Lately, there has been some controversy about the growth of spending under Barack Obama. It began on May 22 with a column by Rex Nutting of MarketWatch, which concluded that the rate of growth of federal spending under Obama has actually been trivial compared to the last 4 presidents.
According to Nutting’s calculations, spending has grown only 1.4 percent per year under Obama – one-fifth the rate under Ronald Reagan and George W. Bush. Following is a chart accompanying the article.
There has been a considerable amount of debate about Nutting’s calculations, which fly in the face of Republican dogma. Much involves technical accounting issues, such as how to allocate spending during fiscal year 2009. This is important because fiscal year 2009 began on September 1, 2008 during Bush’s administration, reflecting his priorities. By the time Obama took office on January 20, 2009 the fiscal year was almost half over; he didn’t submit his first budget until February 26, 2009 and the fiscal year 2010 budget is really the first one that reflected his priorities.
Nutting assigned the bulk of fiscal year 2009 spending to Bush, an assumption that other analysts have questioned. Glenn Kessler of the Washington Post found that Nutting overstated his argument in various ways. But the PoliFact site of the Tampa Bay Times concluded that the Nutting column was essentially correct.
Aside from the political implications, the reason this debate is important is because there is a tendency for people to conflate spending, deficits and debt, as well as confusing rates of change with absolute levels.
The difference between fiscal years 2008 and 2009 is very significant because the economic crisis hit hard late in calendar year 2008 and early 2009 – just as Bush was leaving office and Obama was coming in. According to the Congressional Budget Office, spending shot up from 20.7 percent of the gross domestic product in fiscal year 2008 to 25 percent in 2009 – an extraordinarily large increase.
When looking at the rate of change of spending, the base year is critically important; the higher spending is in the base year, the smaller subsequent increases will appear. If the base year is lower, subsequent increases will be larger in percentage terms.
Thus if we compare CBO’s latest estimate for spending in 2012 to 2008 we get a total increase of 21.7 percent, but if we compare it to 2009 the increase is just 3.1 percent.
I don’t want to get into the nitty-gritty of whether to allocate all spending in fiscal year 2009 to Bush or Obama. I just want to note that the president has very little control over the budget one way or another; the vast bulk of spending is baked in the cake the day he takes office and changes can only be made incrementally and over time.
This fact is illustrated by looking at CBO’s last spending projection of the Bush administration, which was issued on January 8, 2009 – 2 weeks before Obama took office and containing no Obama initiatives. It shows that spending was projected to rise to 24.9 percent of GDP in 2009 under laws that Obama inherited – almost exactly what it ended up being.
Moreover, CBO data show that the biggest increase in spending between 2008 and 2009 was for mandatory programs such as Medicare and Social Security that are not appropriated by Congress annually, but continue automatically unless the underlying law governing beneficiaries is changed. This portion of the budget rose from 12.4 percent of GDP in 2008 to 16.4 percent in 2009. By contrast, the discretionary portion of the budget, which is appropriated annually and includes national defense, rose from 7.9 percent of GDP to 8.9 percent between 2008 and 2009.
Another thing that is clear from the CBO data is that the budget deficit is as much the result of lower taxes as higher spending. Revenues fell from 17.5 percent of GDP in fiscal year 2008 to 14.9 percent in 2009 and 2010, rising to just 15.4 percent in 2011 and 15.8 percent this year. Had revenues stayed at their 2008 level, combined federal deficits would have been $1.3 trillion smaller since 2008.
And this estimate actually understates the extent to which Bush’s policies devastated the government’s revenue-raising capacity. In the postwar era, federal revenues have averaged 18.5 percent of GDP. They averaged 18.2 percent during Ronald Reagan’s 8 years and 19 percent under Bill Clinton’s 8 years, but 17.6 percent during George W. Bush’s 8 years and just 15.2 percent for Obama’s 4 years thus far.
At a minimum, this puts a lie to the ideas that we are overtaxed, that Obama has raised taxes, or that low taxes stimulate growth. Indeed, based on history, one can easily argue the opposite – that high taxes stimulate growth. The expansions of both the Reagan and Clinton administrations were preceded by big tax increases in 1982 and 1993, and revenues as a share of GDP were considerably higher during their administrations than under either Bush or Obama.
It’s an old political trick to blame the other side for things that your side is actually responsible for. I remember clearly that Democrats often attacked Reagan for economic conditions and policies that really belonged to Jimmy Carter. Today, Republicans are blaming Obama for those that rightfully should be attributed in large part to Bush.
It is not as if Obama is unaware of what Republicans are doing. He called them out on it in a December 8, 2009 speech. Republicans, Obama said,
passed tax cuts and expansive entitlement programs without paying for any of it -- even as health care costs kept rising, year after year. As a result, the deficit had reached $1.3 trillion when we walked into the White House. And I'd note: These budget-busting tax cuts and spending programs were approved by many of the same people who are now waxing political about fiscal responsibility, while opposing our efforts to reduce deficits by getting health care costs under control. It's a sight to see.
Obama was right about Republican hypocrisy, but he has seldom made this point since, allowing Republicans to dominate the debate on budget issues and attribute to themselves an undeserved record of fiscal responsibility. If he hopes to win in November, Obama needs to remind voters that Bush and his party are largely responsible for the budget deficit. He will find a receptive audience; the New York Times/CBS News poll has consistently found that Americans blame Bush by a 3 to 1 margin over Obama. In January of this year, 43 percent of them held Bush responsible and only 14 percent blamed Obama.