The Sunday NY Times for July 24 published an article by Teresa Tritch:
How the Deficit Got This Big. She shows, using facts from the Congressional Budget office, that
two wars and the Bush Tax Cuts were by far the most important factors in changing the outlook of budget surpluses from the Clinton era to the prospect of huge deficits that we now face. Here are two important tables extracted from this article. The first shows the the dishonest budget projections made during the Bush era. It's important to remember that their estimates of the cost of the war in Iraq were phony from start to finish; in fact, as phony as their excuses for starting the war in the first place. The second chart is a breakdown of the various components of the budget deficits, by administration. Read the article, look at the charts, and judge for yourself.
Wait a second. Those projections of big surpluses were made back around the year 2000, looking forward 10 years. Right? Those projections' assumptions didn't contain anything about 9/11, or the 2001/2002 recession, or the housing/credit collapses, Lehman Brothers, AIG, GM, etc. Right? And now we've got huge deficits compared to what those 10-year old projections said 2010 would look like, and you think it was due more to the Bush tax rates and the Iraq/Afghanistan wars than the items I mention above?
ReplyDeleteBack in 2007 we had the same tax rates as today. And we were fighting in Iraq and Afghanistan back then as well. Yet in 2007, our deficit was only about $150 billion and now it's in the trillions. All with the same tax rates and same wars. How could the wars and tax rates be the main drivers of our huge increase in deficits when under the same circumstances in 2007 they produced a much smaller deficit?
The answer is: lag. Policies almost never have immediate effects. Here's an analogy.
ReplyDeleteDo you know when the shortest day of the year is in the northern hemisphere? It's the Winter Solstice, usually around December 21st. However, this is not the coldest day of the year, which, statistically, usually occurs sometime in January. Similarly, the longest day is the Summer Solstice on June 21, but the weather doesn't usually heat up until well into July.
Similarly, the Bush Tax Cuts and the expenses of two wars and drug plan all off-budget took a while to have their effect.
Look at the second chart which has the actual costs and you can see the effects of Republican policies. If you dispute these figures, explain how so, but don't give me vague questions such as "how can that be?" Where do YOU think the money went?
How long of a lag are you talking about? Those tax rates have been around since 2004. And they are a reason why our deficit went from $150 billion in 2007 to over a trillion today? Same for the wars. We've been fighting them for years. But somehow they were responsible for the deficit ballooning so much from 2007 up til today? Try again. With the deficit going from $150 billion in 2007 to over a trillion today, something other than the tax rates and the wars must have been the main driver of this.
ReplyDeleteThe second graph is trying to show the cause of the swings from surpluses to deficits, but the starting point in her analysis is a projection made in the year 2000 about what the surplus might look like ten years later using a lot of assumptions and unfortunately the world didn't follow along.
The reason why we have such large deficits today compared to 2006/2007 is not all of a sudden because of the wars and the tax rates. It's because of the massive falloff in revenues that was due to the economic collapse - they got down to around 15% of GDP while the large recent increase in spending is now at a record high, close to 25% of GDP. Spend 25% of GDP while you're only getting in 15% and you've got big problems.
And PS - the historical budget deficit numbers that I cite come straight from the CBO's website and include the wars, drug plan, etc. Whether it was "on" or "off" budget when the budget was proposed or passed isn't really relevant after the fact. All of that spending shows up in the actual deficit (or surplus) data and the debt totals. Once it's spent it's in the CBO's historical numbers.
You said in your original posting that "now it's in the trillions" (the deficit). Yes, a lot of the $14 trillion or so of current deficit is due to the recession (I've said that in previous blogs); nevertheless, the Bush cuts and the wars and the drug plan account for a neat $3 trillion or so of deficits independent of the recession -- a first installment of the mighty deficits we now have.
ReplyDeleteThe recession was caused by very bad economic policies, some of which were due to Clinton and his advisers, but most of which, in my opinion, were caused by the second Bush administration's further emphasis on de-regulation. Alan Greenspan didn't help either, and he was a sacred cow of several administrations.
Bankers and corporate giants in general can not be trusted to police themselves: greed is their bottom line (a boast once in fashion) -- always has been and always will be. That's the nature of the beast. The only way of controlling them is by ruthlessly enforced regulation. That's why Republican/conservative laissez-faire policies won't cut it. In fact, middle-of-the-road Democratic policies probably won't cut it either.
In any case, so far it's not spending on social programs like Medicare that that is causing our deficit problems. Some day it may be unless we have a rational plan such as single-payer. There's simply no way to prevent people from getting old or sick; we can apply economic triage, of course, but other countries seem to have found better ways of helping their citizens at less cost than we pay for worse coverage.
I really have a hard time believing that a tax rate and wars which caused only a $150 billion deficit in 2007 are suddenly the main drivers for why our 2010 deficit is over a trillion dollars. That's some lag for wars and tax rates that have been in place since 2004. We have no way of knowing how much tax revenue would have been collected if Bush hadn't cut rates.
ReplyDelete