, and the right accuses him of ruining the fiscal health of the nation with runaway spending, the reality is that our federal government was far “sicker” from a fiscal perspective than we let ourselves believe.
The left will still slam the tax cuts and wars, and the right (including yours truly) will still slam the domestic spending, but let’s all acknowledge that when it comes to the effects of all of the above on the budget, we’re building our arguments on foundations of sand.
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Former candidate for Board of Supervisors in Spotsylvania, current blogger, economics teacher, and long-rumored windbag. There are two causes closest to the heart: steering the country away from the social democratic nonsense that is sinking Europe, and convincing the rest of the "rightosphere" that the NBA really is a joy to watch.
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8 Responses to "So what caused the string of federal deficits? It’s not what you think."
Good article, but no real surprises. The increased domestic spending and increasing debt during the 8 year Bush administration baffled me, particularly when the Republicans controlled the house, Senate, and White House. At first I bought into the 9/11 and war excuse, but I came to realize it was due to moochers, looters, and politicians. I am working to get the Republicans back in, I just hope they don’t return to compassionate conservativism and instead be true conservatives and at least be more true to the Constitution.
The republican party needs a strong candidate for president for 2012.
I would favor a governor who has shown that he or she can balance a budget now.
Gov. CL “Butch” Otter, Gov. Chris Christie, and Gov. Bob McDonnell are three that I know of although I am sure there are others.
We need a president who can produce results.
Bob McDonnell says he will finish his term as governor if he keeps his word that takes him out of the race.
A good technical analysis, but it does not identify the real culprit. The real problem is a moral problem. It is how we define what is right and what is wrong. It is who we hold accountable.
Consider this example. We pump huge amounts of money into social welfare programs. These programs rob money from one person and give it to another. We ignore the fact that this is robbery. Yet even when the government does it, robbery is robbery. The mere fact that this sort of robbery is not illegal does not alter the fact that it is immoral. When we fail, it does not excuse us rob our neighbors and explain to them that they are just paying for public service that will save them in the event they too fail.
In the minds of many, our government now decides moral issues. These would remove individual responsibility and let the law decide, but this brings hideous consequences. If what is legal is moral, then politicians decide morality. Can we trust politicians to decide what is moral? Yet these are the people who run our schools, and our schools effectively teach legalism. We just disguise it as multiculturalism.
Without individual accountability, the community becomes accountable. Because there is no one else left, government becomes responsible for everyone’s debt. Unfortunately, politicians scheme and evade responsibility. They want control, not accountability.
Political finger pointing led to the collapse of government sponsored lenders such as Fannie Mae and Freddie Mac. The financial legislation that Congress is about to pass will change nothing. It will just make an already bad situation worse.
If we allow this to continue, tyranny is inevitable. When we will not hold ourselves accountable, then someone must hold us accountable.
Gov. Chris Christie will be the one to watch.
Like Gov. McDonnell, Gov Christie has also said he will finish his term.
Both have been on Fox News.
I believe I heard Sean Hannity suggest last night that perhaps the US needs to solve its deficit problem the way that Gov. Bob McDonnell solved the problem in Virginia.
So it would it appear that Gov. Bob McDonnell is starting to attract even more attention.
“The movie Patton that chronicles the many WWII conquests of General
George Patton ends with the statement:
For over a thousand years Roman conquerors returning from the wars
enjoyed the honor of triumph, a tumultuous parade. The conqueror rode
in a triumphal chariot, the dazed prisoners walking in chains before
him. And a slave stood behind the conqueror holding a golden crown and
whispering in his ear a warning: that all glory is fleeting.”
Perhaps all politicians should remember that.
I disagree slightly with the article.
Just because we get the BS numbers and the genral public is led to believe things are better than they are, does not mean that true analysis of the real numbers aren’t factored behind the scenes.
Without regard to our country’s level of fiscal health, George Bush spent us into oblivion. He hurt the economy’s chance to rebound. You can’t just factor in Bush’s fiscal irresponisbilty. You also have to factor in what the US fiscal health would be had he and congress did their jobs in a moderately responsible manner and even a best practices scenario.
Give Tim Kaine some credit along with Bob McDonnell. Cuts were necessary, both governors understood this. Both understood tax increases can harm a weak state economy. Kaine is not my favorite guy, especially given his current position, but he did make cuts and he was far superior to Mark Warner before him.
With the addition of Bob McDonnell’s leadership, Virginia appears to be adding rather than subtracting. Fiscal conservatives have to be pleasantly surprised at the Governor’s performance thus far.
George Bush, did not govern the way McDonnell is. In fact, he hurt the situation SO BADLY that people were willing to gamble with “Hope & Change”. Too bad we didn’t get change! Now with Obama, we have Bush policies on performance enhancing drugs. Obama is Bush, only faster.
We’re maxing out or national credit card, took on too many payments, and “stimulated” ourselves into a bad situation. President Obama has defrauded America in that he has not delivered change at all. Obama has merely continued on with “No Spending Program Left Behind”.
You judge performance, not environment. You can certainly qualify a good performance yielding mediocre results due to starting in an unhealthy position. However, Bush deserves no such apologizing by equating our current disaster of an economy with his dealing with overly positive numbers. Likewise, Obama can no longer excuse his performance by pointing to Bush’s culpability. Rather than spending everyone into a “Candy Land” hysteria that can never be imagined as sustainable, we need fiscal leadership. We need positive results.
I hope that uncovering more than just Bush’s policies as causal links will not lead to some Republicans declaring Bush to be guiltless.
The Republican give-away to big Pharm with the $500 Billion Dollar Medicare plan was taboo and used to buy votes from seniors. The two illegal wars will cost us trillions in the long term. Tax cuts for the upper 2% while all this was going on led to further deficits. What the Republicans did was voodoo economics to quote GHW Bush about Reagan’s policies. We need to quit spending $800 Billion a year on defense budgets, it has gotten rediculus the amount of influence the Military-Industrial Complex has on Congress.
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