WASHINGTON (CN) – Actions under the Bush administration, as opposed to the government’s recovery expenses, are the main drivers of this year’s $1.3 trillion deficit, according to an annual White House economic report released Thursday. “Largely because of two tax cuts, two wars, and a major new Medicare drug benefit that were not paid for, the budget surpluses of the 1990s had been replaced by substantial actual and projected future deficits long before the recession began at the end of 2007,” President Obama’s chief adviser Christina Romer said in summarizing the report.
She said that the rescue actions raised the deficit by a quarter of one percent of the economy over the long-term, and blamed instead the actions under the prior administration – when former President Bush had six of eight years with a Republican Congress.
But only a small effect on the long-term deficit is expected because the $787 billion Recovery Act will mostly increase the deficit when it is paid out, and contribute to the overall debt. Apart from interest, it would contribute little to annual deficits after. The White House could not be reached for questions on why it used long-term deficits, and not debt, to measure the costs of the Recovery Act.
When President Obama took office in January of last year, the economy lost 800,000 jobs and the economy shrank at an annual rate of 6 percent, and economists feared a second Great Depression.
Presidents have issued economic reports for 60 years as interpretations of economic developments and to explain their motivation behind policy.
It reports that the Recovery Act – which Romer calls “the great unsung hero of the last year” -saved between 1.5 million and 2 million jobs, with the potential to save 3.5 million jobs by the end of the year. And it cut taxes for 95 percent of working American families.
The report says White House proposals to spend $100 billion more in the short-term to stimulate job growth, but then to provide long-term relief with a roughly $250 billion cut in non-security discretionary spending over the course of three years and with a bipartisan commission to build consensus on other needed actions to bring down the deficit, makes sense.
Higher employment would also enhance tax revenues, whose drop economists say has been far more detrimental to the deficit than spending for stimulus efforts.
The administration also seeks to prevent another deep recession by reforming the financial system so it is less volatile, which includes greater regulation of financial institutions, ensuring they have enough capital, and discouraging excessive risk-taking.
And the administration continues to champion health care reform as a solution. “In no area are the long-run challenges facing the American economy greater than in health care,” Romer wrote.
She also applauded the global coordination that allowed the world to climb out of the crisis simultaneously.