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Setting the Spending Record Straight
October 12, 2010
05:40 PM EDT
The Wall Street Journal today ran an editorial bemoaning the increase in federal spending between FY 2008 and FY 2010.
What it doesn’t factor in, or provide context for, is the chain of events that led to these increases.
First, a large driver of federal spending was the onset of the economic collapse in late 2008 as automatic aid to people hit hard by the downturn, such as unemployment insurance and food stamps, kicked in. With more people temporarily eligible for these mandatory programs and less revenue coming in, the deficit increased substantially in FY 2009, which began on October 1, 2008. In fact, on January 7, 2009 -- before President Obama was sworn in -- the Congressional Budget Office (CBO) issued its Economic and Budget Outlook for Fiscal Years 2009-2019. In that document, CBO projected that government spending would rise from 20.9 percent of GDP in FY 2008 to 24.9 percent of GDP in FY 2009. In reality, government spending in FY 2009 turned out to be roughly what had been predicted a year earlier (24.7 percent). That is to say, this big increase of government spending occurred because of the economic meltdown the Administration inherited and the accompanying automatic increase in programs that assist those most hurt by it -- and this was already fully baked into the fiscal cake when the President took office.
Second, also in response to the recession, we needed to help close the huge gap between what the economy could produce and what it was producing in order to prevent a second Great Depression and even more devastating job losses. That’s why economists from across the spectrum supported a significant stimulus measure, and why the President signed into law the Recovery Act.
While the Recovery Act has become a subject of intense debate, it clearly has brought our economy back from the brink. Instead of four quarters of economic contraction, we now have had four quarters of economic growth. Instead of losing 750,000 jobs a month, we’ve now had nine months of private sector job growth. Recovery Act investments not only saved the jobs of thousands of teachers, firefighters, and police officers, but are also laying the foundation for economic growth in years to come as new roads, bridges, power plants, and rail are built. The Recovery Act added to government spending, but it was essential and beneficial to the nation’s economy.
While measures like these were needed to stave off recession and strengthen the economy, we also must restore fiscal sustainability over the medium- and long-term. However, doing so is made much more difficult because of past fiscal irresponsibility -- the previous Administration’s failure to pay for two large tax cuts and the Medicare prescription drug benefit.
What is required of us now is to make the tough choices to put our fiscal house in order.
The President has put forward a budget that contains more than $1 trillion in deficit reduction. He has put in place a three-year freeze on non-security discretionary spending -- in nominal terms based on levels that do not include any Recovery Act funding -- and vowed to enforce it with his veto pen. He convened a bipartisan fiscal commission to devise a plan to get our budget in primary balance and our country on a long-term, sustainable course, and looks forward to hearing back from them in December. Looking to the long term where the growth of health care costs is the single biggest driver of increased spending, the President signed into law the Affordable Care Act, which will reduce the deficit by more than $100 billion in its first decade and more than $1 trillion in the second.
The other side’s response to our fiscal imbalance is to make it worse by supporting tax cuts for the wealthiest 2 percent of households -- cuts that will increase our deficits by nearly $700 billion and do nothing at all to stimulate economic growth.
What should worry those concerned about government spending and our fiscal situation are not slanted arguments about how we got here, but plans like these that will put us deeper into a hole.