Driving the debt

From Chad Stone of the Center on Budget and Policy Priorities, a rather eye-popping chart:

As we’ve noted, my colleagues Kathy Ruffing and Jim Horney have updated CBPP’s analysis showing that the economic downturn, President Bush’s tax cuts, and the wars in Afghanistan and Iraq explain virtually the entire federal budget deficit over the next ten years. So, what about the public debt, which is basically the sum of annual budget deficits, minus annual surpluses, over the nation’s entire history?

The complementary chart, below, shows that the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.

Altogether, the economic downturn, the measures enacted to combat it (including the 2009 Recovery Act), and the financial rescue legislation play a smaller role in the projected debt increase over the next decade. Public debt due to all other factors fell from over 30 percent of GDP in 2001 to 20 percent of GDP in 2019.

We focus here on debt held by the public, which reflects funds that the federal government borrows in credit markets to finance deficits and other cash needs. That’s the proper measure on which to focus because it’s what really affects the economy. We compare it to GDP because stabilizing the debt-to-GDP ratio is a key test of fiscal sustainability.

As Kathy and Jim note, simply letting the Bush tax cuts expire on schedule (or paying for any portions that policymakers decide to extend) would stabilize the debt-to-GDP ratio for the next decade. While we’d have to do much more to keep the debt stable over the longer run, that would be a huge accomplishment.

One thought on “Driving the debt

  1. Waking up to a segment about the debt ceiling fight in DC on All Things Considered this morning was a major bummer. It ended up saying that the Republicans are hanging tough that a dollar for dollar balance of one dollar of debt increase must have one dollar of cuts. Insanity.

    And I had to ask myself again just WTF Obama thought he was doing when he gave up the single easiest way to have moved toward achieving any balancing of the budget: Just allowing the Bush tax cuts to end as of 12/31/10. To have stood firm against the Republicans and just let time work it’s magic. But Obama did not stand firm (unless he actually was firmly in favor of letting the rich get richer?).

    But Obama “pre-negotiated” and “compromised” with the Republicans and gave them more than they had thought they could get, not just keeping the Bush tax cuts in place, but giving those hedgies the right to keep their low taxation rates AND taking away the previous year’s tax breaks, however small, from the lowest earners.

    At the time, lefty blogs were screaming that this just set Obama up to give away more to the Republicans when they went after the debt ceiling, as is happening now. And that his giving way (or achieving his actual goal?) on the Bush tax cuts put Medicare, Medicaid, and SocSec in harm’s way from actions by Republicans and, alas, Obama himself. Along with many social safety net programs, health and safety regualtion enforcements, community grants to many important programs, and things we probably haven’t heard about. Much less the ability to address our looming problems with global warming. Oh, and, jobs.

    I can barely stand listening about this president, much less to him. It’s almost worse than dealing with Reagan and Bush/Cheney — at least then DC Dems would sometimes stand up against assaults on the little people.



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