Drop in Budget Deficit No Indicator of Fiscal Health
October 20, 2014
The Treasury Department has announced a drop in the federal budget deficit between 2013 and 2014, falling from $680 billion to $483 billion. While the Obama administration has alleged the numbers are proof that the president's policies are sound and working, a closer look at America's fiscal situation reveals otherwise.
James Capretta, visiting fellow at the American Enterprise Institute, explains why the new deficit numbers are incredibly misleading:
- The drop in the budget deficit in 2014 relative to 2013 is of little consequence; it comes after five years of debt accumulation under President Obama that dwarfs anything seen previously. American debt doubled from 2009 to 2013, with the federal government borrowing more in just five years than the federal government had ever borrowed cumulatively in American history, from 1789 to 2008.
- The most recent CBO budget outlook expects federal debt held by the public to reach 77 percent of GDP by 2024 -- a number not seen since 1950. Except those figures are unrealistic, says Capretta, because they assume a drop in defense spending to 2.7 percent of GDP by 2024. In reality, defense spending will likely be 5 percent of GDP.
- The CBO's long-term outlook expects debt to reach 100 percent of GDP by 2036 -- again, based on unrealistic assumptions.
The Obama administration claims health spending has fallen and will continue to fall due to Obamacare, aiding the deficit. Such a claim is hard to believe, as the law only increases health care demand and drives up costs. Additionally, the recent slowdown in health spending, says Capretta, was most likely due to America's weak recovery after the recession. He notes that health care spending has fallen across the world since the financial crash, making it unlikely that Obamacare is responsible for the drop.
Source: James C. Capretta, "The Obama Rosy Scenario," National Review Online, October 16, 2014.
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