Comments on the national debt issue 6 12 2011
Representative Richard Neal, 2nd MA Congressional District
Republican Leader Cantor asked on the House floor for a discussion about how we got to where we are today. I think that is an excellent question.
The success of the 1993 deficit reduction act, which was vehemently opposed by the GOP[1], led to a decade of prosperity and surplus. President Clinton balanced the budget for the first time since 1969 and ran surpluses for four years (the eight consecutive years during the Clinton term with a declining deficit/increased surplus was a postwar record).[2]
Between 1998-2000, the publicly held debt was reduced by $363 billion—the largest three-year pay-down in American history. Under Presidents Reagan and Bush, the debt held by the public quadrupled. By the time President Clinton had left office, the budget was on track to pay off the entire publicly held debt on a net basis by 2009. Some worried that we might actually pay off all of our federal debt.[3] Unfortunately for us, those fears were unfounded.
Economic growth averaged 4% per year during the Clinton years, compared to average growth of 2.8 percent during the Reagan years. The economy grew for 116 consecutive months (the most in history), which fueled the creation of more than 22.5 million jobs (92% in the private sector) in less than eight years—the most jobs ever created under a single administration, and more than were created in the previous 12 years. With 377,000 fewer employees, the federal government was the smallest it had been since the Eisenhower Administration.
On January 20, 2001, when President George W. Bush took over from President Bill Clinton, the CBO estimated the total budget surplus for 2002-2011 would be $5.6 trillion. And the campaign to spend the surplus began in earnest, despite warnings.[4]
[1] Calling it a recipe for disaster, Dick Armey said, “Taxes will go up. The economy will sputter along.” He also said, “Clearly this is a job killer in the short run. The revenues forecast for this budget will not materialize; the costs of this budget will be greater than what is forecast. The deficit will be worse, and it is not a good omen for the American economy.” Newt Gingrich said, “I believe that that will in fact kill the current recovery and put us back in a recession.”
[2] “My colleagues and I have been very appreciative of your [President Clinton’s] support of the Fed over the years, and your commitment to fiscal discipline has been instrumental in achieving what in a few weeks will be the longest economic expansion in the nation’s history.” Alan Greenspan, Federal Reserve Board Chairman, January 4, 2000, with President Clinton at Chairman Greenspan’s re-nomination announcement.
[3] “But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically, nonfederal) assets.” Testimony of Chairman Alan Greenspan, Committee on the Budget, U.S. House of Representatives, March 2, 2001.
[4] “With today’s euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.” Testimony of Chairman Alan Greenspan, Committee on the Budget, U.S. House of Representatives, March 2, 2001.
Leading up to the 2001 tax cuts, the Administration and the Republican Congress were well aware of the looming Alternative Minimum Tax (AMT) problem.[5] Negotiators took advantage of this situation in order to keep down the costs of the 2001 tax cuts. In June of 2000, one Treasury economist studied the AMT and warned that AMT taxpayers were due to grow at a rate of 30% each year between 2000 and 2010.[6] Nevertheless, President Bush proposed a $1.6 trillion tax cut without an increase in the exemption level to protect taxpayers from the AMT.
Since 2001, Congress has had to extend an AMT “patch” almost annually so that the Bush tax cuts are not taken back by the AMT. The true cost of what was to be a $1.6 trillion tax cut has been estimated to be $2.2 trillion because of the AMT patches, exploding expiration dates, and debt-financing when the surplus disappeared.[7] Some have even lauded this budget gimmickry.[8]
The other major expenditure contributing to our budget deficit was the engagement in two wars, and while some questioned further tax cuts in wartime, others thought it brilliant[9]. In any case, it certainly was historic[10].
In 2002, Bush’s economic advisor Lawrence Lindsey caused a furor in the White House by stating the cost of a war with Iraq would be $200 billion when they were claiming only a quarter of that.[11] According to
[5] “But it is true that the AMT would eat away at some of the benefits flowing from the President’s tax proposals as compared to the absence of an AMT interaction with the rest of the Tax Code. But it is also worth noting that 85 percent of the AMT effect would be on the families with incomes–with higher- income families, let me say notionally, with families with incomes over $100K (Treasury Sect. O’Neill, House Ways & Means Commitee Hearing Feb 13, 2001)
[6] “Who Pays the Individual AMT?” OTA paper 87, June 2000, by Rebelein and Tempalski, Office of Tax Analysis, U.S. Department of Treasury.
[7] “Distribution of the 2001-2006 Tax Cuts: Updated Projections,” Tax Policy Center, http://www.taxpolicycenter.org/UploadedPDF/411739_tax_cuts.pdf. See also: http://www.ctj.org/pdf/bushtaxcutsvshealthcare.pdf.
[8] ‘“We knew that, politically, once you get it into law, it becomes almost impossible to remove it,” says Dan Bartlett, Bush’s former communications director. “That’s not a bad legacy. The fact that we were able to lay the trap does feel pretty good, to tell you the truth.”’ Bush Aides Admit The Tax Cuts Were A “Trap” For Obama, Howard Kurtz, The Daily Beast, Dec. 3, 2010.
[9] “House Majority Whip Tom DeLay summed up the prevailing mood when he said, “Nothing is more important in the face of a war than cutting taxes.”’ “A Cut Too Far,” by James Surowiecki, The New Yorker, April 21, 2003.
[10] “With this push to slash taxes during wartime, Bush broke from 140 years of history under presidents of both parties. In every major conflict the United States has fought since the Civil War (and some minor ones), Washington has raised taxes to pay for the war.” “Bush Breaks With 140 Years of History in Plan for Wartime Tax Cut,” by Ronald Brownstein, The Los Angeles Times, January 13, 2003.
[11] “Back in 2002, the White House was quick to distance itself from Lindsey’s view. Mitch Daniels, director of the White House budget office, quickly called the estimate “very, very high.” Lindsey himself was dismissed in a shake-up of the White House economic team later that year, and in January 2003, Defense Secretary Donald Rumsfeld said the budget office had come up with “a number that’s something under $50 billion.” He and other officials expressed optimism that Iraq itself would help shoulder the cost once the world market was reopened to its rich supply of oil.” “Cost of Iraq war could surpass $1 trillion, Estimates vary, but all agree price is far higher than initially expected,” By Martin Wolk Executive business editor, www.msnbc.com, updated 3/17/2006.
the Congressional Research Service, the cumulative total of war funding for Iraq for FY2001-FY2012 (with FY 2012 requests) is $832.2 billion and for Afghanistan $557.1 billion. The total over this period is $1.4 trillion for these two wars plus enhanced security at DoD bases and VA Medical (for vets of these wars).[12] And estimates from CBO have ranged from another $500 billion to twice that amount over the next decade depending on troop levels.
The turnaround in our budget picture during the Bush years was remarkable. In October 2008, CNN reported that the debt clock had run out of numbers. The debt had actually exceeded the 13 digits allotted so the clock had to be revised.[13] According to one report at the end of Bush’s term, “The number of jobs in the nation increased by about 2 percent during Bush’s tenure, the most tepid growth over any eight-year span since data collection began seven decades ago. Gross domestic product, a broad measure of economic output, grew at the slowest pace for a period of that length since the Truman administration. And Americans’ incomes grew more slowly than in any presidency since the 1960s, other than that of Bush’s father…For the first seven years of the Bush administration, gross domestic product grew at a paltry 2.1 percent annual rate.”[14]
By the time George Bush left office on January 20, 2009, the debt was $10.6 trillion, setting a record for debt for any Administration. Pursuing two wars and massive tax cuts is the reason. But as Dick Cheney told Treasury Secretary O’Neill in 2002, “Reagan proved that deficits don’t matter. We won the mid-term elections, this is our due.”[15]
So when Mr. Cantor asks for a discussion about how we got to where we are, I think we should answer him.
Sincerely,
Richard E. Neal
[12] “The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11” CRS, Amy Belasco, Specialist in U.S. Defense Policy and Budget, March 29, 2011 (RL33110).
[13] “When the National Debt clock in Times Square was turned on in 1989, the federal debt amounted to around $2.7 trillion. Eleven years later, on Sept. 7, 2000, the clock read: “Our national debt: $5,676,989,904,887. Your family share: $73,733.” That’s when the clock was turned off, because, in those innocent days, it seemed as if the $5.6 trillion debt was set to decline, perhaps to disappear altogether. On that same date, CNN reported, “Vice President and Democratic presidential nominee Al Gore . . . outlined a plan that he says would eliminate the debt by 2012.” The proposal was uncontroversial. Economic advisers to the Republican candidate, George W. Bush, were said to have “agreed with the principle of paying down the debt,” but their candidate had “not committed to a specific date for eliminating it.” That should have set the alarm bells ringing. (And, in fact, the National Debt Clock started running again in 2002.)”. “Reasons to Worry,” by Niall Ferguson, New York Times, June 11, 2006.
[14] Economy Made Few Gains in Bush Years, Eight-Year Period Is Weakest in Decades,” By Neil Irwin and Dan Eggen, Washington Post Staff Writers, Monday, January 12, 2009.
[15] “What Killed Off The GOP Deficit Hawks? The Republicans are now the ones making excuses for big deficits,” by Robert Kuttner, BusinessWeek, December 27, 2004.
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