There is a graph making its way around the intrawebs from a NY Times article penned by a Ms. Teresa Tritch on July 23, 2011 entitled, “How the Deficit Got This Big” (go Google it yourself, I’m not citing it for reasons that will become clear below). The Gormogons conferred briefly and I decided to take a deeper look at the graph and accompanying article.
First, the entire thing is a big ideologically driven blame President Bush job which, to be certain, President Bush is not guiltless in our current economic situation but the article should be viewed as Ms. Tritch’s opinion and not fact. Why? Well, start with the fact that it appears in the NY Times OPINION section. Far too many people take writings in OpEd pages as 100% factually correct and believe every single word and chart. Then oen should note that Ms. Tritch never once cites the data sources for her graphs. Not the CBO. Not the Treasury Department. No sources of data for the numbers on the two charts that accompany her opinion piece. And if one has to wonder about the ideological bent that she has, one only has to read the closing paragraph:
In future decades, when rising health costs with an aging population hit the budget in full force, deficits are projected to be far deeper than they are now. Effective health care reform, and a willingness to pay more taxes, will be the biggest factors in controlling those deficits.
A “willingness to pay more taxes”? Clearly, Ms. Tritch has a different understanding of economics. I applaud her for pointing out that the looming problem is one of demographics – particularly the retirement of the large Boomer generation and the smaller generations behind it. Let’s examine a few more of her words in that paragraph: “effective health care reform” – I thought that’s what the Health Care Reform Act (Obamacare) was? She docks President Obama with $152B of Health reform and entitlement changes…although I still question the numbers – more on that in a minute. Health care reform and higher taxes will not be the biggest factors in controlling the deficits. The largest single factor will be the economic health – measured conventionally as growth in GDP – of the country. Higher GDP equates to more revenue for governments (federal, state and local) without a change to the tax rates. Higher GDP means more jobs, more jobs means a higher tax base and now quod erat demonstrandum. See? No willingness to pay more taxes needed. Close behind job growth/GDP is entitlement reform. In FY11, government Health Care spending was $882B – largely made up of Medicare and Medicaid and Welfare programs added another $495.6B. Social Security was $748.4B. Defense spending was $768.2B (plus $141.4B towards veterans’ benefits and another $54.2B in foreign military and economic aid that gets lumped into the Defense budget area). All of these numbers are from the GAO. So 55% of the federal budget goes to Social Security, Medicare, Medicaid and other welfare and entitlement programs (and more recent analysis puts 2011 somewhere in the low 60s). Defense spending was only 20% of the budget (25% if you include the veterans and foreign aid). I think it should be clear that when the government is spending over half of its budget on these programs, that they might require some examination.
Continuing to look at the article – specifically this part:
…the Bush tax cuts have had a huge damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels.”
One it prompted with the question that ‘Puter raised around the Gormogon’s kitchen table: “Each of the policies attributed to Bush has actually been adopted by Obama and the then-Dem controlled House and Senate. Medicare Part D, Iraq/Afghanistan wars, Bush tax cuts, etc. If they were so awful, why didn’t Obama and the Dems end them when they had nearly insurmountable majorities? Not only did they not end them, except for the tax cuts [maybe], there was/is no serious discussion about ending any of them.” Bueller? Bueller?
One could play the what-if question as well and wonder what damaging effect higher taxes may have had on the economy had the tax cuts expired. More taxes means higher revenue to the government, but likely means lower money to the individual. Less money to give to charities. Less money to invest and save (which in turn gets invested in companies that may use that to add jobs). Less money to spend on discretionary items (which in turn goes towards profits and salaries of other workers and companies, who pay taxes, etc.etc.). Quod erat demonstrandum.
As far as the tax cuts it would be hard to measure the net effect – yes, the number cited measures the amount of potential lost revenue due to reduced tax rates but realize that they likely reversed a recession and 3 million jobs were added to the American economy over the next 7 years. Those are 3 million additional tax payers – taken simply at an average household income of roughly $50K (according to US Census and IRS data), the last year alone when all 3 million have been added to payrolls, that results in $21B of tax revenue. If we average the growth across the 7 years, it’s close to $84B in additional tax revenue at the federal level. This is probably an underestimate and doesn’t even touch the lame “created or saved” jobs label that the Obama Administration has attached to its Stimulus spending. See this article for more explanation. Obama elected to extend the Bush tax cuts, which has a cost if we’re docking President Bush for it. We’ll extrapolate the numbers for Bush across eight years – however, we’re in a net jobs loss so we can’t apply that savings to the cost, and estimate the 2009-2013 costs at $800B (it’s roughly $200B per year).
Let’s dive into some numbers for a minute. Ms. Tritch prices the Iraq & Afghanistan wars as contributing $1.469T to the deficit. Well, according to the CBO, the total cost of the wars (even into 2010 during Obama’s administration) is $709B. A 107% error is probably acceptable to a NYT OpEd writer, though. Keep in mind, over the same period fo time (2003-2010), the United States spent $2.932T on Medicare alone. She continues to have numerical errors when she cites the cost of the Stimulus spending and stimulus tax cuts. The Stimulus spending was roughly $787B over the eight years with tax cuts/breaks that amount to around $218B. Revised estimates of the cost of Obamacare by the CBO and others have put the total cost at $1.13T through 2021. While that extends past Ms. Tritch’s 8 year window for President Obama, it is clearly more than the $152B she has marked as the cost of healthcare reform. It’s also worth looking at this chart. According to President Obama’s own budget, he proposes $404B in non-defense discretionary spending increases – on top of the previous year spending. And finally, the cost of the 2008 stimulus act has been put at $152B which leaves me wondering what the other $621B of “other changes” Ms. Tritch attributes to President Bush. How she accounts for $126B in savings, I’m not sure.
If we total that up, the graph looks a little different.
But, as we all learned in civics classes, the Congress has the power of the purse for the federal government. Yes, the president can influence spending strongly, but really the budget and spending is left to Congress. Let’s re-look at Ms. Tritch’s chart and instead of presidents, let’s put the party in control of Congress for each fiscal year. Those with the “RD” close together are either a split control or the fiscal year blended across a change in power.
Finally, and maybe most telling that Ms. Tritch is basing things on inconsistent data sources, errorneous or biased data, or doesn’t have a full graps of the federal budget issue, look at the beginning of the second chart. She reports not one but two fiscal years of surpluses. We’ve covered this before, but these surpluses simply did not exist when the full federal fiscal situation is considered.
When faced with charts and data like this one needs to approach it with a skeptical eye.
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