Some lawmakers, pundits, and others continue to say that President George W. Bush’s policies did not drive the projected federal deficits of the coming decade — that, instead, it was the policies of President Obama and Congress in 2009 and 2010. But, the fact remains: the economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years (see Figure 1).
The deficit for fiscal year 2009 — which began more than three months before President Obama’s inauguration — was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), the largest deficit relative to the economy since the end of World War II. At $1.3 trillion and nearly 9 percent of GDP, the deficit in 2010 was only slightly lower. If current policies remain in place, deficits will likely resemble those figures in 2011 and hover near $1 trillion a year for the next decade.
The events and policies that pushed deficits to these high levels in the near term were, for the most part, not of President Obama’s making. If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers’ actions to combat it), we would not be facing these huge deficits in the near term. By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.
President Obama, however, still has a responsibility to propose, and put the weight of his office behind, policies that will address our key long-term fiscal challenge — preventing the relentless rise of debt as a share of GDP that will occur under current policies. The President and Congress could make major progress toward stabilizing the debt for the coming decade by letting all of the Bush tax cuts expire on schedule at the end of 2012. That would just be a first (although a substantial) step. To keep the debt stable over the longer run, when the fiscal impacts of an aging population and rising health care costs will continue to mount, policymakers will need to take large additional steps on both the expenditure and revenue sides of the budget.
Having said that, policymakers should not mistake the causes of the swollen deficits that we face in the decade ahead — nor make policy based on mistaken impressions.
Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits
Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits — Center on Budget and Policy Priorities