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Kimberly Amadeo

The True Causes of Deficit Spending

By February 27, 2012

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President Obama's $3.8 trillion budget for Fiscal Year 2013 will have the lowest deficit since the record of $1.4 trillion set in FY 2009. Most people assume the record deficits of the last five years were mostly the result of stimulus spending needed to boost the economy out of recession. This is only partly true. There were three other factors, and two of them had nothing to do with the 2008 financial crisis.

What It Means to You

A second factor was a reduction in Federal tax revenues due to slow economic growth. The government's income dropped from $2.6 trillion at its height in FY 2007 to $2.1 trillion in FY 2009. Revenues still hadn't recovered by the FY 2012 budget, reaching only $2.469 trillion.

The third factor was increased military spending. Since the 9/11 attacks, the War on Terror and subsequent overseas operations added $1.452 trillion to deficit spending. This spending is in addition to the Defense Department's annual base budget.

The fourth factor is increased mandatory spending to pay out Social Security, Medicare and other benefits. These payments are mandated by Federal law, and has totaled more than $2.3 trillion a year since FY 2011.

Where Does Your $3.8 Trillion Go?

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Comments

February 28, 2012 at 12:43 pm
(1) JIm Wygand says:

Kimberly,
You were kind not to mention that in addition to spending on the “War on Terror” the Bush administration cut taxes. I don’t know of many countries that CUT taxes on the eve of going to war but there you have it. Coupled with a slower econony that also cut into revenues, a deficit of enormous proportions was inevitable.
But none of that matters! The Republicans have it in mind to get Obama out, not necessarily to put the right person into the Oval Office. The divisions between the two parties are wider than they have been in over 100 years and based more on “gut feelings” and emotion than on reason. The deficit arithmetic is simple: if you spend more and earn less you will have a deficit. Obama had to choose between stimulus and a long, deep recession (or even a depression). He inherited the conditions for an increase in the deficit and while his 2013 budget addresses the issue, the Republicans will still try to obstruct it. They just want him OUT no matter what the cost to the economy, American workers, or America’s political institutions.

February 28, 2012 at 1:38 pm
(2) useconomy says:

Hi Jim,

Very good point. You are absolutely right that another cause for the deficits and debt the U.S. faces is high deficit spending during the Bush Administration. Not many people know that the debt doubled to $10 trillion in those eight years.

The same was true during the Reagan Administration — higher military spending, lower taxes and the inevitable increase in debt.

It concerns me to hear Romney and other Republican Presidential candidates (other than Ron Paul) talk about increasing military spending. What on earth are they going to cut to pay for it? Mandatory programs, which are primarily benefits to seniors. Not good economic bang for the buck.

Kimberly

February 28, 2012 at 1:42 pm
(3) Bill Roth says:

Bush did it! That record is broken. Debt owed 12/31/08-$10,699,804,864,612. Debt owed 12/31/11 $15,125,898,976,397. It took Obama 3 years to accomplish what bush did in 8 years. Debt is the biggest problem we face. Ask Greece.

February 28, 2012 at 2:08 pm
(4) chan says:

Hi Kim,
From the time 9/11 attacks from the year 2001 continuously there were as many crisis as we have passed number of years involving public money loss in each crisis in billions of dollars in each crisis which resulted in down trodden economy and in addition millions of dollars have been spent in investigations and in crimes which also involves public money loss and moreover sub prime lending.With all this there was not even a dime of revenue to the government and still there is no money and probably these ten years deficit is a record in the history of US.After all these loss reported how can we agree that the country economy is improving.They are not even close of improving.Having all these occurred for so many years and deficit is mounting on year by year it looks like even if the country achieves 6% growth GDP it is not enough to meet all the loss happened.These kind of trends and the attitude of people is continuing and there is no end to it .It is very doubt that US will be back for the next 30 to 50 years if this is continuing.Basically each and every person to the other is a public charge and this cyclic order is continuing on and it is tough to break it.
Please advice me if I am wrong.If at all people of US wants to turn around the country from now on definitely each and every person has to work together which is very unlikely to happen in US because almost all of people in US are immigrant where there is no co-operation.There are so many drawbacks in the country and I don’t know how ever the country will come up.All in all the 21st century was started in a wrong foot to US. Very Very sad and nobody thought that the US will be turning like this being once considered as super power in the world.

February 28, 2012 at 2:08 pm
(5) useconomy says:

Hi Bill,

Let’s face it — every administration did it except for Clinton, and that’s just because Gingrich was breathing down his neck. To see the history of budget deficits, go to Budget Deficits.

The issue isn’t who’s to blame, (all politicians are) but whether we the taxpayer are getting the best bang for our hard-earned buck. Right now it’s pretty much evenly divided between military spending, Social Security, Medicare, and other benefits, and then everything else. Is that what we really want? That’s the question that’s so difficult to answer, because everyone says “Keep my program, and cut everyone else’s.”

It seems to me the nation’s highest priority right now is creating jobs. And the best way to do that is not military spending, it’s public works projects, unemployment benefits, and education.

Kimberly

February 28, 2012 at 2:32 pm
(6) clarence siwnney says:

Bill Roth incorrect

used debt as of 12-21-08 and 12-31-11
Bush last budget ended 9-30-09 at 11,900
Then at 12-31-11 the 15,125,000
is $3225 more
Bush added 6100B(5800 to 11.900)

also, Obama had Bush tax cuts– two wars and Part D
which were “New” programs under Busheloon.
CBO credited Bush “New”program with 5100B of add on Debt.
CBO Obama “New” add on 1400 projected thru 2017

Three Conservative Presidents took a 1000B Debt and added 9000B,
They want to blame Obama. bull

those 3 took a 600 budget to 3500 less wjc itsy bitsy
those three took a 1000 debt to 10,000
those 3 took 218,000 jobs created per month to 99,000.per month
those 3 intiated our involvement in 10 foreign conflict
those 3 smashed our housing industry
those 3 smashed our world financial system
those 3 gave us a Great Recession
those 3 had 137 members investigated for cirmes
those 3 got us enmity of 1500 million of a different faith
thise three ruined our reputation as a Christian nation
old87uglymeanhonest md mad mad mad at Inequality in America

February 28, 2012 at 2:56 pm
(7) useconomy says:

Hi Clarence,

Thanks for the statistics. You raise some good points.

Hi Chan,

I think the very concept of a super-power is becoming outdated in a globalized world. It is, for sure, very expensive.

Kimberly

February 28, 2012 at 11:39 pm
(8) chan says:

When ignorance and the borrowed money are combined the consequences are disastrous.This is what happened to US and one day the country will be facing as like Greece and Europe, but they may not be as bad as those countries just because US has IMF by their side where as the rest of the world don’t have.There is no answer to the present situation of US.Despite of controlling IMF,UN,WHO the country is still in financial crisis means there should be a hell a lot of corruption in US.If anybody thinks this is not correct please comment in these column.Thanks.

March 2, 2012 at 5:18 am
(9) chan says:

Hello Kim, Give your feedback to my second (above) comments.Thank you So republicans have a hope to turn around the scenario.

Thought for the day: The only one important thing to redeem a mankind is :”co-operation”.

Co-operation is hard thing to get in non-socialistic countries.

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