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The Obama Watch
The Devil Is in the Deficits
Under the Obama no-recovery, they will continue to deepen, and if it’s lucky the economy might even sputter. But who’s to say its luck can hold out?
Last week, the Congressional Budget Office (CBO) issued its long-term projections regarding President Obama’s new budget proposal this year. Those projections show even higher Federal spending, deficits, and debt than Obama’s budget confessed to just last month.
The CBO projects that President Obama’s deficits would be $1.2 trillion higher over the next 10 years than estimated in Obama’s budget released on February 1. Federal deficits over those 10 years would be almost $10 trillion ($9.761). National debt held by the public would double in just 4 years, from $5.8 trillion at the end of 2008 to $11.6 trillion at the end of 2012. It would almost quadruple to $20.3 trillion by 2020, $1.7 trillion more than Obama projected just last month.
That national debt in 2020, CBO further projects, will be 90% of GDP, which means the federal government will owe almost as much by then as our entire economy produces in a year. But it gets even worse. Total Gross Federal Debt, which includes such items as the debt held in the Social Security trust funds (real debt that will have to be paid in the future), would be over $27.5 trillion. That would be 122% of GDP.
That is well into the level at which national debt begins to sharply reduce economic growth for advanced, developed economies, according to a new economic study from Harvard University and the National Bureau of Economic Research, by Kenneth Rogoff and Carmen Reinhart. That study was ”based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances.”
The study concludes that developed economies with debt to GDP over 90 percent suffer median economic growth roughly 1 percentage point lower, and average economic growth almost 4 percentage points lower. And they are talking here about total gross debt. With long run U.S. economic growth at 3% to 4%, this means long term economic stagnation for America. Indeed, the Rogoff-Reinhart study shows that from 1790 to 2009, when U.S. federal debt is over 90% of GDP, U.S. economic growth averages negative 2%, 5 to 6 percentage points less than otherwise.
Long Term Growth: For the Deficit
The annual deficit by 2020 would still be well over $1 trillion ($1.253) and rising, according to the new CBO figures. It is going to be very difficult by then, 10 years from now, to blame that deficit on George Bush. But Barack Obama and the Democrats will still be trying, for sure. It will be even more difficult, however, because President Obama’s budgets will run up more debt over eight years than all other Presidents in American history — from George Washington to George Bush — combined, as Brian Riedl of the Heritage Foundation has shown.
Just for the record, the deficit for President Bush’s last year in office, 2008, was $459 billion. The deficit for the last budget adopted by a Republican-controlled Congress, for fiscal 2007, was $161 billion. The deficit this year according to Obama’s budget is $1.6 trillion. The question for President Obama, who was glad to take the office but not the responsibility, is not what he inherited, but what he did with what he inherited. And what he and Congressional Democrats did was turn a fiscal deficit into a fiscal and economic catastrophe for America.
By 2020, CBO projects that Obama’s budget would have increased federal spending relative to the economy by almost one-fourth, shattering a settled, stable pattern since soon after World War II. Federal spending will have almost doubled by 2020 since Bush’s last year, in nominal terms. CBO reports that President Obama’s budget adds nearly $2 trillion to already out of control entitlement spending over the next 10 years, one-third of that due to his health care takeover scheme. Despite the assumed end to the wars in Iraq and Afghanistan, and a resulting $300 billion reduction in defense spending, and President Obama’s much ballyhooed, supposed, discretionary spending freeze, his budget would increase federal discretionary spending by $500 billion over the next 10 years.
Moreover, CBO reports, net interest spending under Obama’s budget would more than quadruple over the next 10 years, to $916 billion for 2020 alone. That is 27% more than we spend today for national defense, and 34% more than the defense spending Obama proposes for 2015. It is almost the same as what the Obama budget would spend on Medicare in 2020. That effectively adds another entitlement program the size of Medicare.
Because of all this runaway Obama spending, America will suffer the above deficits and debt even with $2 trillion in tax increases Obama proposes for the next 10 years, including $750 billion for his health care takeover.
The Rosy Scenario
But all of this should be considered a rosy scenario, compared to the harsh reality that is far more likely to result. Under President Obama’s tax and budget policies, federal deficits and debt are certain to be higher than CBO projects.
The first reason for that is that CBO makes no allowance for the counterproductive economic effects of the comprehensive tax rate increases President Obama proposes for every major federal tax. President Obama would increase the top income tax rate by 13% to start. He would also phase out the personal exemption and limit maximum allowable itemized deductions for couples earning over $250,000 and singles earning over $200,000. He would also allow itemized deductions to be deducted only against the 28% rate for those paying higher rates. This would increase the effective top income tax rate by another 3 percentage points, to 42.6%, for a total top income tax rate increase of 22%. The President’s budget would also increase the second highest income tax rate by 18% counting all of these increases.
The President’s health proposal would also increase the HI payroll tax rate by 0.9 percentage points on upper income earners. Together with the above changes, that would effectively raise the top tax rate by 24.3%, and the second rate by 21%.
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
Letter to the Editor View all comments (75) | Leave a comment
More Articles by Peter Ferrara
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Deborah D | 3.10.10 @ 6:29AM
That's why I call them "regressives" not "progressives." If progress is going backwards, then they need help in understanding words and directions. Save us, Obi Wan Kenobi, you're our only hope!
Bill Hussein O'Stalin| 3.10.10 @ 7:17AM
Yes, the CBO projections rely on some rather rosy outlooks, including in the employment sector. Change any of those underlying assumptions by just 1/10th of one percent and over ten years those projections could be off by 400 billion. Change them by 1% a year and you could be off by a trillion.
The underlying public enemy number one in all this spending is inflation. Inflation is the way governments steal the wealth of the public, create unsustainable business cycles and create banking disasters. In fact that's precisely what you just observed starting in 2007.
It's also how governments destroy individuals and individual freedom, simply by destroying your individual wealth.
It's a sneaky tax that doesn't need legislation and it's been used by governments over and over again.
martin j smith| 3.10.10 @ 7:52AM
This is the point that must be made with facts to back it up--BHO is purposely trying to destroy our economy. Lookat his consistant lying about "deficit neutrality,failure support real job growth,emphasis on government control and takeovers,and mafia style tactics such as the ballerino Rahm Emmanuel. And, I am not referring to this Massa guy either.
Ret. Marine| 3.10.10 @ 8:01AM
and on the day the pitch forks come out in full anger mode, they will still be wondering why and how their messiah just didn't get it.
Yeah the smartest guys in the room, right.
Pingback| 3.10.10 @ 8:04AM
Must Know Headlines 3.10.2010 — ExposeTheMedia.com links to this page. Here’s an excerpt:
Roger Erickson| 3.10.10 @ 8:09AM
I'm no fan of either party, nor of Rubin, Summers & Geithner. However, well meaning, there are several places where the arguments made here stem from basic misconceptions about post gold-std monetary operations - and simply confuse things. Reality is actually quite different from what's implied in this article. Some orthogonal thinking is required, about operations, not about what's liberal or conservative. There are 1000 ways to let an economy decline, but only one optimal way forward, through logical operations.
For reference, please see the following:
http://moslereconomics.com/200.....nt-frauds/
and http://bilbo.economicoutlook.net/blog/
Roger Erickson| 3.10.10 @ 8:10AM
Additional references:
http://neweconomicperspectives.blogspot.com/
http://macroeconomicwoes.wordp.....economics/
Roger Erickson| 3.10.10 @ 8:17AM
Yet one more reference. Readers here may consider this author as a suspect liberal, yet he explains well the implications of a conservative closing the gold window back in 1971. Personally, I find economists to be incredibly isolated, but the politics of left/right makes even that profession look organized!
http://www.thenation.com/doc/20100322/galbraith
ps: I'm for banning parties from crossing state lines, and returning all politics to the local level. That alone would take out the gang-related aspects of political fund raising. Right now, it's not clear which is the greater enemy, Communists, or "the other party". We're supposed to be making a more perfect union, not tearing it apart.
martin j smith| 3.10.10 @ 11:01AM
CBO aside people are feeling the effects of Obam's economic policies--they are his not GWB's. Andit isn't pretty. But against it is time for someone of stature to say: wither you set policies to expand the job market or you are PURPOSELY DESTROYING OUR ECONOMY.
Pingback| 3.10.10 @ 11:26AM
Running up the nation’s debt. « PoliticallyEmpowered.com links to this page. Here’s an excerpt:
Semper Fi| 3.10.10 @ 1:07PM
Where is Bob? This stuff is rightup his alley.
Peter| 3.10.10 @ 1:44PM
"National debt held by the public would double in just 4 years, from $5.8 trillion at the end of 2008 to $11.6 trillion at the end of 2012. "
I just looked at www.treasurydirect.gov/govt/re.....stdebt.htm and the author has a very different view of the national debt than the treasury department. They show the national debt 0n 9/30/08 as slightly over 10 trillion.
I just prepared a slide for my government class that showed deficit/debt/GDP and both of the former as a proportion of GDP by year. I also noted party holding White House, Majority in Senate, and Majority in the House. Since 1980 none of the various combinations of party control of those institutions has stemmed the tide. No combination stands out as particularly more fiscally prudent or less prudent than the others.
California70| 3.11.10 @ 12:01PM
Peter my dear, one must go further back than 1980!
Jon B| 3.10.10 @ 1:44PM
This is interesting. Over 1/2 of this year's deficit spending comes from Bush programs and Bush mistakes. 89% of last years spending came from Bush when you include stimulus spending that everyone agrees was needed to recover from 8 years of "looking the other way" brought on in no small part because Bush blocked the feds from imposing new banking loan standards in 2005 and 2006 when they saw this crisis coming, and Bush's gutting of the SEC that also "looked the other way" during the buildup to the crisis, as ALL OF YOU KNOW.
What would've changed with a McCain Presidency? Would McCain have doubled down on the banks any more than Obama has? Unlikely for the lead member of the Keating 5. WOuld McCain have spent less on the wars? Unlikely. Would McCain ignore the economic crisis and not push a stimulus package of a similar size? Also extremely unlikely. The article reeks of non sequitur style thinking-nothing connects unless you live inside a dream.
Margie| 3.10.10 @ 2:21PM
I'm just wondering..are you able to sleep at night without also dreaming about GW Bush?
Poor dear you are so obsessed with looking backwards in order not face the present and the reality of the destruction that this President is doing to our country.
Are you just a Third partier type? Is that your point? Really, just what IS the point of your constant and incessant BS?
Jon B| 3.10.10 @ 2:23PM
The only time I post BS is when I quote you, Marge.
We are where we are today because of the last administration. People who forget history are destined to repeat it.
Margie| 3.10.10 @ 2:56PM
I see, Toddard. Oops. I meant Jon B. So how come you never got back to me with your "proof" about the over 80% of translations from the Greek to English issue, hmm?
Can't answer my questions, above either, can you?
Who would your candidate of choice be? Let me guess. Ron Paul! Is he the only "true conservative?"
Jon B| 3.10.10 @ 6:06PM
I did answer you
JimP| 3.10.10 @ 2:38PM
Another seminar commenter. So, where were the Dems when Bush was gutting the SEC? Where were the Dems while everyone was allegedly "looking the other way" on spending? Blocking Fannie and Freddie reform and protesting the war in Iraq that the Dems voted for. That's where. 89%? 89%!! Are you sure you want to stick with that figure? Why not just go for 90% or heck, make it 100%. Let me see Obama passed Stimulus Palooza $787B + the Omnibus spending bill for FY '09 that was about $450B if I recall correctly. Then there were the Detroit bailouts $30B for GM and I honestly forget how much Chrysler got. So Barry spent over a trillion, minimum, but that was only 11%. Therefore, Bush spent $10T (roughly) last year? See, this is why Dems should not be allowed to do math. Even elementary level math. Duh.
Margie| 3.10.10 @ 3:01PM
Jon B. is a liar and obfuscates for a living.
JimP| 3.10.10 @ 5:08PM
Margie: LOL. I agree. Thanks for the smile.
Jon B| 3.10.10 @ 9:56PM
Ironically, you're lying now specifically to obfuscate the issues. But then you probably think Bush's recession is Obama's fault, at the same time you wouldn't give Reagan the same credit for the 1982 recession, right?
And the one Bush handed to Obama is much worse. With the added problem of ever increasing corporate control of policy and debate, the $16 trillion back door bank bailouts are rarely, if ever mentioned here.
Jon B| 3.10.10 @ 9:56PM
Ironically, you're lying now specifically to obfuscate the issues. But then you probably think Bush's recession is Obama's fault, at the same time you wouldn't give Reagan the same credit for the 1982 recession, right?
And the one Bush handed to Obama is much worse. With the added problem of ever increasing corporate control of policy and debate, the $16 trillion back door bank bailouts are rarely, if ever mentioned here.
blackwatch| 3.10.10 @ 10:31PM
either that or he does not have any sense. Look at his carping about global warming. What a maroon!
Todd| 3.10.10 @ 4:25PM
You find the reference for your claim about Reagan giving $425 billion to the Soviets yet? You are a ignoramus
Todd| 3.10.10 @ 4:26PM
That was meant for the ignoramus that posts as Jon B.
Pingback| 3.10.10 @ 3:33PM
The American Spectator : The Devil Is in the Deficits capital university links to this page. Here’s an excerpt:
Pingback| 3.10.10 @ 4:19PM
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Jon B| 3.10.10 @ 6:13PM
Reagan gave Russia $425 Billion, that's true. It was in the National news WHEN it happened. I'll accept your apology when you realize I';m telling the truth.
As for Marge, she acts like gutter slop 1/2 the time, and somewhat calm at other times. Perhaps a disorder there?
You might recall that the SEC looked the other way when the bank crisis happened, using Bush's flag bearing market based philosophy. Are you so naive as to think that wasn't on purpose? Did you miss out when Federal regulators saw the crisis coming, recommended new laws, and the Bush administration along with Republicans in Congress stalled, then gutted them?
http://www.msnbc.msn.com/id/28001417/
WASHINGTON - The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.
...The administration’s blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.
A lot of you are will fully ignorant.
PS:That's not my fault.
JimE| 3.10.10 @ 7:08PM
Jon, nothing about the money LBJ or clinton wasted. Wrong the past does not make it right now. You are a leftist useful idiot, no more ,no less. Get a job and start paying taxes instead of leeching of the government.
Jon B| 3.10.10 @ 8:04PM
LBJ, yeah, in Vietnam. He was quite the coward to not call out McNamara after he learned the McNamara lied to him about the Gulf of Token incident. Still, the National debt was just over $900 billion even after Nixon, Ford and Jimmy carter, but it was $4.5 trillion after 12 years of Reaganomics. This is where it really spun out of control, and we've never recovered. Instead we're stuck on delusional ideologies that do not exist in practice anymore.
Clinton? no, he's that last true fiscal conservative we've had. He actually paid off $600 billion of the National Debt, but by this time the interest was so high that it still rose.
JimE| 3.10.10 @ 10:54PM
Jon,
Once again you prove your stupidity, Clinton paid off nothing, juggling numbers and projected revenue is not retiring a debt. Moron!
Todd| 3.10.10 @ 10:13PM
I asked you for a source dumbass so where is it? It doesn't exist because the only source for it is your ignorant mind. You won't get an apology from me that is for damn sure.
Jon B| 3.12.10 @ 8:57AM
I did make a huge mistake: Reagan gave Russia $425 million, not billion. I apologize.
Jon B| 3.10.10 @ 6:15PM
You probably need a FOX link: http://www.foxnews.com/story/0,2933,460044,00.html
One of the few times FOX told the truth about anything.
Pingback| 3.10.10 @ 6:30PM
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Yosemeti Sam| 3.11.10 @ 1:04AM
" ... In 2008, America thought ...."
Thought?
Now that's a generous assumption of intellect.
John| 3.11.10 @ 10:39AM
The problem for conservatives, as it's very easy to prove, is that two thirds of this deficit spending is the consequence of actions taken during the Bush administration. When, as will inevitably happen, we move into full recovery mode by the spring/summer (and there are ample signs this happening so denying it just makes us look detached from reality) and the president pivots (as he will) to a need for tax increases to contain the deficit that we are making such a fuss about what will our stance be?......The fact is screaming for tax cuts while at the same time screaming about the rising deficit while refusing to participate in any efforts to contain it (even if it's window dressing) is not coherent.
Oldefarte| 3.11.10 @ 11:03AM
Let me put it in OVER simplistic terms, okay? In my lifetime, Democrats [but Republicans didn't do their jobs either] have enlarged the governmental budget historically by legislating numerous social programs [and unnecessary military weapons systems also] that INCREASED THE EXPENSE SIDE of the ledger. Never has any credible effort been made about EXPENSE REDUCTION. Democrats increased social [welfare] programs, while Republicans increased military programs; but none of them reduced/eliminated anything; with the result being the governments' budget has gradually increased over time. Sure there was Reagan's/Bush's tax cuts which economically/financially increased governmental REVENUES and thus slowed the budget defecit problem; but none of them have made serious efforts at GOVERNMENT EXPENSE REDUCTIONS. Now enters THE CHOSEN ONE who is a DEMOCRAT'S DEMOCRAT and believes in WELATH REDISTRIBUTION big time; and as a result, the typical too large budget
deficit has exploded tremendously, since his governmental spending is coupled with an governmental revenue downfall due to his programs lack of economic/financial expansion possibilities. The one and only solution for all of this is for the American voters to begin electing politicians who pledge to institute substantial budget expense reduction policies. I'm talking possibly 10-25% government expense reductions. If voters do not take this one and only political opportunity coming in November to elect such political leaders, everyone should simply kiss this country goodby, as its destruction and downfall will be inevitable!!!!!!!!!!!!
Randall Hoven | 3.11.10 @ 11:04AM
Just a nit, but that 90% of GDP number cited for 2020 is only the federal debt (held by the public). The debt used in the Harvard study is all public debt, which would include state and local government debt.
So that 90% number for the US is an underestimate. We'll likely get there well before 2020.
ez| 3.11.10 @ 11:17AM
Why do so many assume that because someone opposes Obama's spending policies that one must be in favor of GW Bush's policies? I hated Bush's spending. I was hoping for change when Obama got elected. The only thing that came out of Obama's election was a more expensive version of Bush. We haven't had a more screwed up Presidency since Johnson/Nixon.
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