Some see Trump's predecessor as having returned fiscal discipline to Washington. They're wrong.
President Barack Obama's tax, spending and deficit legacy has long been subject to intense debate. Many liberals portray a president who inherited a daunting $1.2 trillion budget deficit and eventually cut it in half, despite a sluggish economy. They assert that he responsibly raised tax rates on upper-income Americans, expanded health care spending and trimmed the defense budget.
“The completion of the Obama presidency allows for a final accounting of his fiscal legacy.”
Many conservatives respond that the president's runaway spending slowed down what should have been even faster deficit reduction. They point to the national debt leaping from $11.5 trillion to $20 trillion, despite painful tax increases on upper-income families, small businesses, investors, smokers and the health industry.
The completion of the Obama presidency allows for a final accounting of his fiscal legacy. In a new study, I used Congressional Budget Office data to examine over 100 major bills signed by the president, as well as every CBO-analyzed budgetary change resulting from outside economic and technical factors.
It turns out that both sides can claim some truths – and myths.
Obama's budget deficits more than doubled the inherited projections (point: conservatives). Thirteen days before Obama took the oath of office, the CBO forecast a total 2009-19 budget deficit of $4.32 trillion. Instead, Washington is set to complete that decade with cumulative deficits of $8.93 trillion – $4.6 trillion higher than projected.
Yes, budget deficits gradually dipped below $1 trillion by 2013, and then averaged $550 billion thereafter. Yet without expensive new legislation, they would have naturally fallen to $531 billion by 2011, and below $200 billion by 2013.
These worse deficits cannot be blamed on the weak recovery (point: conservatives). In 2012, Obama himself echoed the conventional wisdom when he asserted that he had failed to meet his own deficit-reduction targets "because this recession turned out to be a lot deeper than any of us realized." Yet surprisingly, the weak recovery has actually reducedbudget deficits.
How is that possible? The original January 2009 CBO baseline failed to anticipate the feeble economic recovery – which will shave an additional $3.1 trillion off the 10-year revenues. However, the same economic underperformance automatically saved $3.5 trillion in spending, mostly by lowering the interest rates paid on the surging national debt – a direct result of weak growth and the Federal Reserve's attempt to combat it.
In fact, Washington's interest costs were lower in 2016 than in 1996, despite the national debt surging from $5 trillion to $20 trillion. Thus, the weak recovery actually saved Washington $400 billion relative to the baseline Obama inherited.
Added deficits came largely from bipartisan tax cut extensions (point: liberals). Obama's $4.6 trillion in additional deficits came from $5 trillion in new legislation, partially offset by $400 billion in economic and technical savings described above. However, $4.1 trillion of this legislative price tag resulted from simply renewing most of the expiring Bush tax cuts, the alternative minimum tax patch and other annual tax cut extenders – all of which congressional Republicans strongly supported. (The wisdom of these tax measures is not the issue here – the numbers are.)
Beyond tax cut renewals, the 2009 stimulus law and follow-up stimulus policies – such as extended unemployment insurance benefits, the payroll tax holiday and bonus depreciation tax incentives – cost another $2.0 trillion. These costs were partially offset by $835 billion in discretionary spending savings and entitlement sequestrations, mostly from the 2011 Budget Control Act.
The Affordable Care Act has reduced the deficit by $275 billion (point: liberals). CBO originally projected the act would reduce the 2009-19 deficit by $125 billion. Thanks to lower-than-expected exchange enrollment, it is now estimated to save $275 billion over that period, even despite certain taxes being postponed.
Still, being "paid for" does not necessarily mean it was fiscally responsible. Approximately $700 billion in new benefits were funded by tax increases and Medicare cuts that are now unavailable to shore up existing entitlements or cut the escalating deficit. This will force future lawmakers to dig even deeper for savings when the bills come due.
All new spending occurred during the 2009-10 Democratic Congress (point: liberals). Many conservatives complain that allegedly feckless congressional Republicans rubber-stamped Obama's spending wish list. Liberals instead complain that Republicans cut spending. The liberals are correct (and conservatives should be pleased): All net new spending was enacted before Republicans took control of the House in 2011, at which point they slammed the brakes.
Let's measure entitlement reforms with 10-year scores, and annual discretionary spending relative to that original 2009 baseline. In 2009 and 2010, Obama and a unified Democratic Congress enacted $1.4 trillion in new spending. Between 2011 and 2016 – with a Republican House and eventual Republican Senate – lawmakers enacted a $254 billion net spending cut. And if we exclude the basic bipartisan renewals of existing tax, Medicare and unemployment policies (which many argue should not be scored as new policies), the 2009-10 Democrats added $1.2 trillion in spending, while the 2011-16 Republican House (and later Senate) cut spending by $889 billion. Democrats spent, and then Republicans cut.
The spending slowdown was caused by gridlock, not by Obama moderating his demands (point: conservatives). It is important to recognize that Obama did not stop trying to expand government after 2010. The president's eight annual budget requests gradually upped their 10-year revenue demands from $1.3 trillion to $3.4 trillion, while proposing an average of $1.0 trillion in new program spending over the next decade. His play, in short, was to gradually trim the budget deficit by chasing large spending increases with even larger tax increases. The Republican Congress stopped him.
My assessment: Obama's most important fiscal legacy was a sin of omission. Despite promising to confront Social Security and Medicare's unsustainable deficits, the president refused to endorse any plan that would come close to achieving solvency. This surrendered eight crucial years of baby-boomer retirements while costs accelerated. With baby boomers retiring and a national debt projected to exceed $90 trillion within 30 years, this was no small surrender.
This piece originally appeared in U.S. News & World Report
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Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
This piece originally appeared in U.S. News and World Report