President Obama likes to scapegoat George W. Bush for the country’s massive deficits.
“When I came into office, I inherited the biggest deficit in our history,” he told CBS’ “60 Minutes” last September. “And over the last four years, the deficit has gone up, but 90 percent of that is as a consequence of two wars that weren’t paid for, as a consequence of tax cuts that weren’t paid for, a prescription drug plan that was not paid for, and then the worst economic crisis since the Great Depression.”
But Obama himself will likely take the blame for the deficit by the next occupant of the Oval Office, according to economic projections the Congressional Budget Office released Tuesday. The deficit is poised to skyrocket as soon as Obama leaves the White House, hitting $978 billion by 2023 because of the strains put on Medicare and other programs because of retiring baby boomers and rising health care costs. Mandatory spending will consume 64 percent of the budget a decade from now.
Publicly held national debt (the sum of past deficits) would increase over the next decade to 77 percent of Gross Domestic Product, a level the country last dealt with after equipping an Army to defeat the Nazis and secure the Pacific in World War II.
"At some point Washington has to deal with its spending problem," House Speaker John Boehner, R-Oh., said Wednesday. "I've watched them take this can down the road for 20 years since I've been here. I've had enough of it. It's time to act."
Unless Obama and Congressional Republicans compromise on deficit reduction next president will in 2017 inherit a government hemorrhaging cash. This is a long-run problem caused by demographics—not the result of stimulus spending over the past four years by Obama.
To get the debt-to-GDP ratio back to a historic level of 39 percent, the government would have to slash spending, hike taxes, or use a combination of both measures by $7 trillion over the next decade. But Obama and Republicans have the much less ambitious goal of $1.5 trillion in deficit reduction on top of the $2.5 trillion that has already occurred and included in the CBO numbers.
“For all the drama and disagreements that we’ve had over the past few years, Democrats and Republicans have still been able to come together and cut the deficit by more than $2.5 trillion through a mix of spending cuts and higher rates on taxes for the wealthy,” Obama said at a Tuesday White House briefing. “That’s more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties believe is required to stabilize our debt. So we've made progress.”
Of course, the challenge is reaching a compromise on how to reduce the deficits by another $1.5 trillion over ten years. GOP lawmakers insist only on spending reductions and symbolic measures to force Obama into submitting a budget with a timeline for balancing. Obama and his fellow Democrats preach about the need for additional tax increases to insulate a slew of government programs—not just Medicare and Social Security—from further reductions.
But here is where Obama has an advantage with the deficit that Bush didn’t: he can see this problem coming.
The CBO projects the deficit will begin to climb—after three years of declines—in 2016. It will inch up to $476 billion that year, then jump to $535 billion in 2017 and steadily escalating from that point.
At this same point for Bush, in 2005, the CBO issued an almost naively optimistic forecast. The deficit this year was supposed to be a piddling $16 billion, instead of the $845 billion projected yesterday by the CBO. The national debt was supposed to be just 37 percent of GDP, about half of its actual level.
The CBO in 2005 was blind to the consequences of a financial meltdown that struck three years later—and its decade-long forecast had the luxury of not having to consider the affects of an aging population.
But the CBO director back then, Douglas Holtz-Eakin, who has advised Republican presidential candidates and now runs the American Action Forum, is sounding the alarm this time.
The $2.5 trillion figure touted by Obama—composed of the fiscal cliff deal that hikes taxes on the wealthy and the spending reductions from the 2011 Budget Control Act—barely scratches the surface.
Holtz-Eakin tweeted a brief synopsis of the Tuesday CBO report: “Zero progress been made on structural problem.”