In October of last year, the Congressional Budget office estimated (and the final Treasury numbers concurred) that the final deficit for the 2009 fiscal year would reach $1.4 Trillion. The Republicans are accusing President Obama of singlehandedly creating this deficit, so I thought I'd take a look at how the numbers add up.  The reasons for this big actual deficit are two-fold: a decline in federal revenues, and a rise in federal spending simultaneously.

Before we start the analysis here, let's keep one thing in mind.  The original budget for FY 2009, passed in 2008 and covering October 2008 to September 2009, was, of course President Bush's budget and was signed into law by him.  So anything in that budget is already attributable to him.  With that, let's look at the revenue and spending sides.


Given fiscal year 2009 ended September 30, 2009, one cannot reasonably blame President Obama for the fall in revenue - which is related to the severe downturn in the economy, a recession that started back in December of 2007. In fact, if anything, President Obama and his team has turned around the economic numbers, and our economy was expanding by the third quarter of 2009, which, incidentally also ended on September 30, 2009. Real Gross Domestic Product (i.e. inflation-adjusted GDP) grew at 2.2% (annualized rate) in that quarter, according to the US Commerce Department's Bureau of Economic Analysis. The economy expanded at an even faster pace in the last quarter of 2009, at the rate of almost 6%. Ah, but you say, the GDP will grow if government spending grows! Well, let's look at another measure of revenue, then. Jobs. The jobs picture from Bush's last year to Obama's first is pretty much an inverted bell curve. Here:

 January Jobs Report 2010

That leaves business taxes. Obama cut small business taxes in the Recovery Act. Unless anyone on the right wants to argue that we should have raised taxes on business in a recession - a recession George W. Bush's policies, not Obama's, was responsible for - I don't see any point in pinning this donkey on President Obama. Given all of this, the declining revenues in Fiscal 2009 is not attributable to the current administration, and is reasonably attributable to the past one.

That leaves spending.


The original Bloomberg article linked at the top of this post describes the spending problem as it relates to this deficit thusly, sourcing the CBO:
At the same time, federal spending rose by 18 percent, the CBO said. About half of the spending increase, $245 billion, was driven by the costs of bailing out the financial industry and taking over mortgage financiers Fannie Mae and Freddie Mac.
TARP was passed at the end of 2008, under President Bush, and signed into law by him. Anyone remember when Henry Paulson showed up with three pages in front of Congress and demanded Congress turn over $700 Billion to him with not only no strings attached, but specifically exempting his decisions under this program from scrutiny? TARP wasn't done under Obama's watch. President Obama, if anything, has recovered far more of the TARP money than originally thought possible, and under him, the projection of the actual cost of TARP has been lowered to $117 Billion overall. So I doubt very much that any reasonable economist can lay the blame for the money lost due to TARP spending at Obama's feet.

What else?
The spending increases and tax cuts included in the economic stimulus package approved in February added almost $200 billion to the 2009 deficit, the CBO said.
This, really, is the only spending increase that can be reasonably attributed to have been caused by and happened under Obama's watch contributing to the deficit.

So to recap, here are the respective responsibilities for the FY 2009 deficit:
  • President George W. Bush: $1.2 Trillion, or 87% of the FY 2009 deficit.
  • President Barack Obama: $200 Billion, or 13% of the FY 2009 deficit.
Just so we're clear.

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