In recent speeches, President Obama has repeatedly claimed that “our deficits are falling at the fastest rate in 60 years.” The White House says he’s referring to the decline in the deficit as a percentage of the nation’s economy from 2009 to 2012. But that’s not the “fastest rate” of deficit reduction in 60 years. It fell at a faster rate from 2004 to 2007.
Obama has dropped the talking point into no fewer than five speeches focused on “Jobs for the Middle Class” during the course of a week.
July 30 in Tennessee: Our deficits are falling at the fastest rate in 60 years.
July 24, in Illinois: And our deficits are falling at the fastest rate in 60 years.
July 25, in Missouri: And our deficits are falling at the fastest rate in 60 years.
July 25, in Florida: And our deficits are falling at the fastest rate in 60 years.
July 27, weekly address: Our deficits are falling at the fastest rate in 60 years.
It sounds like an impressive accomplishment to bolster the president’s case that the economy is getting better. And if the official White House transcripts are any indication, it is a reliable applause line.
To back it up, the White House press office points to historical data showing that deficits, as a percentage of gross domestic product, fell from 10.1 percent in 2009 to 7 percent in 2012. (See Table 1.2.) That’s a 3.1 percentage point drop, and the last time the U.S. saw a larger drop over an equivalent period of time was 1946 to 1949, when the deficit went from 7.2 percent of GDP to a surplus of 0.2 percent of GDP (a change of 7.4 percentage points), White House spokesman Bobby Whithorne wrote to us in an email.
To be sure, that is a marked drop in the deficit. But it’s not the “fastest rate” of deficit reduction — which speaks to relative speed. That may sound like a mathematical technicality, but it reveals a large contextual difference.
Due to the recession, the deficit as a percentage of GDP spiked in 2009 to a level not seen since the mid-1940s. So it had further to fall than usual.
When Obama took office in 2009, he inherited a projected deficit of $1.2 trillion. He added another $200 billion in deficit spending to that. As a percentage of GDP, the deficit in fiscal year 2009 came to 10.1 percent. That’s by far the highest percentage over the last 60 years (you have to go back to the World War II years between 1942 to 1945 to see higher figures). Over the last 60 years, deficits as a percentage of the GDP have averaged 2.4 percent. The deficit was 3.2 percent in 2008, the year before Obama took office; and it was 1.2 percent the year before that. In other words, it had a long way to drop from 2009.
“Think about it this way,” Steve Ellis of Taxpayers for Common Sense wrote to us in an email. “I like to compare budget numbers to diets. Bob weighs 400 pounds and loses 60 pounds in a year. Ralph is 210 pounds and loses 40 pounds in a year. Bob has lost more weight than Ralph, but Ralph is losing it faster, at a 19% rate versus a 15% rate.”
Ellis noted, correctly, that the deficit as a percentage of GDP fell 31 percent from fiscal 2009 to fiscal 2012. But he pointed to two other four-year periods when the deficit fell at a faster rate — in fact, more than twice as fast:
- The rate of deficit reduction was 64 percent from fiscal 1993 to fiscal 1996, when the deficit fell from 3.9 percent of GDP to 1.4 percent.
- Similarly, the rate dropped 66 percent from fiscal 2004 to fiscal 2007, when the deficit went from 3.5 percent of GDP to 1.2 percent.
“So anyone can play with the numbers,” Ellis said. “Obviously, it’s a significant reduction. But let’s face it there was a lot to reduce. The deficit was morbidly obese.”
Indeed, the numbers can be sliced many different ways. The White House chose a four-year window for its comparison, but the deficit as a percentage of GDP has fallen more over shorter periods of time. For example, it fell 3.2 percentage points in 1969 (from a deficit of 2.9 percent in 1968 to a surplus of 0.3 percent of GDP in 1969).
This chart gives a fuller picture of deficits over the last 20 years. (Note: The years showing as negative numbers are years of budget surpluses.)
Joshua Gordon, policy director of the Concord Coalition, a nonpartisan, grassroots organization that seeks to educate the public about federal budget issues, told us that regardless of the wording, it’s a fact that the deficit is dropping rapidly.
In fact, although the White House didn’t cite it, the newly released mid-year projectionfrom the White House Office of Management and Budget for the 2013 fiscal year shows that due to rising revenues, the 2013 deficit is now projected to be $759 billion — $214 billion lower than the $973 billion deficit projected in the original budget. As a percentage of GDP, the 2013 deficit is now projected to equal 4.7 percent. The nonpartisan Congressional Budget Office projects an even lower 2013 deficit of $642 billion, or 4 percent of GDP. That’s still above the level in 2008 (or any year since 1992), but it’s substantiallylower than 2009. (Even if those projections pan out, however, Obama’s talking point wouldn’t be correct.)
As we noted in our latest “Obama’s Numbers” piece, budget estimates show federal spending for the current fiscal year running 6.7 percent above the levels that Obama inherited when he first took office. Obama’s spending increases have been far more modest than his predecessor’s. Federal outlays increased by 33 percent in Bush’s first term (comparing actual spending for fiscal 2005 with that for fiscal 2001, which was the last year for which Bill Clinton set spending levels). And spending rose another 34 percent in Bush’s final term, even after subtracting Obama’s $203 billion from fiscal 2009.
But Gordon warns not to give too much credit to Obama or Congress for the drop in the deficit. That’s mostly due to the growth — albeit slow — of the economy, bringing the government more revenue than expected, he said. The CBO says the increased revenue is also due to tax increases, most notably the expiration of the payroll tax cut and the higher rates enacted on upper-income taxpayers.
“That’s allowing deficits to come down,” Gordon said. “The deficit is not shrinking only, or even mostly, because of the actions of Congress or the president.”
Nor has Obama or Congress taken action to solve the long-term deficit crisis facing the nation due to an aging population that will cause the cost of programs like Social Security and Medicare to soar in coming decades.
“They are reducing the deficit in the short term, but the drivers of the long-term increases in the deficit have not been substantially altered by any action of the president or Congress,” Gordon said.
It’s also important to note that deficits are one-year figures, and should not be confused with the national debt, which is a sum of the cumulative effect of yearly deficits. As wenoted recently, given current deficit projections, it’s nearly certain that the debt will more than double during the Obama presidency.
– Robert Farley