Tuesday evening, the Federal Reserve announced that it would lend troubled insurer AIG $85 billion, in return for a 79.9% stake in the company. This move comes on the heels of the bailouts of Freddie Mac and Fannie Mae, and just months after the bailout of Bear Stearns. CNBC has put the total tab for the recent government rescues by the Fed and the Treasury Department at $900 billion.
The rescues, while necessary to prevent a wider financial meltdown, will cause the already near-record federal deficit of $407 billion to explode. Before the bailouts, the projected federal deficit for 2009 was $546 billion. But when President George Bush came to office eight years ago, it was projected that America would have a budget surplus next year of $710 billion. So what happened?
As an analysis by the Center on Budget and Policy Priorities shows, 42% of the “fiscal deterioration” was due to the Bush tax cuts enacted in 2001 and 2003:
The key factors have been large tax cuts and increases in security-related programs. For fiscal 2009, some $1 trillion of the $1.3 trillion deterioration in the nation’s fiscal finances stems from policy actions, and tax cuts account for 42 percent of this $1 trillion deterioration.
Sen. John McCain (R-AZ), for his part, has proposed a doubling of the Bush tax cuts, which would blow an even bigger hole in an already-spiraling federal deficit. A Center for American Progress analysis concluded that McCain’s proposals would result in a deficit of $505 billion, before the government has to ante up for the bailouts. With America on the hook for $900 billion, and with the effects of Bush’s irresponsible tax cuts lingering, how will McCain pay for any of his proposals?