Election-year finger-pointing over who’s to blame for the explosion of the U.S. debt leaves out the biggest culprits: The aging of the Baby Boom generation and the sluggish recovery from the deepest recession since the 1930s.
The BGOV Barometer shows that 77 percent of the growth in federal budget deficits over the past three years can be traced to a recession-driven drop in tax revenue, coupled with spending increases required by law to assist the poor and elderly. Another 11 percent is the result of increased outlays for the Pentagon and veterans’ services.
The breakdown illustrates how little of the deficit is affected by annual spending decisions by Congress and the administration. Social Security and the recession’s effect on tax collections and safety-net programs added more red ink during the last three years than all other government programs combined.
The deficit is returning to the political center stage, in a brewing election-year fight about tax increases and $1.2 trillion of spending cuts that will automatically take effect in January. The Congressional Budget Office said last week that would pose the risk of a new recession, unless Congress and the White House can agree on alternatives.
Republicans are calling for spending reductions and opposing tax increases. Reprising his stance from the 2011 showdown over the government’s borrowing limit, House Speaker John Boehner last week said he wants cuts and budgetary “reforms” at least equal to the amount of the next debt- ceiling increase -- a step that’s likely to be needed by early next year. President Barack Obama and Democrats say tax increases on wealthy Americans should be part of any deficit- trimming plan.
While politicians in Washington sound alarms about the deficit, bond trading shows investors continue to be attracted by the safety of U.S. government debt.
Yields on the government’s benchmark 10-year notes ended last week at 1.74 percent, near the record-low 1.67 percent reached on Sept. 23. Confidence in U.S. debt rose even after an Aug. 5 decision by Standard & Poor’s to downgrade the government’s debt rating from the top AAA level. The cost of insuring U.S. government debt against default is lower than that for other countries that retain their AAA rating, including Germany and the U.K., according to data compiled by Bloomberg.
In fiscal 2008, which ended five weeks before the last presidential election, the budget shortfall was $459 billion. Compared with that figure, combined deficits for fiscal 2009, 2010 and 2011 added an extra $2.6 trillion to the nation’s debt, according to Office of Management and Budget data.
About $1 trillion of that deficit growth came from falling tax receipts. A like amount resulted from ballooning costs for Social Security and Medicare, as Baby Boomers began to reach retirement age, and from recession-related increases in spending on Medicaid, unemployment compensation and nutrition programs, such as food stamps.
Outlays for defense and veterans’ programs surpassed 2008 levels by a three-year total of $289 billion.
The deficit was $459 billion for the fiscal year that ended Sept. 30, 2008, according to the budget office. It jumped to $1.4 trillion in fiscal 2009 and about $1.3 trillion in both 2010 and 2011.
The CBO releases estimates of how changes in the U.S. economy affect federal spending and income -- recognizing, for example, that job losses during a recession inevitably leave fewer workers paying income taxes and more people eligible for unemployment benefits and food stamps.
During the past three fiscal years, $910 billion of the drop in federal revenue can be traced to the economic downturn, according to the CBO.
Altogether, individual income tax collections in 2009, 2010 and 2011 fell by about $530 billion from 2008’s level, according to OMB data. Corporate income tax payments dropped by more than $400 billion, and social insurance taxes declined by about $125 billion.
In other areas affected by the broader health of the U.S. economy, federal unemployment aid rose by $267 billion over three years, spending on the Medicaid health insurance plan for the poor grew by $194 billion and nutrition assistance program costs increased by $95 billion.
Across the rest of the government, all non-defense discretionary spending, including infrastructure improvements and other projects in the stimulus legislation, rose by a combined $320 billion over three years.
The CBO estimated that about $180 billion of spending- related deficit increases from 2009 to 2011 was directly tied to the health of the economy. The growing population of older Americans played a bigger role in rising outlays.
The oldest members of the Baby Boom generation, those born in 1946, became eligible for Social Security retirement benefits in 2008 and qualified for the Medicare health insurance program in 2011.
Compared with 2008, Social Security outlays increased by a combined $269 billion over three years. The number of people getting retirement benefits has grown 11 percent, to 39 million this month from 35 million at the end of fiscal 2008. Unlike most of the budget, Social Security is funded with a dedicated payroll tax and has a trust fund surplus big enough to cover projected retirement benefits through 2035.
The cost of Medicare, which also is funded through a payroll tax, rose by $195 billion over the three years. Medicare’s trustees project that its hospital insurance trust fund will be solvent until 2024.
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