Back in January 2001, the Congressional Budget Office (CBO) was estimating the nation was on course to have a negative net indebtedness beginning in 2006, partially due to various fiscal policies put into place by President Clinton. They included a tax increase on upper-income taxpayers that was approved during his first year in office, coupled with some spending cuts and increases in tax collections on items like capital gains that were sparked by the then-booming economy.
Thanks to that perfect storm of factors, there were budget surpluses for four years, from 1998 to 2001. More were expected in years to come. Blue skies lay ahead, or so we thought.
Here’s how the CBO described the situation at the time.
“The outlook for the federal budget over the next decade continues to be bright,” the report stated. “Assuming that current tax and spending policies are maintained, CBO projects that mounting federal revenues will continue to produce growing budget surpluses for the next 10 years.”
It continued, “Although there are signs that economic growth is moderating from recent robust levels, substantial budget surpluses remain on the horizon for the next decade in the absence of large changes in policy … Under current policies, total surpluses would accumulate to an estimated $2 trillion over the next five years and $5.6 trillion over the coming decade. Such large surpluses would be sufficient by 2006 to pay off all debt held by the public that will be available for redemption.”
The notable phrase there is “in the absence of large changes in policy.”
With the forecasts in mind, Clinton’s successor — the second President Bush — famously pushed for tax cuts in 2001 and again in 2003, thereby eating away at the surpluses that could’ve helped pay down our debt.
As Dubya’s dad might say, “That isn’t very prudent, not gonna do it.”
Around the same time, the dot.com bubble burst and the 9/11 terrorist attacks occurred, throwing the economy into a recession. The lessons here are the real world is a lot messier than calculations derived in a vacuum, and even the best presumptions about the future can be thrown for a loop.
Also, let’s clarify the difference between deficit and debt, for those of us who don’t spend our free time flipping through the pages of economics books.
This definition from FactCheck.org summarizes it nicely: A deficit occurs when the government takes in less money than it spends in a given year.
Got that? Good.
Under Clinton, the debt owed by the government decreased slightly for a while but it wasn’t erased. Still, the CBO predicted it essentially would be by 2006, barring any sudden shocks to the system.
In reality, the national debt now is larger, as a percentage of the economy, than at any time in U.S. history except for 1946-47, when we still were paying off the costs associated with World War II. The debt now accounts for about 90 percent of the gross domestic product (GDP), compared to about 120 percent in the mid-1940s.
The current total U.S. debt is about $14.3 trillion. Based on the current population, each citizens’ share of the debt is $46,210.10.
That little history lesson is important to remember as we head into the 2012 presidential campaign and listen to the rhetoric being spouted by the Republican candidates vying for their party’s nomination.
During the June 13 televised debate from Saint Anselm College in New Hampshire, several of the contenders unleashed some whoppers. The worst one was uttered by former U.S. House Speaker Newt Gingrich, who dubbed our current economic woes “the Obama depression.”
According to a Washington Post analysis, just three policies account for fully one-third of the $12.7 trillion swing from projected surpluses to real debt. They are George W. Bush’s 2001/2003 tax cuts, funding for the ongoing wars in Afghanistan and Iraq and Obama’s 2009 economic stimulus bill.
As The Post notes, “75 percent of the members currently serving in Congress voted for at least one — and in most cases more than one — of (the) three policies.”
In fact, the nonpartisan Pew Center crunched the numbers in April to determine exactly what caused the $12.7 trillion shift in the debt situation. Here’s what it found.
The single-largest factor was the revenue decline due to the recession, separate from the Bush tax cuts, which accounted for 28 percent of the change. The other factors, in order of their impact, were: defense spending increases (15 percent); Bush tax cuts (13 percent); increases in net interest (11 percent); other non-defense spending (10 percent); other tax cuts (8 percent); the Obama stimulus bill (6 percent); Medicare Part D (2 percent); and miscellaneous smaller reasons (7 percent).
Hey, Newt: The stimulus bill is No. 7 on the list. You might want to look at Nos. 1-6, because many of them are items you and your colleagues support.
Then there’s Mitt Romney, the ex-Massacusetts governor whose previous business expertise mostly consists of perfecting leveraged buyouts. That’s when he borrows cash against the assets of a company to purchase it, outsources many of the jobs, sells off the valuable assets and then unloads what remains to a larger firm.
Romney had the nerve to say Obama’s “failed” economic policies have lengthened the current recession. “He didn’t create the recession, but he made it worse and longer,” the well-coiffed Mormon said.
Sadly, the totality of the GOP’s economic policies can be summarized in two parts: A) cut taxes as low as possible, and B) loosen regulations on businesses. That has been the party’s credo for 30 years and Romney, Gingrich and their ilk still abide by it.
The fact is, that approach doesn’t work. Corporate profits already are at an all-time high, with U.S. companies generating $1.68 trillion in profit during 2010’s last quarter. But income disparity has increased to its widest point since the 1920s, and numerous American jobs have been outsourced to cheap foreign labor.
Time magazine recently published an article entitled, “What U.S. Economic Recovery? Five Destructive Myths.” One of its myths was “the private sector will make it all better.”
“The thing is, companies make plenty of money; they just don’t spend it on workers here,” wrote Time’s Rana Foroohar. Referring to Brazil, China and India, she adds, “These emerging-market nations are churning out 70 million new middle-class workers and consumers every year. That’s one reason unemployment is high and wages are constrained here at home … from 2000-07, the U.S. saw its weakest period of job creation since the Great Depression.
“Clearly, it’s a myth that businesses are simply waiting for more economic and regulatory ‘certainty’ to invest back home,” Foroohar concludes.
Yes, it is. Now try telling that to Mitt, Newt and John Boehner.
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