Cause of Decline in U.S. Financial Position

August 2, 2011 2:30pm by

Interesting discussion from of all places Wikipedia:

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Both economic conditions and policy decisions significantly worsened the debt outlook since 2001, when large surpluses were forecast for the following decade by the CBO. The Pew Center reported in April 2011 the cause of a $12.7 trillion shift in the debt situation, from a 2001 CBO forecast of $2.3 trillion cumulative surplus by 2011 versus the estimated $10.4 trillion public debt in 2011. The major drivers were:

  • Revenue declines due to two recessions, separate from the Bush tax cuts of 2001 and 2003: 28%
  • Defense spending increases: 15%
  • Bush tax cuts of 2001 and 2003: 13%
  • Increases in net interest: 11%
  • Other non-defense spending: 10%
  • Other tax cuts: 8%
  • Obama Stimulus: 6%
  • Medicare Part D: 2%
  • Other reasons: 7%[2]

Similar analyses were reported by the New York Times in June 2009,[52] the Washington Post in April 2011[53] and the Center on Budget and Policy Priorities in May 2011.[54] Economist Paul Krugman wrote in May 2011: “What happened to the budget surplus the federal government had in 2000? The answer is, three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs.”[55] A Bloomberg analysis in May 2011 attributed $2.0 trillion of the $9.3 trillion of public debt (20%) to additional military and intelligence spending since September 2001, plus another $45 billion annually in interest.[56]

The extent to which the deficit and debt increases are a cause or effect of wider systemic problems is frequently debated. For example, in January 2008, then GAO Director David Walker pointed to four types of “deficits” that cause the overall fiscal problem: budget, trade, savings and leadership.[57]

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Sources:

  1. ^ NYT-America’s Sea of Red Ink was Years in the Making-June 2009
  2. ^ Washington Post-Running in the Red-April 2011
  3. ^ CBPP-Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits-May 2011
  4. ^ NYT-Paul Krugman-The Unwisdom of Elites-May 2011
  5. ^ Bloomberg-Bin Laden Exacts Multitrillion-Dollar Toll on U.S. Taxpayer-May 2011
  6. ^ a b GAO-U.S. Financial Condition and Fiscal Future Briefing-David Walker-January 2008
  7. ^ CBO-Monthly Budget Review-October 2009
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