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Thu Feb 28, 2013, 05:19 PM

Economic Downturn and Legacy of Bush Policies Continue to Drive Large Deficits

http://www.cbpp.org/cms/index.cfm?fa=view&id=3849


Federal deficits and debt have risen sharply under President Obama, but the evidence continues to show that the Great Recession, President Bush’s tax cuts, and the wars in Afghanistan and Iraq explain most of the deficits that have occurred on Obama’s watch — based on the latest Congressional Budget Office projections as well as legislation enacted since we last issued this analysis of what lies behind current deficits.

Though some lawmakers and pundits continue to blame record deficits on the President’s policies in general — and his actions to boost the economy and stabilize the financial system in particular — these policies increase budget deficits only briefly; they will have no significant impact on the long-term problem of large deficits and rising debt.

The deficit for fiscal year 2009 — which began almost four months before President Obama took office — was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), marked the largest deficit relative to the economy since the end of World War II. Annual deficits in 2010 through 2012, while slightly lower, each topped $1 trillion. If current policies remain in place, deficits are expected to range between $600 billion and $900 billion for the rest of this decade, reaching a low around 2015 before climbing again.

Although longer-term pressures on spending stem chiefly from an aging population and rising health-care costs, those pressures are not new. Policymakers knew about them when they enacted the Bush-era tax cuts and assented to fighting two wars on borrowed money. (These pressures also were taken into account in the Congressional Budget Office projections issued at the start of 2001, which showed budget surpluses for the next several decades.)
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