MEMO: Breaking Down the Deficit
Contact: Madeline Meth
Download the full memo (pdf)
The fiscal year ended on October 1, and we can say with certainty that 2009’s budget deficit was the largest since World War II, approaching one-tenth the size of the entire U.S. economy. Since we have now the benefit of specific data from the full fiscal year, we can also get a better sense of what actually produced that record high deficit.
The main culprits might not be who you expected. For instance, it turns out that a massive decline in tax revenues had as much to do with the ballooning deficit as any increase in spending. And you might also be surprised to find out that the vast majority of new spending in fiscal year 2009 was actually committed before President Obama even took office. Taking a closer look at both sides of the 2009 balance sheet reveals some important lessons as we face our fiscal future.
Considering all the claims about an “Obama spending spree” it is important to begin by looking at exactly how much money the government spent in FY09. It’s true that spending in 2009 was much higher than it was the previous fiscal year, by about $602 billion, excluding payments on the national debt (which actually declined in 2009 because of low interest rates). But it turns out that a huge chunk of that increase actually happened before President Obama took office. In fact, fully 41 percent, or $245 billion, came in the form of the Troubled Asset Relief Program and the rescues of Fannie Mae and Freddie Mac, actions taken in the fall of 2008 under President George W. Bush.
In other words, before President Obama had even taken office, federal spending was already up by about 9 percent over fiscal year 2008 levels. So the other $350 billion must be that spending spree we’ve been hearing so much about, right? Not exactly.
Download the full memo (pdf)
Michael Linden is the Associate Director for Tax and Budget Policy at American Progress.
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