Don Marron picked up on my post from late last week about the possibility (which based on additional discussions over the weekend I now officially upgrade to “likely”) that the fiscal 2009 deficit will be much less than expected and did his usual good job of advancing the conversation several steps in the process.
But in spite of the fact that it’s the correct fiscal policy, even a $1.6 rather than the previously projected $1.8 trillion deficit will be an excuse by some to say ridiculous things about the current state of the federal budget. After all, $1.6 trillion would still be way above the previous record-high deficit of $455 billion set in 2008 during the last year of the Bush administration.
But that’s not the right comparison and those that choose to use it will clearly be doing so in an effort to mislead and demagogue. Here’s why.
1. According to the Congressional Budget Office, the baseline 2009 deficit the Bush administration bequeathed to the the country when it left office was about $1.2 trillion.
2. But the baseline deficit only takes into account laws that have already been enacted, and several tax and spending changes that have been adopted since Inauguration Day absolutely also would have happened under a continuing Bush administration (or, for that matter, a McCain administration). This includes another one-year patch for the alternative minium tax and a supplemental appropriation for activities in Iraq and Afghanistan. These two changes alone added about $200 billion to the 2009 baseline.
Therefore, without considering anything else, the difference between the deficit that would have happened with Bush in the White House and what’s happening with Obama is only about $200 billion.
(Before anyone says anything about the phrase “only about $200 billion,” I admit that it’s inappropriate to use words “only” and “$200 billion” together in the same sentence. You have to admit, however, that $200 billion is a whole lot less than the approximately $1.1 trillion difference between $1.6 trillion and $455 billion.)
3. But even $200 billion likely overstates the difference in the deficit that would have occurred had Bush been in office this year and that one that will occur under Obama. Given the state of the economy at the end of 2008 and the first two quarters of 2009, Bush almost certainly would have proposed a stimulus plan of his own. Remember, Bush was the president who in early 2008 proposed and pushed a $150 billion stimulus plan when the economy didn’t appear to be as bad as it eventually became. He’s also the president whose economic team successfully pushed for TARP as Wall Street did its own version of the China Syndrome and who did nothing to stop the Federal Reserve from borrowing for the AIG bailout.
No doubt a second Bush stimulus would have included different policies than the $700 billion billion stimulus adopted earlier this year (The total was actually higher but it included the AMT patch that I already counted in #2). But the bottom line would have been the same: the deficit would have increased by at least another $100 billion.
4. If you believe some commentators, a more tax-oriented stimulus package like the one they say would have been proposed under a Republican president would have had a bigger and faster economic impact than the spending increase and tax reduction plan enacted this year. If that’s true, the 2009 deficit under a Bush administration would have been perhaps another $100 billion higher this year as the federal government collected less revenues this year than would otherwise have been the case.
In other words, the deficit produced by a Bush administration this year would have been about equal to what is going to happen under the Obama administration.