Sources of Expected USA Budget Deficits - 2009-2012 / by urbanexus

ECON - 2009-06-10 - New York Times analysis of budget defitsIn an article that appeared on June 9, 2009, David Leonhardt of the New York Times analyzed the source of current and project budget deficits of the U.S. Government for the period from 2009 to 2012.  The analysis compared forecasts of the Congressional Budget Office (CBO) in 2001 when President Clinton was leaving office to the current forecasts.  In 2001, the CBO estimated that the government would run an average annual surplus in the range of $800 billion annually from 2009 to 2012.  Now the expectation is that the annual deficit will average $1.2 trillion in those years.  

Here are the categories that Leonhardt and his research team identified and his research team’s estimate of how much of the swing between surplus and deficit each one represents:

Business cycle – 37 %.   The first and largest category — the business cycle — accounts for 37 percent of the swing. Both the 2001 recession and what we are starting to call the Great Recession reduced tax revenues and required more spending on safety-net programs.  These developments have also   changed economists’ assumptions about how much in taxes the government is likely collect in future years.

Bush II administration – 33%.  Laws enacted between 2001 and 2009 account for about a third of the swing. These laws, like the tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Extension of Bush Policies and Wall Street Bailout – 20 %. Recent policies of the new Obama administration that contribute to the budget deficit swing include extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

Stimulus and other Obama policies – 10%. About seven percent comes from the stimulus bill that Mr. Obama signed in February.  And about three percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

The New York Times article is available at this link - . A larger copy of the chart that goes along with the Leonhardt article appears below.

ECON - 2009-06-10 - New York Times analysis of budget defits