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Posted: Sunday, November 08, 2015 at 10:10 AM EST - Item ID: 495
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Why Vox Is Wrong About Obama's Budget Deficit
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On October 16, 2015, Vox's Matthew Yglesias posted a story titled, "The budget deficit is way too low." It is not entirely clear whether Yglesias himself believes this or whether it's the perfect satirical title to accompany the content of the post, which just so happens to be a White House Tweet on the budget deficit: The White House will use the graph to tell a story, presumably just how gosh darn fiscally responsible Obama has been. However, at Conservative Review, we believe the White House missed a few chapters in this story. Chapter 1. Things Were So Bad That Even a Slight Improvement Looks YUUUUGE. White House: Fastest deficit decline over a sustained period since WWII. This title is misleading. First of all, the pace and reduction of the deficit can't legitimately be compared to any other time in our history, because at no other time were there opportunities to take credit for reducing a deficit that was equivalent to 10 percent of the economy. The only other comparable time was during WWII, and the strides made post-war to shore up the deficits make Obama look silly. The deficit in 1943 equaled a huge 30 percent of GDP. Yet, only four years later, and the government was in surplus. Chapter 2: The Government Is in Surplus (In 1999). White House: "[the deficit fell to 2.5 percent] less than the average of the last 40 years." It's always easy to pick arbitrary numbers to inflate your own stats. Why 40 years? The general consensus is to use the post-WWII average; the Congressional Budget Office often uses 50 years. The resources needed to fight the Great War create an anomaly in the data. Therefore, the post-World War II average, a more consistent average if you will, is 2.1 percent. Sorry, Obama, your $439 billion deficit is not something to celebrate. Chapter 3: Act Like You're Winning When You're Still Losing. White House: "Under the President's leadership, the deficit has been cut by roughly three-quarters as a share of the economy since 2009." I almost feel bad for the White House resorting to using this statement. Yes, the deficit was reduced from $1.4 trillion in 2009 to $439 billion this year. But how is the White House not embarrassed by presenting that figure as a victory? Democrats would have tried to impeach Bush had he celebrated reducing the deficit by 60 percent, from $412 billion in 2004 to $160 billion in 2007. It's sad that in 2015, a 75 percent reduction in the deficit still results in a hole that ranks among the top 10 for largest, post-WWII, real deficits. winning? Chapter 4: As Long as The Music Is Playing, You've Got to Get Up and Dance. White House: "[The Budget] Supports the President's ambitious vision for supporting growth and opportunity, and does so while meeting a key test of fiscal stability: holding deficits to below 3 percent of GDP and stabilizing debt as a share of the economy." Obama, celebrate now. This party is about to come to a bitter end. According to the Congressional Budget Office's Alternative Fiscal Scenario, the deficit immediate shoots back up to 3.4 percent next year. This baseline assumes Congress will extend certain tax breaks and eliminate part of the Budget Control Act sequester, which is likely to happen. The problem is not just next year. In fact, as the Lost Chapter of Obama's graph shows, deficits are projected to get much worse, increasing into perpetuity and headed directly toward another fiscal crisis. There is nothing about this that warrants celebration. Chapter 5. Washington Dysfunction = Deficit Reduction Yglesias: "[the political system is operating in dysfunction] Republican and Democrats disagree, naturally, as to whether tax cuts or spending hikes would be better, so the natural thing to do would be to compromise on a little of both." Yglesias goes on to credit deficit reduction from ultimate "compromise": the fiscal cliff (Tax hikes) and the budget sequester. In truth, Yglesias is only partially correct. In as much as anything, the drop in the deficits probably cannot all be attributed to Obama or Republican compromise. First, the natural tapering off of Obama's failed stimulus (American Recovery and Reinvestment Act) plan. Between 2009 and 2011, the Obama stimulus was responsible for adding $725 billion to the deficit, or nearly 20 percent the total deficits. The stimulus was designed to be short and temporary, thus as the Keynesian spending tapered off, so too is the natural reduction in deficits. Therefore, it is disingenuous to take credit for the resulting smaller deficits. Second, the American economy. No thanks to Obama, the economic recovery has been deemed, "the slowest in 50 years," by economist Steve Moore of the Heritage Foundation. Nevertheless, American capitalism is stronger than the President's socialist agenda and the economy has improved – which can be credited towards improving the deficit. Why? When the economy sours, a budget spending on "automatic stabilizers," or recession-related spending, increases. In other words, more people become eligible for certain government welfare or unemployment benefits. As the economy recovers, the need for government assistant dissipates. Between 2009 and 2014, the President added $6.257 trillion in deficits (the highest ever recorded in history, even after adjusting historical data for inflation). Of that total, $1.740 trillion was the result of "automatic stabilizers," or nearly 30 percent of total deficits. Before anyone congratulates the Democrats on an improving economy, think about this – even the Congressional Budget Office assumed the economy would improve more quickly. In 2009, they predicted that 5 years later (2013 and 2014), the combined recession-related spending would only cost $192 billion. Instead, Obama's economy racked up $439 billion in related spending in those years – 129 percent larger than predicted. Lastly, revenues rebounded back to the near-historical average after being clobbered during the recession. At the top of Obama's trillion dollar deficits, federal revenues had shrunk to 14 percent of GDP, from a historical average of around 18 percent. Some will credit the president's tax increases, but that is generally misleading. Many of the Obamacare taxes only recently went in effect; while others do not begin until as late as 2018. Yet others, like the fiscal cliff deal that raised the top marginal rate from 35 percent to 39.6 percent, have had a marginal impact on the deficit. Politicians should remember that the historical average for revenues remain remarkably consistent. In fact, revenues as a percentage of GDP remained consistent at about 17 percent of GDP in the 1950s, when the top marginal tax rate was as high as 91 percent; and still the same in the 1970s, when the top marginal tax rate was 70 percent. So, you must always take tax hikes as a means of solving the deficit with an intellectual grain of salt. Chapter 6. The Party Is Over This year may be Obama's best year in the red, but it certainly nothing to celebrate. The long-term trajectory of rising U.S. debt and deficits remains grim. The readiness of the White House to celebrate our fiscal distress, as though it is a crowning achievement worthy of a tweet, is unfair to every American who deserves a Washington that takes serious the approaching consequences of this budget mess.
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