Tuesday, June 12, 2012

Where did the US federal deficit come from? (#3) – Bruce Bartlett on the fiscal consequences of the Bush II administration

I've already addressed that question here & here & elsewhere ... but there's so much propaganda, misinformation, and genuine misunderstanding about these matters that it's worth coming back to them periodically.

Essentially, the long-term tendency toward ever-increasing US federal deficits was set in motion during the Reagan administration and then continued by Republicans who had learned the lesson, as Dick Cheney put it, that "Reagan proved deficits don't matter".  (Except, curiously enough, when Democratic presidents are in office—then Republicans start hyperventilating about out-of-control deficits again, at least temporarily.)  The Clinton administration made a heroic effort to reverse this dynamic and brought it under control, so that by the end of 1990s the US federal government was actually running surpluses. Then in 2000 the Republicans recaptured the presidency (it would be a bit of a stretch to say they won the 2000 presidential election) and decided to throw a party. We're still living through the hangover.

In column today Bruce Bartlett—recovering Reaganite, disillusioned Republican, and genuine deficit hawk—tallies up "The Fiscal Legacy of George W. Bush". Read the whole thing, but here are some highlights:
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.”

Republicans assert that Barack Obama assumed sole responsibility for the budget on Jan. 20, 2009. From that date, all increases in the debt or deficit are his responsibility and no one else’s, they say.

This is, of course, nonsense – and the American people know it. As I documented in a previous post, even today 43 percent of them hold George W. Bush responsible for the current budget deficit versus only 14 percent who blame Mr. Obama.

The American people are right; Mr. Bush is more responsible, as a new report from the Congressional Budget Office documents.

In January 2001, the office projected that the federal government would run a total budget surplus of $3.5 trillion through 2008 if policy was unchanged and the economy continued according to forecast. In fact, there was a deficit of $5.5 trillion.

The projected surplus was primarily the result of two factors. First was a big tax increase in 1993 that every Republican in Congress voted against, saying that it would tank the economy. This belief was wrong. The economy boomed in 1994, growing 4.1 percent that year and strongly throughout the Clinton administration.

The second major contributor to budget surpluses that emerged in 1998 was tough budget controls that were part of the 1990 and 1993 budget deals. The main one was a requirement that spending could not be increased or taxes cut unless offset by spending cuts or tax increases. This was known as Paygo, for pay as you go.

During the 2000 campaign, Mr. Bush warned that budget surpluses were dangerous because Congress might spend them, even though Paygo rules prevented this from happening. His Feb. 28, 2001, budget message reiterated this point and asserted that future surpluses were likely to be even larger than projected due principally to anticipated strong revenue growth.

This was the primary justification for a big tax cut. Subsequently, as it became clear that the economy was slowing – a recession began in March 2001 – that became a further justification.

The 2001 tax cut did nothing to stimulate the economy, yet Republicans pushed for additional tax cuts in 2002, 2003, 2004, 2006 and 2008. The economy continued to languish even as the Treasury hemorrhaged revenue, which fell to 17.5 percent of the gross domestic product in 2008 from 20.6 percent in 2000. Republicans abolished Paygo in 2002, and spending rose to 20.7 percent of G.D.P. in 2008 from 18.2 percent in 2001. [....]
Bush II and the Republican Congress also embarked on major spending increases that they made no effort to pay for, including a new Medicare Part D entitlement that was notoriously unfunded and two significant wars accompanied by the major tax cuts just mentioned—a combination that I believe was unprecedented in US history. I refer you to Bartlett's discussion for those and other details. But now please read this conclusion carefully:
Putting all the numbers in the C.B.O. report together, we see that continuation of tax and budget policies and economic conditions in place at the end of the Clinton administration would have led to a cumulative budget surplus of $5.6 trillion through 2011 – enough to pay off the $5.6 trillion national debt at the end of 2000.

Tax cuts and slower-than-expected growth reduced revenues by $6.1 trillion and spending was $5.6 trillion higher, a turnaround of $11.7 trillion. Of this total, the C.B.O. attributes 72 percent to legislated tax cuts and spending increases, 27 percent to economic and technical factors. Of the latter, 56 percent occurred from 2009 to 2011.

Republicans would have us believe that somehow we could have avoided the recession and balanced the budget since 2009 if only they had been in charge. This would be a neat trick considering that the recession began in December 2007, according to the National Bureau of Economic Research.
They would also have us believe that all of the increase in debt resulted solely from higher spending, nothing from lower revenues caused by tax cuts. And they continually imply that one of the least popular spending increases of recent years, the Troubled Asset Relief Program, was an Obama administration program, when in fact it was a Bush administration initiative proposed by the Treasury Department that was signed into law by Mr. Bush on Oct. 3, 2008.

Lastly, Republicans continue to insist that tax cuts are highly stimulative, often saying that they add nothing to the debt, when this is obviously ridiculous.

Conversely, they are adamant that tax increases must not be part of any deficit-reduction package because they never reduce deficits and instead are spent. This is also ridiculous, as the experience of the Clinton administration clearly shows. The new C.B.O. data confirm these facts.
=> Andrew Sullivan adds:
When you check reality, rather than the alternate universe constantly created by Fox News and an amnesiac press, you find that Bush had a chance to pay off all our national debt before we hit the financial crisis - giving the US enormous flexibility in intervening to ameliorate the recession. Instead, we had to find money for a stimulus in a cupboard stripped bare - its contents largely given away, by an act of choice. I'm tired of being told we cannot blame Bush for our current predicament. We can and should blame him for most of it - and remind people that Romney's policies: more tax cuts, more defense spending are identical. With one difference: Bush pledged never "to balance the budget on the backs of the poor."

Mitt Romney has no qualms about doing that very thing. And he will, if he is given the chance.
Correct. Bush II at least claimed to be a "compassionate conservative." In the current discourse of national Republicans, that pretense has been abandoned—and this definitely applies to candidate Romney, not just to the passel of cranks, clowns, and dangerous loons he defeated in the Republican primary.

Well, perhaps Romney is just pretending to be callous, mean-spirited, xenophobic, and extremist, first to win the nomination and then to fire up the so-called Republican "base". If he wins in November, we may get a chance to find out. What is indisputable is that his whole economic message, and that of the Republican Party more generally, is based on falsehoods, distortions, transparent fallacies, and cynical demagoguery. We'll see whether it works.

Yours for reality-based discourse,
Jeff Weintraub