The Budget Deficit – How We Got Here

by on April 27, 2011 · 6 comments

in American Empire, Economy

Decrease spending on Defense and Corporate Welfare and Increase Spending on Job Creation and the Safety Net. Increase revenues from Corporations and the Wealthy.

By John Lawrence / Will Blog For Food / April 27, 2011

Everyone is concerned about creating a 2012 budget that will get the US annual deficit and finally the national debt under control. Republican Paul Ryan has proposed one that would balance the budget on the backs of the poor and middle class while voucherizing Medicare and giving tax breaks to the wealthy.

President Obama has proposed one that would keep Medicare the way it is and raise taxes slightly on millionaires and billionaires.

Then the progressive Democratic caucus has proposed the “People’s Budget,” which is the virtual opposite of the Paul Ryan budget. All these plans would decrease the deficit over a period of time.

First, a little background on how we got into this mess.

Number one: a bloated Defense Department whose budget has doubled in size since 2001 .

Second, Bush tax cuts for the rich. Bush dropped the top rate from 39.6% to 35%. To be fair Bush also dropped the lowest tax rate from 15% to 10%. So the Bush tax cuts were across the board, but the rich profited most from the cuts. Bush also finagled the income ranges to which the rates applied. For instance, the Clinton 15% rate applied to incomes up to $43,050.

The Bush 10% rate applied to incomes only up to $12,000. Then the 15% rate kicked in for incomes up to $46,700. So the Bush rates did nothing for the middle class; they were essentially the same as the Clinton rates. Bush also lowered taxes on capital gains. Clinton kept the top capital gains tax rate at 28% until 1997, when he agreed to lower it to 20%.

President Bush lowered it to 15% in 2003. Capital gains revenues increased by 0.7% of GDP from 1994 through 2000 under President Clinton, and they fell to 0.6% of GDP from 2000 to 2004 under President Bush. Under Bush the estate tax was reduced from 55% to 35% and the exclusionary amount was increased from $675,000 to $5 million.

Third, tax revenues from corporations went from 30 percent in the mid-1950s to 6.6 percent today thanks to loopholes drilled into the tax code by lobbyists. So corporations are not paying their fair share by historical standards.

Fourth, the wars in Iraq and Afghanistan started by Bush were unfunded which means they were just added to the deficit. These represent a structural built-in ongoing deficit.

Fifth, Bush’s Part D drug plan for Medicare recipients was just added to the deficit. Cheney, notably said, “Reagan proved deficits don’t matter.”  Ha.

Sixth, Bush signed into law the TARP (Troubled Asset Relief Plan) which was a $700 billion bank bailout although most of this is expected to be paid back. Seventh, in order to prevent a world wide economic meltdown, Obama enacted the American Recovery and Reinvestment ACT (ARRA). However, there are no long term effects of this on the deficit after 2011.

For the remainder of this article, please go here.

{ 6 comments… read them below or add one }

avatar RB April 27, 2011 at 12:49 pm

It is interesting that the projections of the wars in Iraq and Afghanistan run through 2019. Is this acceptable to anyone? Could we elect anybody who would end these irrational, wasteful actions before 2019?

War is not OK, just because Obama replaced Bush.


avatar Andy Cohen April 27, 2011 at 12:57 pm

It’s what I’ve been saying all along, but the Tea Baggers would just rather bury their heads in the sand.

Maybe if we keep saying it enough, it will actually start to ring true? Hell, it’s worked for the Republicans……..


avatar Rick Ward aka mr.rick April 27, 2011 at 2:07 pm

That approach,saying it until they believe it, should work even better with the truth.


avatar Andy Cohen April 27, 2011 at 4:00 pm

I dunno……..this is the Republican Pavlovians we’re talking about……


avatar jettyboy April 28, 2011 at 5:19 pm

FROM Lawrence J. Korb, Center for American Progress

Any serious proposal to reduce the federal deficit has to put defense spending on the table. Why? Let me count the ways:

The baseline defense budget comprises 20 percent of the overall federal budget and 50 percent of the discretionary portion.

The U.S. share of worldwide defense spending grew from one-third to one-half in the last decade. This means 5 percent of the world’s population accounts for 50 percent of the world’s military spending.
The baseline defense budget has nearly doubled in the past decade and is now higher in real terms than what we spent on average during the Cold War when we were faced with an existential threat from another superpower.

The Obama administration already plans to spend 20 percent more on defense than was spent on defense during the Bush administration.

Total U.S. defense spending is now higher in real terms than at any time since World War II.

House Budget Committee Chairman Paul Ryan’s (R-WI) “Path to Prosperity” not only fails to put defense cuts on the table; it actually wants defense spending to continue growing in real terms. Ryan’s “deficit reduction plan” calls for a $22 billion increase in defense for FY 2012, and he wants to increase the baseline budget by another $60 billion over the next four years. This means that in FY 2016, DOD would receive $642 billion. Ryan’s proposal would have us spend nearly $6.5 trillion on defense—exclusive of war costs—over the next decade.

Ryan’s plan puts him at odds with all of the groups established to bring the federal deficit under control: the Bowles-Simpson Commission, the Domenici-Rivlin Task Force, and the Frank-Paul Sustainable Security Defense Task Force. These groups recommended reducing projected expenditures over the next decade by about $1 trillion, which would bring defense levels back to the Cold War average in inflation adjusted dollars.

How did the person New York Times columnist David Brooks praised for his courageous leadership and for setting a standard of seriousness miss this? Apparently Ryan was taken in by Secretary of Defense Robert Gates’s claims that he has already proposed $178 billion in savings in defense spending. These were not real cuts. Gates plowed $100 billion of his “savings” back into the budget for other programs while the remaining $78 billion merely reduced projected growth in the defense budget.

The country, Congress, and the Republican Party deserve better than Ryan’s ignorance of defense.

Lawrence J. Korb is a Senior Fellow at American Progress.


avatar tj April 29, 2011 at 11:38 am

“First, a little background on how we got into this mess.” JL


Sure W is a Wall Street tool – & for his own – the “top” 1%ers.

But W actually inherited the core problem – Republican sponsered (Wall Street Bankster) legislation promoted by Slick Willie Clinton during his undermining of the core of our economy (good paying middle-class jobs), who used a lawerly SELL OUT of the American people to amass his own fortune.

Clinton’s treachery:

1) Gramm/ Leach/ Bliley Act – removed Depression era protections against Wall Street Bankster greed.

2) NAFTA – wholesale export of USA jobs to Mexico.

3) PNTR – wholesale export of USA jobs to opressors & human rights violaters, Communist China.

Sure W was/ is a tool – but “credit where credit is due” – Clinton planted the device & lit the unstoppable fuse.


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