Recently in a conversation with a conservative friend, I expressed deep concern for the managing of the federal budget. Donald Trump’s lack of awareness is again driving our budget to trillion dollar deficits and fiscal conservatives are hiding under their desks. To which my friend predictably replied, “Whatabout President Obama? He doubled the national debt due to his ridiculous spending!”
Another deep sigh.
And here we go…try to keep up…
(WARNING: NUMBERS APPROACHING!)
More was added to our national debt under President Obama than any other president. Factually True. However, of the $8.5 trillion added to the National Debt from 2009 to 2017, only $983 billion (11%) is due to spending legislation signed by President Obama, offset by sequestration cuts. In fact, total spending under Obama across his eight years only increased 15%, which is astounding taking into consideration past administrations (Reagan +56%, Clinton +27%, W. Bush +74%). The rest of the debt, or $7.5 trillion, can be directly attributed to legislation passed under previous administrations.
On January 20, 2009 President Obama walked into the oval office and was handed a negative annual deficit of -$1.3 trillion. This was a stark contrast from his predecessor, who began his eight years in office with a $128 billion dollar surplus. However, through healthcare entitlements, unfunded wars, tax cuts that didn’t pay out, and TARP spending that surplus had turned into the largest fiscal deficit our country had ever experienced. Obama was handed this budgetary disaster, coupled with a collapsed economy with the expectation of immediate change. Little did he know eight years later, he would be held responsible for the gap he inherited, and full blame for the current debt. Before we can understand what Obama was expected to fix, we need to first understand where our government spends money.
The federal budget can be broken into two major categories; Mandatory and Discretionary spending. Mandatory spending is everything that is allocated by law. This includes Medicare, Social Security, Medicaid, interest on the debt, and welfare. Mandatory expenditures make up 70% of our total budget. Discretionary spending is managed by the executive branch and must be appropriated on an annual basis. Discretionary spending includes defense and primarily cabinet responsibilities (State, Education, Energy, Transportation, etc). Discretionary spending is split almost equally between defense and everything else. (.XLS)
President Obama made two major spending changes that grew short and long term spending. In 2010 President Obama signed the American Recovery Act. This legislation accounts for $787B of new debt through state offsets, welfare, project grants, and tax cuts. The other major change was an increase in military spending (Obama spent $1.5 trillion more than the previous administration).
Many conservatives point to the Affordable Care Act (Obamacare) as a negative factor in Obama’s budgets. To do so would be incorrect. In crafting the legislation, House Democrats worked closely with the Congressional Budget Office (CBO) to ensure the new legislation would remain deficit neutral. The potential increase in spending was offset by penalties (mandates), cost-savings, and some additional taxes directed at the super wealthy like “Cadillac” healthcare plans. Recent CBO reports continue to confirm Obamacare to be deficit neutral.
So where did all the debt come from if it wasn’t Obama’s policies? The US budget growth was driven by Mandatory expenditures impacted by marketplace and demographic changes. These expenditures are known as Mandatory as only Congress (House) can begin the process to change the programs. For example, spending on Social Security will continue to increase as more individuals reach the threshold, unless we restructure the program. Medicare costs will continue to skyrocket as more individuals reach the required age. Welfare costs have provided a little bit of favorability these past couple years dropping $100B given the positive change to unemployment under Obama, and should remain relatively flat going forward. The interest expense will continue to rise as more debt is issued to pay for all of these programs. This entire group has little to do with any of President Obama’s policies, and would be growing at the same rate regardless of who resided in the Oval Office.
One of the most overlooked causes of our National Debt is due to governmental income, or receipts. Like our own household budget, when our income stays flat, so should our spending. Over the last decade this has not been the case. From 2000-2009, budgetary spending increased almost 96% and our nation’s receipts (income) only increased 3%. Imagine doubling your household spending after receiving a 3% pay raise! In 2000 receipts were roughly 20% of GDP. In 2009 receipts were 17% of GDP. If the 2016 receipts were equal to 2000 levels, our annual deficit would decline by $550 billion and be near zero.
What caused this shortfall in income? The collapse of the economy and the 2002/2003 tax cuts. In 2002 and 2003, tax cuts were signed into legislation based on the premise that the red hot economy of the 1990’s would continue through the next decade. The collapse of the housing market and war spending were not part of the equation, nor was TARP funding and other bailouts. Even more problematic was when President Obama extended these unproven tax cuts when compromising with the Republicans to avoid a governmental shutdown in 2013. Declining receipts due to the economic collapse is straight forward; less income tax being collected due to unemployment and reduction in consumer spending is more difficult.
You might be inclined to blame President Obama for the increase of the National Debt, but face hypocrisy on the highest level if you support Trump’s policies. Since Trump took office we are already seeing legislation that will dramatically increase the annual deficit due to his tax cut plan and increases in military and infrastructure spending. Donald Trump is also facing the same senior entitlement expansion Obama faced, with baby boomers retiring and life expectancy increasing. Recent CBO projections are now showing trillion dollar deficits in the upcoming years which President Trump has promised will be eliminated with economic growth. The problem with this plan? No credible economist has backed such imaginary assumptions and learnings from the 2002 and 2003 tax cuts are being ignored.
GOP just passed a budget resolution that adds $9 Trillion to the debt, with $250 billion of that due to the repeal of the ACA. #TrumpNoir
— Matty Ice (@MattyIceUS) January 13, 2017
If you still believe President Obama is to blame for $8.5 trillion in additional debt, feel free to comment below identifying what legislation he signed to deliver such a disastrous budgetary decline. Whatever your belief, cut through the media’s rhetoric and read the actual budget. WARNING: NUMBERS APPROACHING! – http://www.whitehouse.gov/omb