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The Deficit Party

June 3, 2013

Every year the federal government does three things: it collects taxes, it borrows money, and it spends every penny it gets its hands on.

There is no “rainy day fund.” There are no “investments.” The social security “surplus” is an official government promise that in the future, when social security taxes won’t cover payments, the government will borrow up to 2.5 trillion dollars to cover the shortfall. Of course, the actual social security surplus — that is, the cash — was spent the moment it was collected.

All told, taxes cover about 80 percent of what the government spends in a typical year; the remaining 20 percent of the budget (~750 billion dollars) is borrowed and adds to the national debt.

Here’s how it works: China, Japan, and other countries buy things called Treasury Securities and have loaned us 6 trillion dollars in cold cash. Banks, pension funds, insurance companies, mutual funds, state and local governments, and various other investors have loaned the government another 6 trillion dollars. The government has also borrowed 5 trillion dollars from internal programs like social security that generate extra cash.

The chart below has the percent of government spending borrowed each year by each president since Reagan. I’ve included all borrowing that adds to the national debt, including the routine borrowing of the social security surplus. If a president gets a green number, that means the percentage of borrowing is lower than what he inherited from the previous president. A red number, on the other hand, means the president has increased the deficit compared to his predecessor’s final year. We’ll start with Carter’s final year in black.

Note 1: Obama’s most recent number is a CBO estimate.

Note 2: Clinton’s second-term borrowing is rounded to zero; overall, the government had a small net surplus for those years

Carter:  . . . 11

Reagan:   16   26   22   23   24   17   18   18   (all red, all above Carter’s 11)

Bush:   22   24   25   21  (all red, all above Reagan’s 18)

Clinton:   18   15   11   7   0   0   0   0  (all green, all below Bush’s 21)

Bush:   16  25  25  25  20  16  13  22  44  (all red, all above Clinton’s 0)

Obama:  40  38  32  19  (all green, all below Bush’s 44 BUT average = 32)

In the first year of a Democratic presidency, the deficit drops; it then trends downward throughout the presidency. For instance, Clinton inherited a 21 percent deficit from Bush, cut it in half in 3 years, and then balanced the budget. So far, Obama has spent four years cutting W’s deficit in half.

Since 1980, no Republican president has posted a deficit lower than the one he inherited. Even the first George Bush, who started with Reagan’s 18 percent deficit, did not break the Republican twenty-year streak of higher deficits. On the other hand, after turning a surplus into a 25% deficit, the second George Bush cut it back all the way to 13% five years later. Unfortunately, the economy fell apart and Mr. Bush ended up with the record for the largest deficit since World War II: a disastrous 44 percent.

Obama’s average deficit over four years is also a post-war record, as Republicans frequently point out. Democrats, of course, say yes, it did take four years to clean up the most recent Republican mess.

Obviously, Republican presidencies have been deficit disasters. As for Obama, he will be judged by his final two years.

If the deficit under Obama has reached single digits by 2016, Democrats may well sport two debt clocks at their convention — one that shows what the national debt will do under a Democrat (go up slowly and then go down) and one that shows what the debt will do under a Republican (go up so fast you can’t see the numbers).

In 2016, you may see Democrats wearing buttons that read, “Deficits Do Matter.” Indeed, if things keep going the way they’re going, the numbers may finally catch up with the Deficit Party.

And who knows? Maybe Democrats will come to their senses and take the Republicans up on their offer to pass a balanced budget amendment.

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