"Why Cutting The Deficit Isn’t Cool Anymore, In Four Charts"
CREDIT: AP Photo/Jacquelyn Martin
President Obama will turn the page on the nation’s obsession with austerity when he releases his fiscal year 2015 budget request on Tuesday. The proposal will include $56 billion in spending for infrastructure, job training, universal preschool, and defense to be offset by cost savings elsewhere in the budget. The document also calls for the expansion of the Earned Income Tax Credit (EITC) for childless adults and the child tax credit, which benefits lower- and middle-income Americans.
Deficit hawks looking for deep spending cuts will be sourly disappointed. So will supporters of a grand budget bargain or structural changes to mandatory programs. Obama is striking a populist tone ahead of the midterm elections — one that argues that the government can, in fact, help millions of Americans prosper.
It’s a big change of tone from 2010, when Republican lawmakers were warning of interest rate and inflationary spikes if the deficit was not immediately brought down and Obama himself endorsed the goal of deficit reduction, proclaiming in that year’s State of the Union address that since “[f]amilies across the country are tightening their belts and making tough decisions,” then “[t]he federal government should do the same.” That night, he proposed a three-year freeze in domestic government spending, a pay freeze for his top aides, and the creation of a bipartisan commission to lower the debt and deficit. In the years that followed, D.C. was overcome with deficit reduction hysteria, one that took four years to cure.
In that time, efforts to reach a large-scale budget agreement failed to materialize. But Congressionally enacted spending cuts and higher tax revenue from a recovering economy caused the deficit to plummet. In 2013, the federal budget deficit fell faster than in any year since the end of World War II, declining from $1.1 trillion in 2012 to $680 billion in 2013. The deficit is now 4.1 percent of GDP, dropping from a high of more than 10 percent during the depths of the recession:
CREDIT: New York Times
Discretionary spending is also at an all-time low:
Add to that the slow growth of health care costs and the urgency to reduce the deficit evaporates. Over the last several years, the under-utilization of health care services as a result of the recession, a rise in generic drugs, and other factors have led the Congressional Budget Office to lower its projections of Medicare and Medicaid spending by $1.2 trillion:
CREDIT: Center on Budget and Policy Priorities
As Jared Bernstein, a former economic adviser to Vice President Joe Biden, points out, the improved economic outlook “creates oxygen for talking about the more immediate challenges that people actually face” like jobs and opportunity. It also comes after new research undermined the austerity agenda, the doomsday predictions of economic catastrophe failed to materialize, and real world examples in Europe failed to produce growth:
Meanwhile, Americans were confronted by the very real consequences of automatic budget cuts to popular programs like Head Start and were repelled by the political brinkmanship produced during the government shutdown. By January 2014, Pew Research reported that for “the first time since Barack Obama took office in 2009, deficit reduction has slipped as a policy priority among the public.” Overall, 63 percent of Americans said reducing the budget deficit should be a top priority for Congress and the president, down from 72 percent a year ago. A Gallup Poll from February similarly found that just 8 percent identified budget or deficit issues as the top priority facing the nation.
As a result, a bipartisan majority in Congress restored some of the sequester reductions in the recent two-year budget deal and by now even Republicans have moved away from the rhetoric of deficit reduction. They’re emphasizing opportunity. “The president may focus on inequality because he can’t talk about growth,” House Budget Chairman Paul Ryan (R-WI) told the Washington Post on Sunday. “We’re focused on upward mobility, speaking directly to people who have fallen through the cracks.” The deficit fever of the last four years has finally broken.