The Deficit:

A History Lesson

On Friday, January 21^st, 2011, Chris Matthews had John Feehery and Steve McMahon on Hardball to discuss a variety of political issues during the segment, “The Strategists.” Towards the end of the discussion, (at 5 minutes 20 seconds) Matthews asks Feehery if the Republicans would oppose a project similar to Kennedy's space program should Obama propose one. Feehery replied, “Eisenhower gave Kennedy a surplus to work with so he could say, 'let's go to the moon.' That's a great message, no doubt about it, but Kennedy had the money to do it.” Matthews replied, “What surpluses are you talking about? Eisenhower didn't have any surpluses.” Matthews later said, “Truman had surpluses, Eisenhower didn't.” Feehery answered, “Look at his last budget actually Chris, look it up.” So I decided to see who was right, Matthews or Feehery.

Truman was president from 1945- 1953. Eisenhower was president from 1953-1961. (Source: McGraw-Hill Presidential Timeline) The website usgovernmentspending.com has compiled information on the US federal budget for all years since the beginning of George Washington's second term in 1792. Here is the graph from that website that shows the US budget deficit as a percent of GDP (the size of the economy) from 1945-1961.

As you can see, both Truman and Eisenhower had surpluses. Specifically, Eisenhower had surpluses in 1956, 1957, and 1960. So that begs the question, were Truman and Eisenhower the only post World War Two presidents to have surpluses? Here is the usgovernmentspending.com graph showing deficit spending a a percentage of GDP from 1945 to 2010.

As you can see, the only other president to run a notable surplus was Bill Clinton. There was a surplus for Fiscal Year 1969, but it is completely overwhelmed by the deficits surrounding it.

Here is what deficit spending as a percentage of GDP looks like over all of American History.

The largest spikes in the graph are the civil war (1861-1865), World War I (1917-1918), World War II (1939-1945) and the Great Recession (2007-Present).

Ironically, the example Feehery uses to show Eisenhower's ability to balance the budget was a deficit year. Kennedy's first year, FY 1961, was determined by Eisenhower's final budget. It was a small deficit, 3.5 billion dollars, but a deficit nonetheless.

But on the larger question of whether Eisenhower had any surpluses, Feehery is correct and Matthews is wrong. Both Truman and Eisenhower had surplus years. The United States was undoubtedly in better fiscal shape in 1961, when Kennedy announced the goal of going to the moon, than we are today. That being said, it is totally understandable why both Matthews and Feehery would fumble the budget numbers of an administration that took place 50 years ago. Neither man had the numbers in front of him as neither thought they would need them. However, I am going to send this analysis to Chris Matthews and ask for a correction.  

Balancing the Budget:

A Primer

Everyone politician loves to say that they will balance the budget. However, this is a very difficult task. If our revenues are to ever equal our spending, everyone will have to part with some program or tax rate they support. Many economists believe that we should run deficits during a recession, but everyone agrees that we will eventually have to get our fiscal house in order. (A deficit is how much we add to the national debt each year.) I have tried to find enough spending to cut and taxes to raise to balance our annual federal budget, and I have failed. However, we all must begin providing ideas on how to deal with our debt crisis. Here are a few of my ideas.

Modifying Farm Subsidies                                                           $0.1044 Billion/Year   ($104.4 Million/Year)

Farming is a perilous endeavor. A storm could completely wipe away this year’s crops; food prices could drop unexpectedly and cause farmers to go out of business, or the cost of fuel could skyrocket. Given these realities I believe that farm subsidies are an appropriate use of federal funds. However, some farm subsidies go to major agribusiness companies that are so profitable that they don’t need any help from Uncle Sam. Even worse than that, these subsidies help them overwhelm farmers in Mexico, Africa, and other developing countries who can never match the crop prices of subsidized multinational corporations.

In 2008 Congress passed a bill regarding agricultural policy. The bush administration’s original proposal (found under the subtitle USDA’s AGI proposal) would have denied farm subsidy payments to households with more than $200,000 of Adjusted Gross Income. It also would have eliminated the exemption when over 75% of AGI comes from non-farm income, among other more complicated things. This bill would have saved $1.5 Billion over 10 years. The bill that was passed was based on the senate bill which saved $456 Million over 10 years. Subtracting the savings of the senate bill from the administration’s bill and divided by 10 equals $104.4 Million a year. This information was obtained from a CRS Report for Congress.  

 The amount of savings that these changes would bring is next to non-existent when compared to an annual deficit, so this fight is a labor of love, not one of fiscal responsibility.

Closing Corporate Tax Loopholes                             $2.2 Billion/Year

Several corporations have used tax loopholes to avoid paying corporate taxes. Exxon Mobil doesn’t pay federal taxes on profits it makes in the United States. GE and Bank of America haven’t paid taxes on any of their profits. I couldn’t find the numbers for Exxon or GE, but Bank of America made $6.3 Billion in profits in 2009. The corporate tax rate is 35%. That means Bank of America makes $2.2 Billion a year by manipulating tax loopholes.

Eliminate the V-22 Osprey program                        $2.8 Billion/Year

The V-22 Osprey is a cross between a helicopter and an airplane. This real life transformer is costly, it is one of the military’s most expensive weapons program. The operations carried out by Ospreys could very easily be done with far less expensive helicopters. This is just one example of the many other weapons programs that the military could swap out for less expensive ones.

Eliminate Subsidies for Oil Companies                  $4.5 Billion/Year

Fortune Magazine ranks Mining and Crude Oil Production as the 7^th most profitable industry in the world. Nevertheless, we continue to provide subsidies to oil companies. This hand out is one of the most alarming I have found. In the midst of global climate change we have no business giving fossil fuels a leg up over renewable forms of energy.

Let the Bush tax cuts expire for the top two percent of income earners                                $68.1 Billion/Year

Due to the recent tax compromise, this will become an issue again in 2012. Extending the tax cuts for income made over $250,000 is one of the least economically stimulative things that congress could do. Those who have more ought to pay more in taxes. Income inequality has skyrocketed in our country since the 1980s, so the rich can afford to pay a slightly higher rate on income over $250,000 a year.

End the Wars in Iraq and Afghanistan by the end of 2012                                              $120 Billion/Year

Under the current timeline, the US is set to remove all remaining troops from Iraq by the end of 2011. The target year for withdrawal from Afghanistan is 2014. That is far too late. There are next to no Al Qaeda operatives in Afghanistan. They have moved their base of operations to Pakistan, Yemen, and Somalia. We remain in Afghanistan not because we are fighting terrorism, but because we don’t want to leave the place a total mess. But the nation is ridiculously corrupt, has rigged elections, and the Taliban remains in tight control of much of the country. It had previously been my hope that at the very least we could negotiate a cease-fire between the central government and the Taliban to end the endless violence, but even that might be beyond our ability. We negotiated with a fake Taliban operative before he made off with a lot of money. I know that immediate pullout would be a logistical nightmare and disrupt our attempts to train the country’s police and security forces. But when we finally realize that we won’t be able to build a democratic state in Afghanistan, that the Afghan government won’t be able to provide necessary services (like a justice system) to its citizens, and that it will be next to impossible to negotiate an end to the violence there, we can no longer ignore the costs of the war. Not only are we paying for the war in the lives and mental health of our soldiers, war cuts deeply into our nation’s pocketbook. We spend $120 Billion on the wars in Iraq and Afghanistan every year. When the Afghan war is analyzed by the Obama administration this year, I hope that they look very closely at the great costs and slim gains in Afghanistan and agree to an earlier deadline for withdrawal. I would suggest having all troops out of the country by the end of 2012. I hope that the US resists the temptation to ignore the costs, both human and fiscal, the next time we consider entering another war.

Let the Bush tax cuts expire for those making less than $250,000 a year when the unemployment rate drops to 6%                                                                                                                         $270 Billion/Year

I was very hesitant in taking this position, but while the rich got the largest per capita benefits from the Bush tax cuts, the bulk of the cost was in tax cuts for the middle class. Middle class workers spend more of their paycheck to stimulate the economy and times are tough right now. These tax rates should not expire until the recession is over, which is why I chose to tie their expiration to a lagging indicator. But we couldn’t afford the bush tax cuts when they were created, and we can’t afford them now. By letting these cuts expire, tax rates would return to Clinton-era levels, a time known for economic prosperity.

Conclusion

And now for the depressing part. The deficit for 2010 was $1.47 Trillion. Part of the deficit was due to the recession (with higher unemployment there are less people to pay income tax). While sources may differ on how much our current deficits are due to the recession, The New York Times predicts that our annual deficit in 2030 will be $1.355 Trillion. Even with all of these spending cuts and tax increases, we don’t even come close to balancing the budget; but it’s a start.