President Obama claims credit for cutting the deficit in half. But one
reason it fell so fast is that it shot up so high in the first place.
office the US budget deficit has been cut in half. In remarks
commemorating the fifth anniversary of the onset of the financial
crisis of 2008, Mr. Obama cited the deficit reduction as a sign of
progress for an economy that’s still struggling towards full recovery.
“Our deficits are now falling at the fastest rate since the end of
World War II. I want to repeat that. Our deficits are going down
faster than any time since before I was born,” said Obama.
When you put it that way it sounds pretty impressive, doesn’t it? But
is that true?
Strictly speaking, yes. The deficit is falling as rapidly as it has in
decades. Consider the figures for this year alone: Last week the
Congressional Budget Office reported that, through the first 11 months
of fiscal 2013, the budget deficit was down 35 percent from the
comparable period of 2012.
That’s a pretty steep decline.
“The federal budget deficit has fallen faster than we expected a few
years ago,” wrote CBO director Doug Elmendorf on his blog.
But as Mr. Elmendorf and other experts point out, one of the reasons
it is falling is because it shot up so high in the first place. As the
financial crisis devastated the economy, tax revenues fell. Spending
on unemployment insurance and other government recovery programs rose.
In 2008, the deficit was about $458 billion. In 2009, it rocketed up
to $1.4 trillion. It stayed above the trillion dollar mark for 2010
As the economy has gradually recovered, those cyclical expenses have
receded. Tax revenues have risen modestly along with the slowly rising
GDP. The FY 2013 shortfall should end up at around $642 billion,
according to the CBO.
The sequestration automatic budget cuts have also cut spending.
However, the January fiscal cliff deal which locked in the Bush-era
tax cuts largely offset these savings, according to the Concord
Coalition, a budget watchdog group.
“This year’s lower deficit can be largely attributed to short-term
economic factors rather than systemic reforms in the federal budget,”
writes the Concord Coalition’s Steve Winn.
Looking ahead, CBO now projects that the deficit will continue to
narrow until fiscal 2016, when it will again begin widening, as more
and more baby boomers retire and become eligible for Medicare and
That means the nation’s fiscal problems are far from solved. The core
challenge involves trimming federal health-care costs enough to bend
the curve of ever-rising Medicare and Medicaid expense.
“The fundamental federal budgetary challenge has hardly been
addressed,” writes CBO chief Elmendorf.
Nor does it do anything about the debt piled up during the recession’s
worst years. The debt is the nation’s accumulated red ink; the deficit
is the amount of red ink Uncle Sam runs up each year.
When the president proclaims that the deficit is shrinking at the
fastest rate in decades, that’s the same as saying that the speed at
which the nation is rolling backwards has decreased dramatically,
wrote Keith Hennessey, director of the National Economic Council under
President Bush, in May.
“That is not something you should boast about. You’re supposed to
boast when things are getting better, not when they’re getting worse
more slowly,” wrote Mr. Hennessey.