With only a day before the United States of America reaches the August 2nd deadline to increase its debt ceiling limit, international markets awaited what could have become the most catastrophic financial event in recent history: a U.S. default on its debt obligations.
There were serious resolutions necessary to avoid this, but like the Emperor Nero, who fiddled as Rome burned, the Republican-led House of Representatives, and their ideologically defiant Tea Party caucus, held the economy hostage as they sought a political win against President Barack Obama.
Late reports on Sunday evening indicate that the White House has negotiated a compromise with House Speaker Boehner and Senate Majority Leader Harry Reid; but as the debates rage on in the halls of the Capitol, it is important to consider how we got here in the first place.
When did the deficit become so dangerously close to debilitating? What has contributed most to the national debt? In the midst of increasingly divisive political attacks, in-fighting between parties and polarizing figures shaping the discourse, is it true that George W. Bush’s presidency left the nation adrift in economic malaise? Or are Obama and Democratic leaders at fault? To answer these questions, let’s first embark upon a brief lesson in history and mathematics.
In 2001, George W. Bush inherited healthy surpluses following Clinton’s presidency. Within a year, those surpluses turned into deficits. They would continue throughout his tenure and become exacerbated by the mortgage and credit crisis of 2007. Though Tea Party caucus members and their conservative supporters would like to believe that the deficit and debt has increased because of Obama’s policies, the real numbers convey the truth: Bush-era tax cuts and war spending in Iraq and Afghanistan are the true culprits. Data from the non-partisan, Congressional Budget Office (CBO) reveals the distinction between mathematical reality and political fallacy.
Every year starting in 2002, the budget fell deeper into deficit. By the time Barack Obama was elected in November 2008, the CBO was already projecting a $1.2 trillion deficit for 2009, and further deficits based on the assumption that Bush’s policies remained intact.
The total costs of Bush economic policy stands at over $5 trillion dollars, the tax cuts constituting $1.8 trillion in total (and counting), the cost of war in Iraq and Afghanistan accounts for over $1.4 trillion (and counting) and TARP and the first stimulus package of 2008, another trillion. Medicare drug benefits, non-defense and discretionary spending made up the rest.
President Obama’s team took office and immediately embarked upon creating a secondary stimulus package in response to the spirally economy — as the CBO data chart shows, additions to the deficit under Obama’s leadership amounts to $1.4 trillion, and the vast majority of this is $1.2 trillion encompassing the stimulus and tax cuts for small businesses. By keeping his campaign promise to draw down the war in Iraq, Obama was actually able to save $126 billion — and most importantly, the additions to spending caused by the now infamous health care reform law only constitute $152 billion.
Given the facts, the nation’s present economic dilemma is clearly laid at the feet of Bush’s failed economic and foreign policy decisions (many of which were crafted and passed by Republican leaders like Boehner and McConnell). Despite the loud cry of conservatives claiming Obama’s presidency represents the dawn of a socialist America and the end of capitalism as we know it: the numbers simply do not add up to support the hysteria or distortions.
So now what?
The deal currently being negotiated remains dubious, but the fact that tax increases for the rich were removed from the table a week ago and trillions in government spending cuts are the major drivers is an ominous premonition for things to come.
In an effort to quell the Tea Party caucus in the House, Boehner has insisted on draconian cuts to federal spending which will have devastating effects on social programs important to the average American family, especially minorities and the most vulnerable.
Based on initial reports, President Obama will do his best to protect Social Security, Medicare and Medicaid — but welfare spending, unemployment benefits and other entitlements will be on the table. Government workers, in particular, will be especially vulnerable.
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Nearly 21 percent of the nation’s employed African-Americans are in government jobs, as compared to 17 percent of whites and 15 percent of Latinos. The overall unemployment rate for African-Americans reached over 16.2 percent in May and that reflected an increase over last year (when the recession supposedly ended). White-Americans in contrast, had experienced an improvement — going from 8.8 percent unemployed to 8.0 percent.
The lesson here is that Boehner’s debt ceiling compromise and all its proposed spending cuts will create a deeper recession for those who already suffer the most. The poor will lose welfare benefits. The unemployed will be dropped from state rolls that can no longer afford to support them without federal subsidies, and government workers will be laid off.
Republican rhetoric has finally met the Democratic road: it’s never O.K. to raise taxes on the wealthy in the midst of a recession, but it is O.K. to cut support to the needy.
The only potential light at the end of this tunnel is that Obama will use the leverage of having won on extending the debt ceiling past the next election to do two things: (1) ensure that potential new savings achieved in this deal will include closing tax loopholes favoring the rich, and provide increased revenue and (2) ensure the Bush tax cuts finally expire in 2012. That action alone will cut the deficit by half — and steer the economy on a path to sustainable recovery and growth.
The details of the debt ceiling deal remain to be seen, but one thing is certain: the conversation about the nation’s economic future has only just begun.
Edward Wyckoff Williams is an author, columnist, political and economic analyst, and a former investment banker. Follow him on Twitter and on Facebook.