Obama's Deficit: The Devil Made Me Do It

Ever since his inauguration, President Obama has said that he "inherited" the federal budget deficit from his predecessor. But immediately upon taking office, Obama signed two new bills, the $787B stimulus and the $410B omnibus, that together about equal the $1.2T deficit he "inherited."

Now that the fiscal year has ended, we see that the feds ran a $1.58T deficit for FY 2009, the all-time record and the first deficit over a trillion bucks. This deficit is 3.4 times the $459B deficit of 2008, and 10 times the $160B deficit of 2007, which began when Republicans were still in control of Congress.

In his speech to the Joint Session of Congress on September 9, Obama said:

Now, part of the reason I faced a trillion-dollar deficit when I walked in the door of the White House is because too many initiatives over the last decade were not paid for -- from the Iraq war to tax breaks for the wealthy.  (Applause.)

The fact that things "were not paid for" would seem to be a pretty good reason for a deficit. But the part about "tax breaks for the wealthy" is pure nonsense.

The "tax breaks for the wealthy" were tax rate cuts that totaled 4.6 percent. For the sake of illustration, let's round that up to 5 percent and apply it to an annual federal revenue total of $3T (which is more than the federal government has ever taken in). That works out to $150B, a long ways from the 2009 deficit.

The "tax breaks for the wealthy" weren't for all federal revenue, just revenue from the Individual Income Tax. The largest portion of total federal revenue taken up by the personal income tax in recent years was 50 percent in FY 2000 (at the height of the dot-com bubble). So, if applied against revenue from personal income taxes only, the Bush rate cuts would have meant $75B in lost revenue. But wait, Obama promised that only the top 5 percent of personal income taxpayers would see a rate hike. The most that the top 5 percent has paid recently is about 60 percent of the personal income tax. So the Bush tax rate cuts would mean at most a $45B loss of revenue, or ... less than 3 percent of the 2009 deficit.

The point of the above exercise is to show, with just a few well-known figures, that the president is mistaken. And I've used inflated figures throughout the example. Using more precise figures would yield an even smaller loss of revenue due to tax rate cuts. Clearly, the Obama administration doesn't think we are very smart.

The problem with this exercise is that it uses "static scoring;" it doesn't take into account the effect of the tax rate cuts on economic behavior, and therefore tax revenue. Indeed, the economy did pick up under the Bush tax rate cuts, and America enjoyed her 5 highest years of total revenues ever, one of which was more than 25 percent higher than the previous record set in FY 2000. If my analysis were to use "dynamic scoring," there might not have been any loss of revenue due to the evil Bush tax rate cuts.

And another thing: Why are only these "initiatives" running up the deficit? Why is the Iraq war running up the deficit but not the National Endowment for the Arts? All such line items are part of the "discretionary" spending that Congress votes on each year, and the money for them all comes out of the same pot: the Treasury's general fund.

The subtext of Obama's message is: Except for "initiatives," nothing can be done about federal spending; the rest of the budget can't be touched; no spending cuts will be forthcoming; budgets can be balanced only by increasing revenue (higher taxes).

The reason Obama is so keen on laying blame for the deficit on Bush is that he's caught in the Democrats' old lie: The president is responsible for the budget. The Democrats are aided and abetted in this lie by the establishment media.

It is Congress that is responsible for budgets and budget deficits. Appropriations and budgets are set by the legislature not the president. And Congress has been controlled by Democrats for nearly 3 years now, during which time they've set the two highest deficits in history, this year's record being almost four times the Republican record of 2004.

A survey the OMB's Historical Tables (page 21) going back to the inception of the income tax in 1913, shows that no matter how we look at it, a Republican Congress does better at balancing the budget than does a Democrat Congress. Republican Congresses have produced the most recent surpluses, the largest surpluses, the most back-to-back surpluses, the most surpluses under a president of either party, etc. This is why the Democrats and their media lapdogs lay the responsibility for budgets and deficits on the president.

According to the OMB's Mid-Session Review (page 26) from August 25, total revenue for FY 2009 was down by $450 billion from FY 2008, yet the deficit was up by more than $1.1 trillion. So the problem is spending, not revenue. And in the middle of this massive shortfall, Congress is trying to saddle America with even more debt, with "initiatives" like healthcare reform, cap-and-trade, and "green" ventures. The latest OMB projections predict huge deficits for the next decade. These projections do not take into account Congress' spending spree in legislation that is still under consideration.

Now, one could point out that the economy was doing just fine until Democrats took over Congress. But that would be so simplistic. It's undeniable, however, that Barack Hussein Obama voted for the $700B TARP bill last October when he was the junior senator from Illinois in the U.S. Congress. He didn't vote "present;" he took responsibility.

So President Obama "inherited" the deficit from himself ... and the rest of Congress.

Jon N. Hall is a programmer/analyst from Kansas City.
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