Tax Analysts Blog

Improving Deficit Numbers Don't Make Obama a Deficit Hawk

Posted on Mar 10, 2015
The Congressional Budget Office released its new 10-year baselines on March 9 showing that the deficit will be $486 billion in 2015, about the same as last year. The report was initially expected last week, but was delayed by winter weather in the Washington area. The CBO's new baselines will undoubtedly be touted by President Obama as showing that he is keeping his promise to shrink the deficit, but those who think the president is a deficit hawk should note that the smallest deficit projected during this administration ($462 billion in 2017) is still larger than the deficit he inherited ($458 billion in 2008).

Throughout the George W. Bush administration, Democratic critics attacked the Republican president for his inattention to the deficit and rising government debt. They decried his reckless tax policy (which included two major tax cuts in 2001 and 2003) and pointed to how Bush had squandered the budget surplus created by legislation passed under President Clinton. In some ways, they were correct. In 2000 there was a budget surplus of $236 billion, something that seemed a miracle considering the acrimony over the deficit during George H.W. Bush's presidency and the 1992 presidential campaign. By 2004, the federal government was running a budget deficit of $412 billion. But the deficit shrank to $160 billion by 2007, the year before the effects of the recession hit.

Obama pushed the narrative that George W. Bush was irresponsible on deficits in 2008 and continued to blame Bush, and then the recession, for the deficits and debt being run up in his first term. And there is some truth to that. Government receipts dropped from $2.5 trillion in 2008 to $2.1 trillion in 2009 and didn't pass 2008 levels until 2013. That's almost entirely because of the economic downturn. But it isn't just lower tax receipts that contributed to the $1.4 trillion, $1.3 trillion, $1.3 trillion, and $1.1 trillion deficits from 2009 to 2012. Spending surged. Government outlays were $2.9 trillion in 2008. Thanks to the 2009 stimulus package, they rose to $3.5 trillion in 2009 (adding over $500 billion to the record 2009 deficit) and $3.6 trillion by 2011. Is George W. Bush responsible for profligate spending that probably, in the end, had little to do with the economic recovery?

As a second-term president, Obama is focused on his legacy. That explains his desire to cut a nuclear deal with Iran, accomplish something on immigration, and protect every piece of his signature healthcare reform law. It also explains why the White House repeatedly touts the improving deficit situation. Obama doesn't want to be remembered for leaving the country in a poor fiscal position if things fall apart during the next administration (something that is alluded to in the 10-year budget outlook). But it should be remembered that the "low" deficits that the president is praising right now are larger than anything the country experienced during his predecessor’s term. In fact, the deficits run by George W. Bush and the amount of new debt accumulated during his eight years in office look downright quaint compared with what has happened during the Obama years.

Read Comments (6)

Edmund DantesMar 9, 2015

Excellent points.

The deficit of Obama's final two years will go higher if the current bull
market ends. Stocks are overdue for a correction, and the p/e ratios are
getting into bubble territory.

travis rechMar 10, 2015

@Edmund "overdue for a correction" sounds like gambler's fallacy to me.
Predicting the end of the bull market is one thing, since there are always ups
and downs but when you say something is "due" is dangerously close to saying
red is next on the roulette wheel since black was the last 4 tosses.

Mark StraussMar 10, 2015

Your comment that the stimulus package had little to do with the economic
recovery is contradicted by both Paul Krugman and Joseph Stiglitz, both Nobel
Laureate economists. As Stiglitz noted no country ever ended a recession with
austerity.

edmund dantesMar 10, 2015

absolutely correct, travis rech. bull markets are always predicted to end many
times before they finally do. i hesitate to make such a prediction.

however, given the length and strength of this bull market it's more like
saying red will come up after 50 time coming up black. an added factor that
that p/e ratios are suggesting prices are too high by historic standards, but
they also are not infallible.

My larger point is that I don't believe CBO factors any downturn into its
analysis, so the $462 billion deficit projection for 2017 is likely to be
overly optimistic.

robert goulderMar 11, 2015

The party that happens to be in power spends big money but doesn't talk much
about deficits, other than to say they're not a problem and everything is fine.
Meanwhile the opposition party rants and obsesses over the other guy's
spendaholic tendencies. Anybody else see a trend?

vivian darkbloomMar 13, 2015

Jeremy Scott, you are missing a couple of things that have understated the
deficits Obama should be responsible for.

First, due to the accounting for TARP, Obama got credit when those loans were
repaid and his predecessor got the deficit hit.

Second, due to the Federal Reserves QE activities, the Fed has been
transferring about $100 billion per year to the Treasury, thereby reducing the
officially calculated deficits. This will be reversed when interest rates rise
and/or the Fed sells its portfolio. That will likely be under the next
President's term and he or she will get the blame.

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