This article first appeared in the St. Louis Beacon, Dec. 6, 2012 - House Speaker John Boehner has declared that budget negotiations with the White House to avert the looming fiscal cliff are “almost nowhere” as of this writing. Mr. Boehner’s grim assessment accurately reflects the awkward fact that a divided nation — and the gridlocked government it has spawned — seems incapable of formulating a mutually agreeable vision for the future.
Judging from both public discourse and private discussions, a significant obstacle to progress appears to be the lack of a common understanding of our shared history. How can we expect to concur about the path forward when we can’t even agree about what just happened?
The immediate concern is the soaring federal budget deficit and what should be done to control it. Because political commentators often interchange debt and deficit figures, let’s begin by attempting to objectively assess the present situation.
The deficit is the money the government must borrow to pay its bills each fiscal year. As the federal fiscal year begins on Oct. 1 of the year preceding the calendar year, we are currently in FY 2013. FY 2012 concluded last Sept. 30 with a deficit of just over $1.1 trillion.
The debt is the total accumulated obligations of the government. It now stands at about $16.3 trillion, though that figure is sometimes inflated to more than $75 trillion when long-term entitlement payments are calculated into it. Those projections are problematic, however, because no one can accurately predict the future revenues that would offset that daunting figure.
The numbers from the first year of a new administration are largely the product of the last year of the previous administration due to the fore-cited gap between fiscal and calendar years. The fiscal year starts on Oct. 1, the election is held on the first Tuesday of November, and the president-elect doesn’t take office until the middle of January, so he basically inherits a work in progress.
With the above qualifications in mind, let’s analyze our recent past.
1992, the last full year of the George H.W. Bush administration, ended with a deficit of $474.5 billion. When Bill Clinton took office, he raised the rate of the top tax bracket to 39.6 percent. Deficits fell every succeeding year — from $404.9 billion in 1993 to $31.4 billion in 1997.
From 1998 through 2000, Clinton recorded ever-increasing surpluses that peaked during his last full year in office when the government took in $314.8 billion more than needed to pay its bills. The plan at the time was to use this extra cash to improve the infrastructure and pay down the national debt.
George W. Bush took office in 2001 with an agenda to reduce taxes to stimulate growth. The surplus that year fell to $164.9 billion. By 2002, the first round of the legendary Bush cuts had been implemented and the erstwhile surplus was converted to a $201 billion deficit. For the remainder his administration, fluctuating deficits were the norm.
These peaked in 2004 at $501.2 billion, due primarily to the cost of the Iraq War and the passage of an unfunded prescription drug benefit for Medicare recipients. Deficits then fell for three years before rising to $488.8 billion in 2008, Bush’s last full year in office. Perhaps coincidentally, his closing deficit closely mirrored that of his father.
Deficits skyrocketed in 2009, when the Bush-Obama transition took place. The combination of the TARP bailout, implemented under Bush, and the economic stimulus package, enacted by Obama, brought the shortfall to an alacritous $1.5 trillion (1,500 billion).
Though critics have portrayed Obama as a spendthrift, deficits have fallen every subsequent year of his presidency. The projected deficit for FY 2013 is $885 billion — almost twice the ’08 number, but still down 41.4 percent from his first year in office.
There are a couple of rather obvious conclusions to be drawn from all this numbers-crunching. The first is that upper income tax cuts do not spur sufficient economic activity to increase government revenues. So-called “jobs creators” only create jobs when demands for their products and services necessitate an expansion of the workforce. Businesses hire employees for one reason only: to increase profits. Nobody ever got a job because his employer felt compelled to generate more tax revenue by reducing the unemployment rate.
The second is that factors other than taxation tend to drive the economy. Clinton’s tax increase did not deter the economic boom of the ‘90s and Bush’s cuts could not prevent the collapse of ’08. In fact, by the end of the generally prosperous Eisenhower years, the top tax rate was a jaw-dropping 91 percent and the government was running a surplus.
Presently, we are faced with forced cuts of draconian proportions if a budget deal can’t be reached. As nobody wants to go over that cliff, it’s imperative that we get from the twilight zone of “almost nowhere” to the promised land of “somewhere close” on a compromise. Taking a somber look at the recorded facts might be a good first step.