The “inherited deficits” fallacy

posted at 12:15 pm on November 5, 2009 by Ed Morrissey
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Keith Hennessey takes apart a Peter Orszag speech, and in the process, the Obama administration’s entire effort to blame Obama’s predecessor for their wild, profligate spending in the middle of a terrible recession.  Speaking at NYU yesterday, the OMB director once again excused Barack Obama for inflating the 2009 defoicit to $1.4 trillion and projecting another $1.4 trillion by claiming that Bush made them do it:

Of the $9 trillion in deficits projected over the coming decade, nearly $5 trillion comes as a result of failing to pay in the past for just two policies — the 2001 and 2003 tax cuts and the creation of a Medicare prescription drug benefit.

The cost of the tax cuts will total about $4 trillion over the next decade, including the additional interest on the debt the federal government will have to pay since the tax cuts were deficit financed.  The Medicare prescription drug bill will add about another $700 billion to the deficit – bringing us to about $5 trillion total for the cost of just these two policies.

In addition, roughly $3.5 trillion can be attributed to automatic economic stabilizers.

As the economy enters recession, certain spending programs, such as unemployment insurance and food stamps, automatically increase and revenues tend to decline.  Although this helps to ameliorate the economic downturn by stimulating demand, it also leads to higher deficits.

Finally, there is the Recovery Act which accounts for just 10 percent of the entire deficit over the next decade.

Hennessey explodes this argument:

Director Orszag is correct that neither the Medicare drug benefit nor the tax cuts were offset with other spending cuts or tax increases.  He fails to tell you that in 2003 Congressional Democrats wanted to spend more on Medicare drugs than the bill President Bush signed into law.  (President Obama was a State Senator at the time.)  He fails to tell you that President Obama did not propose means-testing the drug benefit to save money, as President Bush tried to do.  He also fails to tell you that President Obama’s budget proposes to continue $3.2 trillion of the 2001 and 2003 tax cuts and the AMT patches that followed them.  (See the first few lines of Table S-5.)  He also fails to tell you that his $9 T figure includes $835 B for the stimulus and associated interest costs that President Obama clearly did not inherit.

While he wants to argue that these “$5 trillion” are “not his fault,” the same could be said about all federal spending and taxes in place when President Obama took office.  Had Medicare not been enacted in 1965 or had Social Security benefits not been indexed to wages rather than inflation in the 70’s, our budget would be in surplus today (if nothing else had changed).  It is misleading to attribute future deficits to any particular past policy change, as future deficits are the result of a calculation assuming unchanged extensions of all past policy changes into a path for total future spending and total future tax receipts.  Director Orszag is picking and choosing particular policies to try to assign blame.  How much of future deficits are because future Medicare spending was not offset when Medicare was enacted in 1965?

Hennessey wonders what Orszag means when he argues that “economic stabilizers” don’t have anything to do with Obama:

I think he’s summing up recent past and near-future revenue losses and spending because our economy is operating below ‘potential.’  My view is, so what?  All Presidents have to deal with economic fluctuations, sometimes severe ones.  You shouldn’t time your deficit reduction to hit when you’re trying to promote short-term economic growth, but a deficit is a deficit and accumulated debt doesn’t know what its source was.  Try to make them smaller whatever their cause.  This really has the feel of “IT’S NOT MY FAULT!”

Obama also had a wide range of options for “economic stabilizers” when he assumed office.  He chose to continue the Henry Paulson-George Bush path of massive bailouts, corporate welfare, and added almost a trillion dollars that went straight to the deficit for Porkulus.  Those were choices made by Obama, not forced on him by Bush or anyone else.

Read all of Hennessey’s excellent Fisking of Orszag, but bear in mind something Hennessey doesn’t state: these deficits come from Democrats.  Democrats have controlled Congress and therefore the purse since January 2007.  The last budget that the Bush administration signed went into effect in October of that year.  Nancy Pelosi and Harry Reid played keep-away with the FY2009 budget, passing continuing resolutions until Bush left office and then an omnibus spending bill when Obama became President.  The $1.4 trillion deficit in 2009 is owed entirely to the Beltway triumvirate of Obama, Pelosi, and Reid, and has nothing at all to do with George Bush.

The White House now wants to pretend to be terribly, terribly concerned over deficit spending after throwing money literally all across the nation as though we had an endless supply.  The elections this week will only make their effort more frantic, but as Hennessey shows clearly, they own their own deficits.

Update: Crud — forgot the link to Keith.  Be sure to read it all!!

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