In 2001, the Congressional Budget Office projected that the U.S. government would erase its debt by 2006 and sport a hefty $2.3 trillion surplus by 2011. A decade later, we're some $10 trillion in the red -- the deepest hole relative to the size of the economy since 1950.
What the hell happened? Fine, so such forecasts amount to staring at tea leaves. And the CBO clearly didn't count on an economic recession or two sending federal revenue plummeting. But there's a more enlightening explanation, according to the Pew Fiscal Analysis Initiative. It concludes that the debt stems mostly from tax cuts and spending increases over the last 10 years:
Between 2001 and 2011, about two-thirds (68 percent) of the $12.7 trillion growth in federal debt has been due to new legislation. Forty percent of this legislative growth was the result of tax cuts enacted after January 2001, and 60 percent resulted from spending increases.What pushed up the debt?
Of these debt drivers, five are the result of laws passed during this 10-year period, while one relates to the cost of fighting two wars, according to Pew. Here they are in reverse order of how much they contributed to the debt (click on adjoining chart to expand):
6. The 2010 tax cut. Three percent of the growth in debt between 2000 and 2011 is attributable to President Obama's move in December to extend tax breaks originally enacted under George W. Bush.
5. The American Recovery and Reinvestment Act of 2009. Better known as the $787 billion stimulus package Obama ordered up two years ago to avert another depression, it accounts for 6 percent of the debt increase.
4. The wars in Iraq and Afghanistan. Along with costing hundreds of thousands of lives, U.S. spending wracked up in these military operations account for 10 percent of the growth in debt since 2000.
3. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and other non-defense spending. Roughly 10 percent of the debt increase owes to Bush's move as president to subsidize drug benefits for Medicare recipients, as well as to other increases in non-defense discretionary and mandatory spending (or in other words, spending levels rising faster than CBO expected).
2. Increases in net interest. This consists of all debt changes caused by changes in interest costs and categorized as "legislative" by CBO. It makes up 11 percent of the growth in debt since 2000, reflecting the U.S.'s rising borrowing costs.
1. The 2001 and 2003 tax cuts. The Bush-era cuts -- the lion's share of which went to the most affluent Americans -- account for 13 percent of the swelling federal debt over the last 10 years.
Other factors explaining why CBO's 2001 projection was so far off the mark include changes in the U.S. population and the number of participants in government programs (see chart at bottom for a full breakdown of the discrepancy in the budget office's forecast). Pew concludes:
The excess growth in publicly-held federal debt beyond 2001 expectations has been the result of a variety of factors. However, new legislation enacted since January 2001 has been responsible for two-thirds of the debt growth. In the new legislation, roughly three dollars of new spending has been enacted for every two dollars in tax cuts between 2001 and 2011. No single policy or piece of legislation, however, is overwhelmingly responsible for the $12.7 trillion shift in CBO's debt projections for 2011 that occurred between January 2001 and March 2011.Although some policies, like poorly distributed tax cuts, are clearly more responsible than most, it's worth noting. Still, our fiscal quandary is clear: rising federal spending, falling tax revenue, dwindling wages and home prices. What's a humble superpower to do? Kiss off Medicare while slashing taxes even further for the rich, as Rep. Paul Ryan, R.-Wis., has proposed? Fixate on spending while neglecting the revenue side of the ledger, as Obama seems to favor?
No can do. When it comes to health care, the trick is to lower costs across the system, not just within government-sponsored plans. Good federal spending must rise, namely for things like education, technology and infrastructure, while bad spending must stop, such as the kind lavished on subsidies for agribusiness and pharmaceutical firms.
And the reality is that in time we'll also likely have to raise taxes on a broad enough swath of the country to dig us out of debt. That may be a tough pill to swallow for the millions of Americans who are already just scraping by. As a "scraper," I empathize. But as Pew's figures show, the past is catching up to us quick.