Tuesday, December 24, 2013

Tip of the Hat

Bruce Bartlett's piece in The New York Times is more than just an excellent way to end the year on a high note, it offers a potential roadmap for success that Democrats can employ both in 2014 and 2016 to thwart what will undoubtedly be savage attacks from the GOP.

Assuming Obamacare gets up and rolling and there prove to be more winners than losers, Republicans are going to be scrambling by the summer to find something, anything they can run up the flag pole for a salute. Knowing that their modus operandi for most of the last five years was to harp on the deficit and debt, look for them to return to their roots. This piece portends a potential roadblock to that plan.

As always, facts have proven an inconvenient truth for the GOP, but they have also proven a difficult tool for Democrats to capitalize on. I predict this issue, along with GDP growth, will be dominant themes next year. Whichever party is best able to craft their message and get it out to the electorate will be running the country for the foreseeable future.


December 24, 2013, 12:01 am          

The Budget Deficit as Seen From 2009


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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take.”

On Dec. 20, the Brookings Institution economist Justin Wolfers sent out this provocative post on Twitter: “The decline in the budget deficit since 2009 is the largest four-year improvement since the demobilization from WWII.”

Perspectives from expert contributors.

I was aware that the deficit was declining sharply, both in nominal terms and as a share of the gross domestic product, but hadn’t thought much about the magnitude. Mr. Wolfers, whose partner Betsey Stevenson is a member of President Obama’s Council of Economic Advisers, is correct, as the data show. Fiscal year 2014 began on Oct. 1.

Congressional Budget Office

The Congressional Budget Office further projects that the deficit will fall to just 2.1 percent of G.D.P. in fiscal year 2015, less than it was in fiscal year 2008, when it was 3.1 percent of G.D.P. Thus we will have seen a decline in the deficit of 7.7 percent of G.D.P. over seven years.

There is indeed no comparable period in which the deficit fell as much since the aftermath of World War II for the simple reason that the deficit never grew large enough to drop so much. The largest deficit recorded in the postwar era before 2009 was in 1983, when it reached 6 percent of G.D.P.
After the war, the deficit fell to 7.7 percent in 1946 from 22 percent of G.D.P. in 1945. A surplus of 1.2 percent of G.D.P. was achieved in 1947.

This got me thinking about President Obama’s budgetary record when viewed from 2009. I turned first to the last C.B.O. projection of the George W. Bush administration, which was made on Jan. 7, 2009, and thus includes no Obama policies. The decline in the deficit after 2010 is largely attributable to the assumed expiration of the Bush tax cuts, because the C.B.O. must assume current law and they were set to expire at the end of 2010.

Congressional Budget Office

What’s important to see is that the federal government was going to run the largest deficit since World War II in fiscal year 2009, which began on Oct. 1, 2008, regardless of who became president on Jan. 20, 2009. It was baked in the cake by policies put in place by the Bush administration and the natural rise in spending and fall in revenues resulting from a sharp drop in economic growth and rise in unemployment, which economists call “automatic stabilizers.”

This point was always known by anyone who bothered to look carefully at the data, regardless of how many hand-wringers on both sides of the aisle acted as if the deficit was solely a result of President Obama’s policies. Both because of myopia and because everyone tends to invest the president with far more power than he actually has, there is a tendency to assume that whatever happens on his watch is attributable solely to him.

Although the stimulus bill enacted in February 2009 did indeed add to the short-run deficit, President Obama’s decision to extend many Bush policies was more important, fiscally. As David Leonhardt of The New York Times wrote on June 9, 2009, “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.”

According to the Council of Economic Advisers, $697 billion of the $783 billion stimulus package, or 90 percent, was spent by June 2011, adding very little to the deficit after that date.

Mr. Obama has always been reluctant to call attention to the bad budgetary hand he was dealt and the responsibility of his predecessor for much of the deficit. But he did on Dec. 8, 2009, when he said:
Despite what some have claimed, the cost of the Recovery Act is only a very small part of our current budget imbalance. In reality, the deficit had been building dramatically over the previous eight years. We have a structural gap between the money going out and the money coming in.
Folks passed tax cuts and expansive entitlement programs without paying for any of it – even as health care costs kept rising, year after year. As a result, the deficit had reached $1.3 trillion when we walked into the White House. And I’d note: These budget-busting tax cuts and spending programs were approved by many of the same people who are now waxing political about fiscal responsibility, while opposing our efforts to reduce deficits by getting health care costs under control. It’s a sight to see.
A September 2009 analysis by Alan J. Auerbach of the University of California, Berkeley, and William G. Gale of the Brookings Institution projected deficits based on Obama and Bush policies, taking account of such things as the state of the economy, the temporary nature of Mr. Obama’s stimulus and Mr. Bush’s oft-stated desire to see all his tax cuts made permanent. They then compared the two baselines.

Alan J. Auerbach and William G. Gale

On net, President Obama’s policies have added far less to the deficit than commonly believed, and much of that stemmed from extending the Bush tax cuts for two years past their original expiration date in 2010. Even after they were finally allowed to expire at the end of 2012, Mr. Obama allowed many of them to stay in place permanently, reducing revenues and raising the deficit.

Those who care about where the deficits came from need to look at the legacy of the Bush tax cuts, which are far more to blame than anything President Obama has done, as I have previously documented. A common trick in Republican budget analyses is to pretend that Mr. Obama is responsible for all of Mr. Bush’s policies.

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