Monday, July 25, 2011

Whose Policies Drove Up The Deficit?

Teresa Tritch outlines the growth of the deficit since the Clinton era, which ended with a surplus. The country was driven into a ditch by Bush administration policies, not by social programs and the safety net:

…it is worth asking how we got here — from healthy surpluses at the end of the Clinton era, and the promise of future surpluses, to nine straight years of deficits, including the $1.3 trillion shortfall in 2010. The answer is largely the Bush-era tax cuts, war spending in Iraq and Afghanistan, and recessions.

Despite what antigovernment conservatives say, non-defense discretionary spending on areas like foreign aid, education and food safety was not a driving factor in creating the deficits….

The following chart shows the cost of new policies under Bush and Obama (including projections for a second Obama term). Bush's policies cost $3.63 trillion more (click on chart to enlarge):

Tritch draws compelling conclusions on ending the Bush tax cuts and the need for government economic stimulation during a downturn, more tax revenue and health care reform:

A few lessons can be drawn from the numbers. First, the Bush tax cuts have had a huge damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels. Second, a healthy budget requires a healthy economy; recessions wreak havoc by reducing tax revenue. Government has to spur demand and create jobs in a deep downturn, even though doing so worsens the deficit in the short run. Third, spending cuts alone will not close the gap. The chronic revenue shortfalls from serial tax cuts are simply too deep to fill with spending cuts alone. Taxes have to go up.

In future decades, when rising health costs with an aging population hit the budget in full force, deficits are projected to be far deeper than they are now. Effective health care reform, and a willingness to pay more taxes, will be the biggest factors in controlling those deficits.

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