Ten years ago? Seriously?
4 February
On Monday when releasing his budget the President said:
The fact is, 10 years ago, we had a budget surplus of more than $200 billion, with projected surpluses stretching out toward the horizon. Yet over the course of the past 10 years, the previous administration and previous Congresses created an expensive new drug program, passed massive tax cuts for the wealthy, and funded two wars without paying for any of it -– all of which was compounded by recession and by rising health care costs. As a result, when I first walked through the door, the deficit stood at $1.3 trillion, with projected deficits of $8 trillion over the next decade.
This is a common refrain from the President and his team.
Argument: The previous administration and previous Congresses created an expensive new drug program … without paying for any of it.
- Response 1: Yes, we did. At the time, Congressional Democrats tried and failed to create an even more expensive new drug program without paying for it. (Mr. Obama was not in the Senate at the time.)
- Response 2: This Medicare drug program is ongoing. If the President thinks it is too expensive, then he should propose to make it less expensive. If instead he thinks it should be paid for, then he should propose other spending cuts or tax increases to offset the future costs. Pending health care legislation would instead expand this expensive benefit and pay for the expansion, but would do nothing about paying for the ongoing base costs to which the President is objecting. The past six years of deficit spending from this benefit is beyond President Obama’s control. The future spending is not. He could do this through reconciliation with 51 votes in the Senate.
Argument: The previous Administration and Congresses funded two wars without paying for it.
- Response 1: The Obama Administration is continuing these wars without paying for them, and expanding forces in Afghanistan without paying for that.
- Response 2: Two of those years were with Democratic majorities in the House and Senate. There were legislative attempts to end the Iraq efforts, but none to end the Afghanistan efforts. I don’t remember anyone in the Democratic majority Congress (including then-Senator Obama) making a serious run at cutting other spending or raising other taxes to offset the war costs. Last year Rep. Obey proposed a war tax and was quickly silenced by his colleagues.
Argument: The previous Administration cut taxes for the wealthy without paying for it.
- Response 1: Setting aside the mischaracterization “for the wealthy,” President Obama proposes to extend a significant portion of that tax relief “without paying for it.”
- Response 2: If all the Bush tax cuts are left in place bracket creep will soon cause total federal taxes to once again climb above their historic average of just over 18% of GDP. Repealing these tax cuts would mean the government would be taking far more from the private sector in taxes than it has in the past. I believe taxes are not too low.
- Response 3: Our medium-term and long-term deficit problems are driven by the growth of entitlement spending: Social Security, Medicare, and Medicaid. Raising taxes will not slow this spending, it will just buy us a few years of delay and slow economic growth.
Argument: The Bush policies caused a $200 B annual surplus and “projected surpluses stretching out toward the horizon” to turn into deficits.
- Response 1: This argument always relies on one specific forecast which later turned out to be inaccurate. In January 2001 CBO projected a 2002 surplus of $313 B. One year later they projected a 2002 deficit of $21 B. Of the $334 B decline, CBO said 73% was from “economic and technical changes” beyond President Bush’s control. The other 27% was the result of legislation. The impact of policy over time was larger than in 2002 (about 60% over ten years), but it is still incorrect to attribute it all to policy, rather than to a combination of policy and incorrect forecasting.
Argument: As a result of these policies, when President Obama took office, the deficit stood at $1.3 trillion.
- Response 1: The 2009 deficit President Obama inherited was large (CBO says $1.2 trillion rather than $1.3 trillion), but this is principally the result of a drop in revenues resulting from the severe recession beginning in September 2008, and from more than $400 B of projected 2009 spending for bailouts of Fannie Mae, Freddie Mac, the big banks, and other large financial institutions. Before the recession and financial collapse of 2008, annual budget deficits during the Bush Administration averaged 2.0% of GDP (which would be about $290 B in 2009), including the higher spending and lower revenues from the drug benefit, Iraq and Afghanistan, and tax cuts. President Obama is using one horrible year to mischaracterize the other seven.
- Response 2: President Obama does not point out that his first major policy effort was to propose and enact an $862 B stimulus law without paying for it. (CBO has upped their estimate from the previous $787 B figure.) He did inherit a huge deficit, in large part resulting from the recession and bailout costs, and he immediately made it much bigger.
- Response 3: There is nothing the President can do about the past accumulation of debt. He and a majority of the House and Senate can reduce or even eliminate future deficits if they are willing to make hard choices. Even a 41-vote Republican Senate minority lacks the procedural tools to block a deficit reduction reconciliation bill.
Argument: When President Obama took office, he faced projected deficits of $8 trillion over the next decade.
- Response: There is no delicate way for me to say this. The $8 trillion number is made up. In January 2009 CBO projected deficits for the next decade of $3.1 trillion. The President’s first budget played games by redefining the baseline to make the starting point look as bad as possible so that Team Obama could claim their policies would reduce the deficit. Don’t get me wrong — $3.1 trillion of projected deficits is still a huge bad number. At the same time, $4.9 trillion is a lot of gaming.
This debate about the past can continue ad nauseam. At some point I hope it ends, but the President and his team bring it up at every opportunity. It is strange for a President to complain repeatedly about ten-year old policies and then not propose to change them. More importantly, this debate is not relevant to the problems we face today.
Yes, President Obama faced some enormous economic challenges early in his term. His predecessor did as well, even before the crisis of 2008: a bursting tech bubble leading to a recession in 2001, an economic seizure caused by 9/11, corporate governance scandals in 2002, a recession in 2002-2003, the economic uncertainty triggered by invading Iraq (this one was a policy choice), and eventually oil spiking above $100 per barrel.
I think it’s OK for a President to talk about the challenges he and the Nation face. It helps to set reasonable expectations. I think a President should propose solutions to those challenges and describe a brighter future that he hopes to deliver. I think it’s tacky and tiresome for a President to keep bashing his predecessor, especially more than a year after taking office. I acknowledge that my perspective on this point is biased by my professional past.
I also think this refrain weakens President Obama. He is portraying himself as a victim of forces that are beyond his control. A President should want people to focus on him and what he’s going to do, not on a comparison of him with someone else (anyone else). President Obama should want people talking about the Obama Agenda rather than about what happened ten years ago. Ten years ago.
I suspect that many Americans are tired of the blame game, especially more than one year into a new Administration. Whatever your view of President Bush, his policies, and their results, America needs to look forward. We have big challenges ahead of us, and we need to propose, debate, vote on, and then implement solutions.
More than the blame game, this is what concerns me about the President’s economic agenda. The President’s own projections show that his policies will not fix the future problems he identifies. Based entirely on numbers from the President’s just released budget, America will see the following results if all of his policies are implemented as proposed and work as projected:
- an average unemployment rate this year of 10.0 percent;
- an average unemployment rate in 2012 of 8.2 percent;
- a budget deficit this year of 8.3% of GDP;
- a budget deficit that at no point in the next decade dips below 3.6% of GDP;
- debt/GDP increasing from 64% now to 77% in ten years;
- the size of government, measured by both spending and taxes, climbing to historically high shares of GDP;
- three problems identified by the President (I do not necessarily agree that each of these is a problem):
- continuing the expensive Medicare drug program without paying for it;
- continuing the efforts in Iraq and expanding them in Afghanistan without paying for it;
- continuing much of the Bush tax relief without paying for it; and
- not measurably slowing the long-term growth of the major entitlement programs.
These are the results if the President’s policy program is successfully implemented.
I agree with the President that he inherited a tough situation, although I disagree with his explanation of the causes. Our fiscal car is driving toward a cliff. To avoid the cliff, the President might want to turn the wheel left, and I might want to turn right. At the same time, President Obama has the wheel. Complaining about the previous driver won’t prevent us from driving off the cliff. I hope the President will soon stop focusing on the last decade, and instead propose solutions for the next one.
Related Posts
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- Baseline games
- Should we care about deficit reduction or deficits?
- More on the decade of profligacy argument
- Understanding the upcoming deficit numbers
- 20 questions for the President’s press conference
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"The Obama Administration is continuing these wars …" that he has established time lines to bring to an end. How is it possible for someone to miss such a basic point and be taken seriously? It is tacky and tiresome for commentators to omit facts when advocating their political beliefs.
Give me a break. Talk is cheap, if he wanted to the Commander in Chief could start withdrawing the U.S. military tomorrow. He has chosen not to, and the result has been higher spending.
Excellent points Keith and thank you for providing this.
I will keep this as a clue bat for disgruntled libs who like to fudge numbers to cover for the emptiness of "Hope & Change" promises; we used to those lies.
Obama: …"the previous administration and previous Congresses created an expensive new drug program, passed massive tax cuts for the wealthy, and funded two wars without paying for any of it "
The total cost to date of the wars in Iraq and Afghanistan, according to the anti-war National Priorities Project, is something less than a trillion dollars.
According to the 2009 Medicare Actuarial Report, expenditures on Medicare Part D from 2004 through 2009 were about $210 billion.
Add both of these multi-year expenses together, and you have a number that is still less than the 2010 predicted Federal budget deficit. Not the budget, the deficit alone. For one year.
As for the tax cuts being a problem, according to the White House budget history documents, Federal receipts were $1.7 trillion in 2003, and increased steadily to over $2.5 trillion by the end of 2008. Does that sound like a revenue issue? Until 2008, deficits were declining. Keep in mind which party got control of the budget process in January of 2007.
Obama inherited a deficit from Congress, not from Bush. A President cannot spend a dime without authorization from Congress. Every penny of spending and borrowing during Bush's last two years was approved by Congress – and Obama as Senator voted for most (all?) of that spending and borrowing. So Obama inherited the deficit from himself and his fellow Democrats who controlled Congress.
@Mike Hunter –
He’s only acting responsibly. Ending both of the wars abruptly could do more harm than good. He did not choose to start them, but he chose to end them responsibly, because he has not much of a choice. Argument, that he wants to focus on Afganistan and therefore cannot criticize Bush for starting it is idiotic.
Besides which, the most substantial financial mistakes of the Bush administration were tax cuts on cap gains and Medicare part D. The reason the latter is bad is because it's a perpetuity, unlike the wars and it's "mandatory" also unlike the wars.
Against these issues, the administration has proposed to increase spending on Med part D (closing the donut hole) and sustain 2/3rds of the Bush tax cuts on income and cap gains.
So what's responsible about that? I mean seriously. If you want to bash Bush on fiscal matters, feel free to sign me up. But Bush-bashing is no defense of Obama when it is clear that his fiscal policy is actually worse than Bush's if deficits are the measure and far worse when those deficits occur in spite of the fact of having government run tax rates at levels never sustained in this country (20+ percent of GDP)
I agree that you are mingling the facts when you blame it on faulty forecasting. The budget WAS in surplus during the Clinton administration and ended up in a tragic deficit after the Bush one. The math is quite simple there.
To the military issue – you are basically saying, that because Obama did not end the wars immediately, he has no right to blame it on Bush, which is crazy. The wars canNOT be ended immediately, if they are to end as at least a marginally less messy a situation. This is a responsibility AND a budget burden that Obama inherited and cannot do much about. But to say that Bush did not have much choice is insincere, as the Iraq war was their creation and they insisted on going in, even projected the 'we will be welcomed as liberators and the troops are back within a few months' scenario. They blew it and they blew it big, blame Cheney and Bush and give Obama a break.
wlad,
On an annual basis, the wars are chump change. The total cost of Iraq and Afghanistan is $150 billion (not all of which is reducible because some of that cost is the base cost of the troops). 2010 deficit is $1.6 trillion, 2011 is $1.4 trillion.
Besides, Obama campaigned on ending the war in Iraq immediately and at least toyed with the idea of a rapid pullout in Afghanistan. He had and has the opportunity to end when he wants to. To say he can't do anything about it is crazy. Sure there are costs but there are costs to ending any spending item (except the mythical beast called waste fraud and abuse, frequently mentioned but never really seen).
I'm not interesting in blaming anyone. I'm interested in what the current crop of politicians proposes to do and, as near as I can tell, they propose to raise taxes by about $200 billion a year and still leave a $750 billion to $1 trillion deficit in place for the next decade. That's not about today, that's about what their policies will do in the long run. From my perspective, that's not good enough. Do you think it is?
Excellent piece!
The points on Obama's inability to come to grips with his own undoing of the American economy are salient, hard, and true. Obama's ignorance speaks volumes not only in literal, fiscal terms; but worse, in terms of confidence in the future. In the past, our dynamic free-market system had its usual self-correcting attributes to an extent…this is about to change with a statist at the helm. God help us.
"In the past, our dynamic free-market system had its usual self-correcting attributes to an extent"
What past are you talking about? Can you cite one example of this?
"Argument: The previous administration and previous Congresses created an expensive new drug program … without paying for any of it."
•Response 3: The prescription drug program actually saves money (for Medicare).
a. I have a blocked artery. I was offered the choice between a stent (intrusive surgery) or some pills. I took the latter, which avoided the surgery that would have been paid for by Medicare.
b. I also have a slipped disc. Before the Drug Benefit, I got epidural shots annually, which required a doctor, attending staff, and appropriate facilities. Since the Drug Benefit, I get a 7-pack of steroids, also annually, saving Medicare a much higher cost.
c. Multiply these savings by millions for older people with heart disease, high blood pressure, or diabetes, and you're into real money.
At least it should be netted out.
Yes "you" did have a budget deficit "back then", however, already that rested on feet of clay as it didn't take into account all liabilties of all public entities. Even back then Fannie Mae and Freddie Mac and Medicare and Medicaid and pensions were black holes and often technically insolvent, equally cities and counties (http://crisismaven.wordpress.com/2010/02/01/bloom... only they were exempt (and most still are) from nomal accounting rules. That's all a farce and creative accounting. However, I and everyone else I'm sure must agree we all wish those times were today (and everyone had a choice of president
of course. But since 2008 (at the latest) the US and many other "rich" nations have passed the point of no return (http://crisismaven.wordpress.com/2010/02/08/bloom... Hanging in makes things only exponentially worse.
Bottom line is, it is ridiculous for Republicans to claim the mantle of fiscal responsibility when they have never actually demonstrated any in modern history – and that needs to be pointed out over and over