Why We Are Where We Are

Ken AshfordEconomy & Jobs & DeficitLeave a Comment

Conservatives have been going full force in blaming Obama for the exploding deficit.  And it's true, the stimulus package did mushroom the deficit.

But the thing to remember is that Obama inherited a huge deficit from Bush and a crummy economy (the two are not necessarily the same).  And the stimulus spending, while adding to deficit woes, was necessary to prevent a complete economic collapse.

But if one is truly concerned about the deficit in future years, one needs to understand that the stimulus spending was a short-term addition to the deficit.  It's impact in future years will be neglible.

12-16-09bud-f1This chart from the Center on Budget and Policy Priorities explains it all.  It breaks down the major contributors to the deficit — both the deficit now, and in future years.

As you can see, both the TARP bank bailout (under Bush) and the stimulus funding will have, ten years out, a limited impact on the deficit.

What will have the greatest impact?  The tax cuts passed by Bush and the Republican Congress.

In 2012, Democrats will argue (quite correctly) that TARP and Obama's stimulus had less of an impact on the present deficit than the fiscal policies of George Bush.  And they would be quite right.

So it's quite clear that, in the long run, the only way to reduce the deficits is to reverse the Bush-era tax cuts of the 2000's.  If Republicans are serious about this, they would agree.  But I suspect they will not become deficit hawks and/or, they will continue to blame Obama for the huge deficits that Bush created.