How Bad is the Deficit?

Are we simply at the precipice before it all is so much easier?

There has been a lot of worry about the deficit, and this is a problem because it adds to the National Debt. The interest on the National Debt is one of the largest items in recent Federal budgets. Just as this is a problem when it's true in a family budget, it's true at the National level. This is something we must deal with or soon it will be the only thing in the budget....

But, there have been some really frightening estimates and proclamations of the catastrophic results of current spending. We wish to allay those fears based on data analyzed by the Congressional Budget Office.

The deficit is dependent on the government's income. This is dependent on taxes. When millions of people are falling off the tax roles and onto the unemployment compensation roles, it makes the deficit bigger and bigger every day. This is not because spending is increasing every day, but because the income is decreasing. This is not the current administration's fault but because the economy exploded in 2008.

It is, however, something this administration must live with, and we have done this before. When Bush took office, the deficit was a surplus of $431 billion each of the prior 3 years before W. This was achieved because Clinton had to live with a pay-as-you-go law passed by Congress. In the past, administrations assumed that this was the way to run a government, but that had been forgotten in the 1980's. This Congress has remembered, in part, because things got so our of control in the last 8 years after the law had lapsed.

According to the Congressional Budget Office, Bush's deficit in 2008 was $459 billion. Now, since this is a budget deficit, and the wars were never in the budget, doesn't that mean that his deficit was even greater?

From the AP

"The deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn't include, and the total could be higher yet if the economy ..."

Obama put the wars in the budget. And, when that was written by the AP, they didn't know that the economy would take such a serious and debilitating dive. However, in spite of all this, there is hope in our future.

From the CBO

"CBO estimates that, as the economy recovers, if current
laws and policies remained in place, the deficit would
shrink but remain above $500 billion per year, or more
than 3 percent of GDP....As the economy improves and spending related to the financial rescue and the economic stimulus package tails off, the deficit is projected to gradually diminish; by 2013, it would amount to 3.2 percent of GDP (about the same level as in 2008), under the assumption that various tax provisions expire as scheduled and that discretionary spending rises at the rate of inflation. Between 2013 and 2019, deficits are projected to range from 3.1 percent to 3.4 percent of GDP, well above the 2.4 percent of GDP that they have averaged over the past 40 years."

CBO Summary of Budget 2009, page 6.

According to CBO estimates above, in 4 years, the deficit is going to be at about the same as it was in 2008, 3% of the GDP. Isn't that what even Republicans said was good?

I don't think that is good enough, and neither does Obama, which is why this Democratic Congress passed the pay-as-you-go bill in April. As the economy recovers, this will put us in a position to begin to pay down the National Debt.

We can keep the pressure on our representatives. There is no reason that the Public Option, if a buy in to Medicare, can't support the costs of the seniors even better than private for-profit insurance supports those members who are using their health benefits with those who don't need to use theirs but are continuing to pay premiums.

This could be a win-win!