Conveying the enormity of the U.S. budget deficit is tough. As humor columnist Dave Barry once observed, millions, billions and trillions sound too much alike. Think golf balls, watermelons and hot-air balloons, and you get a better idea. If today’s tax rates prevail, federal benefits are paid as promised and other spending grows at the same pace as the economy, the deficit will be bigger in 2019 than at any time in Barack Obama’s lifetime — and that’s even if the economy revives.
The U.S. budget deficit looms as a threat to the economy, yet President Obama has, so far, no business plan to prevent the U.S. from becoming the world’s largest subprime borrower. WSJ’s Economics Editor David Wessel explains.
For the fiscal year that ended Sept. 30, the final deficit tally will be about $1.4 trillion. Measured against the size of the economy, that’s 9.9% of gross domestic product, bigger than any year since 1945. As a share of GDP, tax and other revenues are lower 15% and spending higher 25% than anytime in the past 50 years.
President Obama says this isn’t his fault. Of the $9 trillion in deficits projected over the next decade, the White House blames $5 trillion on the past — the Bush tax cuts, the wars in Iraq and Afghanistan and the Medicare prescription-drug bill that a Republican Congress passed and George W. Bush signed without any visible means of support.
The White House pins the other $4 trillion on the consequences of the recession and financial crisis. That assumes that everything labeled stimulus is, in fact, stimulus, but grant that for a moment. The real problem isn’t how we got here, it’s where we are: Another day older, and deeper in debt.
The U.S. has confronted big deficits before. “Numbers like this will eventually prompt corrective measures, just as a stark but less worrisome budget outlook did in 1990,” Goldman Sachs economists assured clients last week.
This time will be tougher.
We are starting from a much deeper hole. When the economy began climbing out of the deep recession of the early 1980s, federal debt — the sum of every annual budget deficit — amounted to less than 30% of the nation’s GDP, the value of all the goods and services produced in a year. At the beginning of the 1990s, it was less than 40%. Today, it exceeds 50% of GDP and is rising toward 80%, perhaps 100% of GDP over the next 10 years. Even at today’s low interest rates, the federal government spent about $195 billion on interest in fiscal 2009, more than 10 times the entire NASA budget. A rising debt-to-GDP ratio means interest takes an ever-greater slice of the budget, much of that going to the foreigners.
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via Deficit Dilemma: How to Dig Out? – WSJ.com.