On Federal Debt and Deficits

File this under "Missed Moments of 2011."

This morning I was trying to think of what I was doing in April of this year to have missed this excellent (and short) fact sheet on the what they term “The Great Debt Shift.” Finally I remembered I was knee-deep in academic papers for a research project, so I suppose I can forgive myself not benefiting from this great graph (always with the graphs, I know):

I believe this graph is very important when thinking about how we’ve gotten to this point in terms of the federal budget. A lot of disagreement in the land of punditry centers around this very subject, and specifically on this subject starting in 2001. It’s important for liberals who decry what they see as President George W. Bush squandering a Bill Clinton golden egg surplus. It’s important for conservatives who (rightly) point out that the surplus was mainly a prediction, one that thanks to the economic events of 2007 and beyond would have proved disastrously wrong anyway.

From the accompanying PDF release (my emphasis in bold):

Fiscal projections a decade out, even by the best analysts, are inherently imperfect, and this fact sheet shows that forecasting uncertainty explains a meaningful part of the revisions to CBO’s debt projections. However, the main driver of the difference between the January 2001 projection and the reality a decade later has been legislative changes.

Which really means there are plenty of things for every ideological persuasion to blame for our current debt and deficit issues. Here are the six high profile legislative changes since 2001, pared (albeit my estimation) with the source of ideological blame:

  1. The 2001/2003 tax cuts (left)
  2. The overseas operations in Iraq and Afghanistan (left, Ron Paulites)
  3. Medicare Part D (conservatives, though only recently)
  4. The Troubled Asset Relief Program (TARP) (everyone)
  5. The 2009 stimulus (conservatives)
  6. The December 2010 tax legislation. (no one, for many reasons)

Knowing this, or a least my estimation of it, lets take a look at this graph below.

Now lets approach each legislative change with its percentage share, in bold, of the change in debt projections.

1. The 2001/2003 (the “Bush tax cuts): 13%

2. Iraq/Afghanistan operations: 10%

3. Medicare Part D: 2%

4. TARP: 0%

5. 2009 stimulus (ARRA): 6%

6. December 2010 tax legislation (payroll holiday, extension of Bush tax cuts): 3%

Now I’m just looking at the numbers, here, when I say that the largest legislative driver of the change in debt since 2001 are the Bush era tax cuts. No slant, no misdirection, no partisan agenda – which is kind of hard to advance when you don’t have a party anyway.

I already know of some potential caveats and objections, so let me address a few of them.

1. President Obama has more complicity in the debt picture than his press office would otherwise admit. The 2001/2003 tax cut category does not include the extension he signed last year, but it is represented in the December 2010 tax deal slice. Furthermore, even though the President has signaled a desire to only let the high-end tax benefits expire, we’re looking at changes since 2001, not implications for future legislative changes. The only thing I wish Pew would have distinguished is the war cost difference pre and post 2009.

2. Perhaps you’re scratching your head at the zero percentage next to TARP. That doesn’t mean that the bailout program contributed no change, it simply means that it cost so much less than everything else that it registers as 0%.

3. Medicare Part D (the prescription drug benefit) has come under budgetary projections for two reasons, and neither of them include “competition.” The first reason is that fewer people have signed up for the program than originally thought: The CBO estimated a 93% participation rate, but it’s now only at 77%. The second reason is that the estimated rise in the cost of prescription drugs didn’t happen.

Think of any others?

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