Editor’s Note: Reason columnist Veronique de Rugy appears weekly on Bloomberg TV to separate economic fact from economic myth.
Myth 1: Under President Barack Obama’s 2012 budget, we will “live within our means”.
Fact 1: Debt and spending will continue to grow and deficits will continue to persist under the president’s Fiscal Year 2012 Budget Request.
White House Office of Management and Budget Director Jack Lew claims that President Obama’s new budget calls for a “sustainable” deficit but the facts tell a different story. Despite a nominal commitment to fiscal reform, the president’s budget calls for $3.7 trillion in spending. That’s more spending than occurred in fiscal year 2010. This spending will result in a projected net deficit of $1.6 trillion, the highest level of deficit in U.S. history.
Under the president’s budget, total spending would increase 49 percent over the next 10 years. Even after inflation, this represents a 30 percent increase in spending.
If we keep to this course, publically-held debt will double from $9 trillion to $18 trillion in 2021—a figure that represents 77 percent of GDP by 2021.
Nor is this the first time Obama has made unrealistic budgetary promises. The president’s first budget was called “A New Era of Responsibility.” The chart below shows the differences between that claim and the economic reality. The blue line represents the deficit promises made by Obama’s first budget and the red line represents what the president says will happen now.
As you can see, back in 2010, the president promised to cut the deficit to $912 billion in 2011 and to $581 billion by 2012. Based on the president’s 2012 budget released last week, the deficits in 2011 and 2012 will be twice the size originally promised. In 2011, the deficit will be $1.6 trillion, not $912 billion. In 2012, the deficit is expected to be $1.1 trillion, not $581 million.
Take a moment to let these numbers sink in. Over the course of two years, projected deficits have increased by $1.5 trillion. Not even primary budget balance, one of the goals set by the administration, is achieved by this new proposal.
Myth 2: The president’s budget reduces 2012 discretionary spending by 5 percent. This will bring domestic discretionary spending to the lowest level since Dwight Eisenhower was president.
Fact 2: Domestic discretionary spending has been decreasing steadily as a proportion of total spending due the growth of mandatory entitlement spending. Moreover, many of the “cuts” in the president’s budget are actually just budgetary gimmicks.
The budget focuses on domestic, non-discretionary spending cuts, which would reach 37 percent of all federal spending in 2010. Yet this share of the budget has been decreasing steadily as a total share of federal spending since at least the 1960’s due to the growth in entitlements. The president’s claim he will decrease this level of spending is therefore meaningless.