Wednesday, 26 September 2012

Who Is Responsible For The US Deficit?

Cartoon of Barack Obama jerking his thumb at Mitt Romney
To address the 2001 recession, President Bush launched tax cuts. The first tax rebate, EGTRRA, was designed to jumpstart consumer spending. Checks were mailed to households in August 2001. After the 9/11 attacks, Bush focused on the War on Terror.

If you want to annoy me, stupidity will do it every time. Ignorance and a refusal to accept the facts as they are make my blood boil. It's how I'm wired. This article in the Wall Street Journal is a case in point, and assumes that Barack Obama, having inherited a massive deficit, should have resolved or significantly reduced it by now. Watch me tear it apart.

Okay, let's look at the facts, shall we?

Despite their political differences, both President George W. Bush and President Barack Obama used a similar expansionary fiscal policy. This made sense during the times both were confronted with recessions. That's because expansionary policy stimulates economic growth. In the long term, however, expansionary policy damages the economy. How? By increasing the Federal debt when the recessions were over. Another similarity? Both Presidents spent more on defense than any prior Administration since WWII. We know WHAT is responsible: The combination of weak government revenues (tax receipts) and a vast increase in government spending.

George W. Bush

George W Bush
In 2004, Bush proposed the JGTRRA tax cuts to help businesses recover from the lingering effects of the 2001 recession, which the 9/11 attacks aggravated. In 2005, he missed an opportunity to quickly react to Hurricane Katrina, which some estimates said cost $200 billion in damage. As a result, GDP fell to 1.5% in Q4 2005. He then added $33 billion in the FY 2006 budget to help with cleanup.

President Bush did not respond to the Subprime Mortgage Crisis with any fiscal policy or regulations. He left it up to the Federal Reserve to address the resultant banking crisis with monetary policy only.

Whether or not you think the "Bush Boom" was real, the recession and financial crisis began on his watch, and the deficit was already exploding when President Obama took office.

Took office 20 January 2001. Total debt: $5,728 billion
Left office 20 January 2009. Total debt: $10,627 billion

 President Barack Obama

President Barack Obama 2008-2016
Obama outlined his economic policies in the 2008 Presidential election campaign. Once elected, he named former Federal Reserve Chairman Paul Volcker, who advocated tougher financial restrictions, to head his Economic Advisory Panel. He then launched the $787 billion Economic Stimulus Package, which returned the economy to positive GDP growth by the third quarter 2009.

The next year, Obama pushed through the Health Care Reform Act, with the goal of lowering health care costs. He also supported passage of the Dodd-Frank Bank Reform Act, which was designed to make another financial crisis less likely. It regulated non-bank financial companies, like hedge funds, and the most complicated derivatives, like credit default swaps. It included the Consumer Financial Protection Agency, which consolidated protection for consumers with credit and debit cards, consumer and payday loans, and credit reporting agencies, and regulates credit and mortgage fees.

President Obama's stimulus certainly hasn't had as big an impact on the economy (and, therefore, government revenues) as he and his advisors promised it would. Given the extent of the mess Obama inherited, it's possible that nothing would have fixed it by now.

Took office 20 January 2009. Total debt: $15,556 billion

Okay, who's the biggest spender?

President Obama started off with a debt left behind by G.W. Bush. To deny that is to enter the realms of fantasy. The Bush boom may have created a small stimulus, but Economics 101 clearly states that if you take in less than you spend, it's a problem. I'm going to look at how much they spent and what they spent it on. When Obama entered office, the Bush tax cuts were already in place and two wars were ongoing. Is it fair to blame Obama for war costs four months after he was inaugurated, or tax collections 10 days after he took office?

G. W. Bush

Bush added $5.1 trillion in his eight years — mostly due to tax cuts and the wars in Iraq and Afghanistan. These are the numbers:

Tax Cuts

In FY 2001, tax revenue in dollars was $1,991.1 billion. For FY 2002 - the first budget of the Bush administration, which went into effect after President George W. Bush signed tax cuts into law in June 2001 - revenue dropped to $1,853.1 billion.

In FY 2003, revenue dropped further, to $1,782.3 billion - about a 10-percent reduction from two years earlier.

This drop in tax revenue occurred even as economic activity - the nation's GDP - was continually rising, according to Bureau of Economic Analysis data. Revenues then increased for four years - from $1,880.1 billion in FY 2004 to $2,568 billion in FY 2007 - before sliding to $2,524 billion in FY 2008, and then dropping further to $2,105 billion in FY 2009 as the recession exploded. Source Data: White House Office of Management and Budget - Historical Tables

Spending has increased every year from FY2001 - the last year the government spent less than it took in. In FY2001 spending was $1,862.8 billion; by FY2009 spending was at $3,517.7 billion - more than $1.4 billion more than what was collected in taxes. Analysis by Citizens for Tax Justice claims that the Bush era tax cuts resulted in $1,918.9 billion in lower revenue from FY2001 through FY2009, and that the total cost if implementing the cuts (including interest payments on debt) was $2,141 billion.

The Wars

  • FY 2001 & 2002 - Bush asked for $20.8 billion to launch the Afghanistan War, and $13 billion for additional Security measures.

  • FY 2003 - The "Shock and Awe" start to the War in Iraq cost $53 billion.

  • FY 2004 - Total WoT costs were $94.1 billion.

  • FY 2005 - The budget request increased to $107.6 billion.

  • FY 2006 - Defense spending was $594.2 billion, including $120.4 billion added by a Supplementary budget for the War on Terror.

  • FY 2007 - Military spending was $671.6 billion, which appropriated $173.6 billion specifically for the War on Terror.

  • FY 2008 - Military spending was $686 billion, including $197.5 billion in supplemental spending for the War on Terror.

  • FY 2009 - Security spending was $782 billion, including $70 billion in supplemental spending for the War on Terror.

Between FY 2001-FY2009, $850 billion was spent on the War on Terror. This was in addition to the Department of Defense base budget. It also does not include Veterans Administration costs to care for returning servicemen. It doesn't include expanded Homeland Security expenses.

Homeland Security includes the TSA and all the extra spending that went with it.

Barack Obama

Detractors of President Obama seem to think he can simply wave a magic wand and clear away the mess left by G.W. Bush. As we (hopefully) agree, he inherited a mess which, whatever your position, you have to accept was the result of spending more money than was being taken in. Okay, first, getting rid of the Bush tax cuts wasn't an option, Congress wouldn't stand for it. Secondly, he pulled the troops out of Iraq and got hammered for doin' it wrong. Riddle me this: how can you cut the deficit while keeping the tax rates, loopholes, and breaks in place while spending like there's no tomorrow on wars you didn't start? Is it really worth robbing the poor box and characterising Tiny Tim as some kind of indigent scrounger?

The phrase "War on Terror" was dropped by the Obama Administration. However, total military-related costs escalated because they now included all these ancillary expenses.

  • FY 2010 - Security spending came in at $810 billion. This included $167.3 billion for overseas contingency operations, which meant increased troops in Afghanistan and a slow wind-down in Iraq.

  • FY 2011 - Total security spending requested for FY 2011 was $895 billion. It included $159 billion in contingency funds to support initiatives in Afghanistan and Pakistan. However, only $838 billion total was actually spent. However, the $159 billion in contingency funds was approved.

  • FY 2012 - Total defense spending requested for FY 2012 was $881 billion, including $188 billion for Iraq and Afghanistan. As of February 2012, $868 billion was approved.

  • FY 2013 - The most recent budget requested $851 billion for security spending. This includes $88 billion for just the war in Afghanistan, since troops were withdrawn from the war in Iraq.

Contingency funds for operations in Afghanistan and Iraq from FY2010-FY2013 was $602 billion -- more than the actual Bush "War on Terror" initiative. President Obama campaigned on defense reduction, and was awarded the Nobel Peace Prize for pulling troops out of Iraq. However, his military-related spending made him look like a hawk.

The FY 2011 security budget request of $895 billion was the highest in U.S. history. Why didn't the Nobel Committee, or anyone else, pick up on this? Mainly because the budget was so complicated, you really had to dig to find the information, and to understand it. The $895 billion security budget request included spending across several departments

  • DoD - $548.9 billion
  • Dept. of Energy, Nuclear Security - $11.2 billion
  • Homeland Security - $43.6 billion
  • Veterans Affairs - $57 billion
  • State and other International Programs - $58.5 billion.

This only added up to $719.2 billion. Where's the rest? In the mis-named Contingency Operations Budget - $159.3 billion for DoD and Homeland Security Overseas Operations. It was mis-named because Contingency Operations made it seem like a short-term, temporary contingency. In fact, this spending has been a permanent part of the War on Terror since the Bush Administration.

Obama requested more for security spending than Bush ever did with the War on Terror. To be fair, Obama's security budget is a more realistic assessment of America's true defense costs. It includes Veterans Affairs, Homeland Security, the Nuclear Safety Administration and the State Department. Bush's budget didn't.

War on Terror Spending to Date

Combined, the increased above-budget security costs between FY2001-FY2013 was $1.452 trillion. This was a significant addition to the U.S. debt. However, you rarely see this debated as a potential area where costs should be cut. The only Presidential candidate who brings it up is Texas Republican Representative Ron Paul. The true cost of the War on Terror is not just what it has added to the debt, but also the lost jobs that could have been created with those funds. Every $1 billion spent on defense creates 8,555 jobs and adds $565 million to the economy. However, that same $1 billion given to you as a tax cut would have stimulated enough demand to create 10,779 jobs and put $505 million into the economy as retail spending. And $1 billion in education spending adds $1.3 billion to the economy and creates 17,687 jobs. Perhaps, as they say in sports, the best defense is a good offense.

The current election features a candidate who would continue the Bush policies of supply-side economics, which basically means cutting taxes for the rich and throwing the poor and the old under a bus to pay for that plus more wars and even more wars. If you don't like President Obama, vote for Libertarian candidate Gary Johnson instead. He hates war and the waste that goes with it as much as I do.

Sources:, Snopes, Business Insider, CBS News.

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