We cannot take credit for this, but it’s an excellent article. It was originally printed on Fox Business.
Fox Business June 02, 2010 2:49 PM
by Elizabeth MacDonald
President Barack Obama said in a speech today at Carnegie Mellon University that:
“This is the same crowd who took the record $237 billion surplus that President
Clinton left them and turned it into a record $1.3 trillion deficit.”
Set aside what the President trumpets on the one hand – that the new $90 billion tax on banks will bring down the deficit by $90 billion over the next decade, a tiny $9 billion a year – while dismissing the complaints about US taxpayer money going toward pork and all foreign aid, which are just 3% of the budget.
Is this claim by the President true, that prior Congresses and Administrations are responsible for the massive deficits?
Heritage’s analyst Brian Riedl has noted:
* President Bush expanded the federal budget by a historic $700 billion through 2008, over eight years. President Obama is adding trillions more in just four.
* President Bush began a string of expensive financial bailouts. President Obama accelerated that course.
* President Bush created a Medicare drug entitlement that will cost an estimated $800 billion in its first
decade. President Obama’s health-reform bill would cost $1.1 trillion over ten years, says the CBO.
* President Bush increased federal education spending 58% faster than inflation. President Obama would double it.
* President Bush became the first President to spend 3% of GDP on federal antipoverty programs. President
Obama has already increased this spending by 20%.
* President Bush tilted the income tax burden more toward upper-income taxpayers. President Obama would continue that trend.
* President Bush presided over a $2.5 trillion increase in the public debt through 2008. Setting aside 2009 (for which Presidents Bush and Obama share responsibility for an additional $2.6 trillion in public debt), President Obama’s budget would add $4.9 trillion in public debt from the beginning of 2010 through 2016. Riedl says that these numbers include spending on Iraq and Afghanistan during the Bush years. President Bush funded the wars through emergency supplementals (not the regular budget process, but that spending did not simply vanish. It is included in the numbers above, Riedl says. President Obama repeatedly said he planned to freeze spending for three years, and he’s also promised to cut the deficit in half by the end of his term. But as Heritage analyst Riedl has already noted, the President has quadrupled the deficit with massive spending, so halving or freezing it shouldn’t cause analysts to crook the trumpets just yet.
Setting the Record Straight
From 1982 to 2007, the U.S. created 45 million new jobs, compared to fewer than 10 million in Europe, and U.S. economic growth was more than one-third faster over the last two decades, says the Bureau of Labor Statistics.
Yes, the rich got big tax breaks under Bush, but the top marginal tax rate was cut by less than five percentage points, or $4.60 for every $100 of earnings, from 39.6% to 35%, and the second-highest rate reduced from 36% to 33%.
Also, income tax rates were lowered at every income level.
Remember, John F. Kennedy cut taxes in the ‘60s, as did Ronald Reagan and George W. Bush. JFK, Reagan and Bush all won bipartisan support for their cuts. President Obama wants to raise taxes across the board.
Remember what JFK said:
“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital…the ease
ordifficulty experienced by new ventures in obtaining capital and thereby the strength and potential for growth in the economy.”
“An economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits.”
President Bush’s personal income, capital gains and dividend tax rate reductions actually brought in an estimated $130 billion in tax revenues, and on his watch, the economy grew the equivalent size of France’s GDP. As the New York Times reported on its front-page headline on July 9, a “Surprising Jump in Tax Revenues Curbs U.S. Deficit.”
As business columnist Jeffrey Anderson has noted:
*Before Bush took office, there were only 15 years in which the U.S. federal budget deficit had reached $100 billion. Our deficit had never topped $300 billion.
*In the eight years that Bush signed the congressional budget into law, our deficits broke the $300 billion barrier five times. In two of those five years, they also broke $400 billion. And in one (2009), his share of the deficit topped $700 billion.
*Bush thus became the first president to eclipse the $300-, $400-, $500-, $600- and $700-billion deficit-spending marks.
*How has President Obama done?
*In his first two years of proposing the budget, President Obama has broken the $1.2 trillion barrier both times. In one of those years, he broke the $1.5 trillion barrier.
*In fact, whether measured in constant dollars, real dollars or even as a percentage of the gross domestic product, Obama’s average deficit in his first two years will more than triple the average deficit during the Great Depression.
*Of the eight congressional budgets that President Ronald Reagan signed, all of which were passed by a heavily Democratic House and nearly half by a Democratic Senate, the average deficit was $177 billion, or 4.1% of GDP.
*The average projected deficit for the two budgets that President Obama has proposed, also to a heavily Democratic Congress, is $1.412 trillion, or 9.9% of GDP, estimated to be 10.6% for 2010.
*Despite not having had to fund Cold War-level expenditures on defense (the defense budget was 64% higher under Reagan than under Obama, even as a percentage of GDP), Obama’s annual deficits are, by any measure, easily doubling Reagan’s – and that’s not even counting his 2009 deficit spending.
Keith Hennessey, a Bush economic advisor, has offered a counter argument to defend former President George W. Bush’s administration, according to Fox Business’s Bruce Becker. Hennessey posted this on his blog back in February of this year, after hearing similar claims (although the numbers are slightly different) by President Obama at that time, Becker notes.
Argument: The Bush policies caused a $200 billion annual surplus and “projected surpluses stretching out toward the horizon” to turn into deficits.
* Response 1 from Hennessey: “This argument always relies on one specific forecast which later turned out to be inaccurate. In
January 2001, when President Bush took office, the Congressional Budget Office projected a 2002 surplus of $313 billion. One year later they projected a 2002 deficit of $21 billion. Of the $334 billion decline, CBO said 73% was from “economic and technical changes” the CBO had to make corrections to its forecasted numbers behind the scenes that had nothing to do with President Bush’s policies. The other 27% was the result of legislation. The impact of policy over time was larger than in 2002 (about 60% over ten years), but it is still incorrect to attribute it all to policy, rather than to a combination of policy and incorrect forecasting. Argument: As a result of these policies, when President Obama took office, the deficit stood at $1.3 trillion.
* Response 2 from Hennessey: The 2009 deficit President Obama inherited was large, the CBO says $1.2 trillion rather than $1.3 trillion, but this is principally the result of a drop in tax revenues resulting from the severe recession beginning in September 2008, and from more than $400 billion of projected 2009 spending for bailouts of Fannie Mae, Freddie Mac, the big banks, and other large financial institutions. Before the recession and financial collapse of 2008, annual budget deficits during the Bush Administration averaged 2% of GDP (which would be about $290 billion in 2009), including the higher spending and lower revenues from the drug benefit, Iraq and Afghanistan, and tax cuts. President Obama is using one horrible year to mischaracterize the other seven. Again, President Obama’s budget deficits are 9.9% of GDP, says Fox News analyst James Farrell.
*Response 3 from Hennessey: President Obama does not point out that his first major policy effort was to propose and enact an $862 billion stimulus law without paying for it. (CBO has upped their estimate from the previous $787 billion figure.) He did inherit a huge deficit, in large part resulting from the recession and bailout costs, and he immediately made it much bigger.
President Obama also spoke about a “new foundation” for the economy just a few months after he took office. when the jobless rate
was at 8.5%.
“Fourteen months and hundreds of billions of stimulus spending later, it’s now 9.9%,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell, R-Ky.
The President also said that his Administration is doing much more to spend taxpayer dollars on infrastructure to expand and grow the economy. But again, is that true?
Here’s how the breakdown of stimulus funds shakes out. As you can see, most went to tax benefits and items such as unemployment benefits, not infrastructure:
Tax Benefits: $288B allocated, $162.7B paid
Contracts, Grants, Loans: $275B allocated, $107B paid out
Entitlements: $224B allocated; $129B paid out.
As you can see, the Administration does not have an “infrastructure” category. The “contracts, grants and loans” is the category where there would be money for stimulus projects, so the two-thirds that go to tax benefits and entitlements is $0 spent on infrastructure.
However, the Dept. of Transportation ranks sixth on government agencies that have paid out the most money in stimulus funds, and this is where you would expect the bulk of “infrastructure” spending to be. Health and Human Services, Labor, Education, Social Security and Agriculture rank higher, in that order. Also, economists in a recent National Association for Business Economics survey say the economic recovery was not helped by the stimulus bill, despite the administration’s claims the massive program “saved or created” jobs, a term still loosely defined.
Fully two-thirds of the economists polled say the additional measure won’t affect hiring, which is why the national unemployment rate will remain hovering near double digits despite the White House’s promise the Recovery Act would keep it below 8%.
Why Stimulus Costs Have Risen?
* The CBO raised its estimated cost of the bill from $787 billion to $862 billion – a $75 billion increase, due to more spending on things like unemployment benefits and food stamps. According to the Wall Street Journal and USA Today:
* About 1/3 of the stimulus has been paid out so far.
* Only about 11% of stimulus infrastructure spending has been paid out.
* About 58% of stimulus spending so far has gone to government and social services.
* Nearly $130 billion went towards tax cuts, Medicaid assistance for the states, unemployment and food stamps.
* $112 billion of 2009 stimulus spending went to balance state budgets.
* Administering the stimulus cost $700 million in 2009
* More than $3.5 billion in economic stimulus funds are going to programs that President Obama wants to
eliminate or trim in his new budget.