How Did We Get A $1.67 Trillion 2009 Deficit?
In an issue brief by the Economic Policy Institute, the primary cause of the deficit is the decrease in government revenues, and the expansion of government support programs caused by the current recession. The next largest contributor, about 42%, came from legislative changes including the Bush tax cuts which accounted for about one third of this portion or 14%.
“Since 2007, before the recession began, the Congressional Budget Office (CBO) baseline projection for fiscal 2009 has deteriorated by $1.5 trillion, or 10.9% of GDP…..Of that change, the largest share can be attributed to the mechanical effects of the recession on taxes and spending, as well as the explicitly short term policy responses to it: 45% of the $1.5 trillion was due to economic technical factors (which include subsidies for Fannie Mae and Freddie Mac); 21% was due to non recovery act legislative changes; 22% was due to the Troubled Asset Relief Program (TARP); and 12% was due to the American Reinvestment and Recovery Act….Non recovery related legislative spending increased relative to the March 2007 baseline by just $221 billion, or 1.6% of GDP. The bulk of this increase reflects increased defense spending.”
Going back to 2000 President Bush became the first President in a very long time to come into office with an inherited surplus ($281 billion). At that time the CBO projected that by 2009 that surplus would grow to $710 billion!
While the recession and its effects are the single largest driver of this year’s deficit, 42.4% of the deficit is not recession related, but is the result of various legislative changes made between 2000 and 2008. Those would include the Bush tax cuts, the Iraq and Afghanistan wars military spending, and Medicare expansion.
The authors conclude that because most of the current deficit is caused by recession, the correct policy response is to “spur the economy.”
Tags: 2009 Deficit, Budget Impact of Recession, Economic Policy Institute
September 1st, 2009 at 12:09 pm
The only thing worse than the 2009 1.67 trillion deficit, will be the the 2010 2 trillion plus dollar deficit as King O keeps spending us out of house and home……
Arrrhh…
Ec
September 1st, 2009 at 12:28 pm
I’m looking over the CBO reports, trying to get an understanding of what parts of our spending are creating the projected deficit totals. Obviously if the economy manages to recover, it will result in increased revenues and decreased unemployment and other safety net spending.
Thus the level of the recovery is critical. The higher the better. I’m not too positive about this, but I can hope to be wrong.
Reducing health spending increases (nobody is talking reduction of absolute levels) will make a big difference. Going back to the Clinton era tax rates will be necessary (and are in the CBO deficit projections).
I wish someone would do a study that identifies specific legislative actions that weren’t covered by real revenue. But all I get is percentages of total spending, for the most part. A I wrote this morning breaks things down for 2009, so someone must have such an understanding. I hope I don’t have to do it myself. That’s a ton of work.
The point is, we’ve got to pony up. The easiest way is to have a strong recovery. But taxes, at minimum restoring the Bush cuts, will need to be raised. I’d start with taxing, progressively, the value of life insurance policies. Supposedly, this tax break drops govt. revenue $240 billion per year. That’s huge. But unless there’s savings on the policies and/or wage increases, this tax hits the individual directly. So politically, it’s a real tough thing to do for a politician. Which of course why we have deficits to begin with: We don’t want to pay for anything and pols tell us we don’t need to. What a crock.
September 1st, 2009 at 2:46 pm
We don’t need one half the crap that congress spends money on. Maybe if they don’t have the money they will stop spending. When you say congress loses 200 billion here and 300 billion there you fail to realize they are not the ones losing it we will be, if we’re taxed. Take care of the deficit and stop the damn spending on the bullshit that no one needs.
September 1st, 2009 at 3:58 pm
We can’t blame Bush’s tax cuts for the recession. The cause was the dems philosophy that everyone should own a home whether they could afford it or not. You can blame the likes of Barney Frank and Chris Dodd for it. The wars in Afghanastan and Iraq cost nothing compared to the bailout caused by these idiots. At least Bush was concerned for our defense from terrorists. Unfortunately we now have terrorists controlling congress.For some reason you think congress is better equipped to spend our money than those in the private sector. Maybe Pravda would be interested in hiring you to write its editorials.
September 1st, 2009 at 6:22 pm
You live by the premise that the gov. should supply all our needs. When will you face the facts that we are not communists nor socialists, we are capitalists. The change you advocate is horrifying to me. We as a nation were founded on an idea that though we may have been created equal under the eyes of God, we are a self relient society. You seem to want to change that and redistribute that wealth that hard working, innovative Americans have strived for. I remember going through college. I worked at Dunfeys as a waiter early in the morning, worked for Constructors Inc building bridges during the summer just to pay for my tuition. You feel doing that today is unnecesary because like health care, education is a right not a privelege. We are the same people today but have become dependant in every respect. Why bother working for anything worth while? We can just look for the gov. to support our needs.So what if we don’t have or save for what we need. We can just look to big Daddy to take care of us. Who cares if we take from those who worked to get ahead? They have enough, lets redistribute what the fools worked for. We all should share in the wealth whether we earned it or watched others earn it.We are all brothers and we are our brothers keepers.
September 1st, 2009 at 6:44 pm
Like before I’d repeat this to get it through your head that ‘EACH ACCORDING TO HIS NEEDS” does not work but I feel I’m charging at windmills.
September 1st, 2009 at 8:19 pm
Beezer says:
“Supposedly, this tax break drops govt. revenue $240 billion per year.”
No, thats incorrect. You have stated that over and over. It’s over 10 years..
You’re right though, lets cut spending on healthcare. Lets start with medicare/medicaid, then lets cut welfare by 60%. Last but not least, lets cut the billions we spend on the poorest run Government program of them all, our public education system…
Ec
September 1st, 2009 at 8:20 pm
Herb, respectfully, its “tilting at windmills”….
September 1st, 2009 at 8:58 pm
You tilt, I charge. (and you tilt left)
September 1st, 2009 at 9:33 pm
I meant Beez tilts left but I also meant I charge as do you counterpoint.
September 2nd, 2009 at 7:04 am
The $240 billion number for 2009 is accurate.
“The tax exclusion for ESI will provide $240 billion in income and payroll tax subsidies in 2010 (Reference 1). Other tax subsidies for health insurance amount to approximately $28 billion — less than 12 percent of the value of the ESI subsidy.” From the Woods Foundation study I quoted in my earlier article on this giveaway.
It’s a $2.3 trillion annual industry. And growing. This tax break is also regressive in that the more expensive your policy, the bigger the tax break.
And I like balanced budgets. It’s just that I think our priorities are wrong, and our execution even worse. Conservatives, under the guise of promoting self reliance, promote Socialism for the Rich. Just look at what our taxes are being used for. The government has become just one huge conduit for transferring taxes to private corporate revenues.
September 2nd, 2009 at 7:12 am
I meant 2010, not 2009.
September 2nd, 2009 at 11:37 am
Herb, you think I tilt left?
Wow….
September 2nd, 2009 at 3:51 pm
Not you counterpoint, Beez.