The budget deficit: It's the economy, stupid

War, Bush's tax cuts, TARP, the stimulus -- they all add up. But the real killer is the recession

Published September 1, 2009 4:59PM (EDT)

The left-leaning Economic Policy Institute think tank provides the useful service of breaking down the composition of the 2009 $1.6 trillion U.S. budget deficit. (Found via Econbrowser.)

Surprise, surprise: The stimulus is not responsible for "ballooning" the deficit, as Dick Morris would have us believe. The American Recovery and Reinvestment Act accounts for about 12 percent of the deterioration of the budget deficit since March 2007.

But, of course, the United States already had a significant deficit at that point, largely due to the devastating effect of Bush's tax cuts combined with increased spending. Add in the TARP bailout and subsidies to Fannie Mae and Freddie Mac -- both of which also happened under the Bush presidency and account for substantially more of the deficit than the stimulus -- and you can see that most of the deficit pre-dated Obama's operational control of the government.

The single most important factor in the rapid rise of the deficit since 2007, however, has been the performance of the economy, which has cut government revenue -- taxes -- while increasing government expenses. EPI calculates that 42 percent of the budget deficit's deterioration since 2001 is "due to economic and technical factors (i.e., adjustments made to the baseline because of changes in economic conditions or changes in CBO methodology."

Clearly, the weakening economy is the largest factor in driving the 2009 deficit. [The Congressional Budget Office] describes the decrease in estimated economic revenue as a result of a sharp fall in economic activity, lowered salaries and taxable incomes, fallen corporate profits, and a general decrease in withholding and payroll taxes. Additionally, CBO's projections show an expected increase in spending on unemployment compensation and SNAP (food stamps).

EPI concludes:

The prime driver of the current deficit is the economic slowdown. The top priority going forward -- from a budgetary perspective -- should be to spur the economy.

One other note: In 2001, the CBO predicted that the $281 billion budget surplus that Bush inherited from Clinton would grow to $710 billion in 2009. That would have been a mighty handy chunk of cash to have around, oh, right about now.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

MORE FROM Andrew Leonard

Related Topics ------------------------------------------

Bank Bailouts Budget Showdown Great Recession How The World Works U.s. Economy