The Deficit: The Talk Is Big, But The Number Is Shrinking

Feb 4, 2014
Originally published on February 6, 2014 6:12 am

The deficit is the nation's annual budget shortfall, the difference between what the government spends in one year and what it takes in. In 2009, '10, '11 and '12, it was huge.

"You look at the president's budget," said House Speaker John Boehner in 2012, "and we've got trillion-dollar deficits for as far as the eye can see."

"We're going to have trillion-dollar deficits for years to come," said former congressman and presidential candidate Ron Paul.

"When I first walked through the door," said President Obama in 2010, "the deficit stood at $1.3 trillion, with projected deficits of $8 trillion over the next decade."

And on it went. For a while it seemed like no one ever just talked about the deficit. It was always the trillion-dollar deficit.

Except that past year, it shrank dramatically. Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former Obama administration economist, explains that reality defies the rhetoric.

"The budget deficit has gone from 10 percent of GDP in 2009 — it was quite high — to about 4 percent of GDP in 2013," Bernstein says.

Like most economists, he prefers to look at the deficit as it relates to the overall size of the U.S. economy.

"That decline is the largest four-year decline in budget deficits since 1950," he says. "So they've fallen a ton."

The reason is a mix of lower spending and higher revenue. The budget sequester is part of it, but only a very small part.

More savings come from older spending cuts, the fading out of the stimulus and fewer people falling into the social safety net as the economy improves. The better economy also raises more tax revenue, and last year's fiscal cliff budget deal ended the payroll tax holiday and added a bit to the tax burden of the wealthy.

The deficit is projected to fall even further this year, perhaps to as low as 3 percent of GDP, and even further the next year. Bernstein says that's what you'd expect: Deficits generally rise in a recession.

"When the economy strengthens they're supposed to get smaller, and guess what: That's what's been happening," he says. "There was never a deficit crisis in the first place."

Oh, yes, there was — and is — says Rep. Jeff Duncan, R-S.C. Duncan says even a smaller annual deficit still adds to the cumulative national debt.

"We're $17.5 trillion in debt and it's climbing every day," he says. "Somebody's going to have to deal with that. I think it's our obligation. If not us, who? If not now, when? We have to deal with the nation's debt."

Duncan and other Republicans also don't like seeing the deficit reduced by tax increases. Rep. Tom Cole, R-Okla., says Washington still needs to deal with the long-term drivers of government spending — rising health care costs and an aging population.

"If we don't, we'll see the deficit back, unfortunately, in very few years to where it was just a couple years ago," Cole says.

The Congressional Budget Office projects the deficit will begin to rise again later this decade. In the meantime, Cole says, Congress will want to put off the painful decisions on Medicare and Social Security.

"It's sort of like when you go on a diet and you lose the first 10 pounds and it's, 'Great, I guess I can go out and splurge tonight,' " he says. "And you find out you really can't. You have to stay at it. We're going to have to get at deficit reduction, which means entitlement reform at some point. Unfortunately, that's something the two sides have not been able to come together on."

Voters are sending mixed signals on the matter. Most would say the deficit situation is getting worse, says Michael Dimock, vice president of research at the Pew Research Center.

"People certainly don't feel like we're making progress on the deficit," Dimock says. "In December, we asked people whether we've made progress in reducing the budget deficit, and only 29 percent said yes. Sixty-six percent said no, we haven't."

Dimock chalks this up partially to confusion about the difference between the deficit and the debt. But also, when budget deficits were huge and growing, they got a whole lot more attention than the shrinking deficit is getting now.

Dimock says that lack of attention may explain why there's been a huge drop in the percentage of people polled who think cutting the deficit should be a top priority.

"It's the biggest drop in public priorities that we saw between last year and this year," he says. "For an issue that had been rising as a concern so consistently, to see it turn down so sharply really does stand out."

It's worth noting that Republicans polled think it is far more important than Democrats. Populationwide, though, reducing the deficit has now fallen below strengthening the economy, preventing terrorism, improving education and protecting social security.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

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Later this week, the federal government will once again hit the debt ceiling. That's the limit on borrowing set by Congress. In as little as a couple more weeks, that could mean default on the debt, unless Congress acts to lift the debt ceiling once more. While they're debating that this week, we'll be looking at what's happening to the deficit and the debt.

Here's NPR White House correspondent Tamara Keith.

TAMARA KEITH, BYLINE: The deficit is the nation's annual budget shortfall, the difference between what the government spends in one year and what it takes in. And in 2009, '10, '11, and '12 it was huge.

REPRESENTATIVE JOHN BOEHNER: You look at the president's budget, we've got a trillion-dollar deficits for as far as the eye can see.

SENATOR RON PAUL: You know, they say that we're going to have trillion-dollar deficits for years to come.

PRESIDENT BARACK OBAMA: When I first walked through the door, the deficit stood at $1.3 trillion, with projected deficits of eight trillion over the next decade.

KEITH: Those were House Speaker John Boehner, Kentucky Senator Rand Paul, and President Obama. And on it went. For a while it seemed like no one ever just talked about the deficit; it was always the trillion-dollar deficit. But last year it shrank dramatically.

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and is a former Obama administration economist.

JARED BERNSTEIN: The budget deficit has gone from 10 percent of GDP in 2009 - it was quite high - to about four percent of GDP in 2013.

KEITH: Like most economists, he prefers to look at the deficit as it relates to the overall size of the U.S. economy.

BERNSTEIN: That decline is the largest four-year decline in budget deficits since 1950. So they've fallen a ton.

KEITH: The reason is a mix of lower spending and higher revenue. The budget sequester is part of it but only a very small part. More savings come from other older spending cuts - the fading out of the stimulus - and fewer people falling into the social safety net as the economy improves. The better economy also raises more tax money. And last year's fiscal cliff budget deal ended the payroll tax holiday and added a bit to the tax burden of the wealthy.

The deficit is projected to fall even further this year, perhaps as low as three percent of GDP, and even further the next year. Bernstein says that's what you'd expect. Deficits rise in a recession and then...

BERNSTEIN: When the economy strengthens they're supposed to get smaller. And guess what? That's what's been happening. There was never a deficit crisis in the first place.

KEITH: Oh yes there was, and is, as far as Congressman Jeff Duncan is concerned. The South Carolina Republican says even a smaller annual deficit still adds to the cumulative national debt.

REPRESENTATIVE JEFF DUNCAN: Oh, yeah. Just as much today, we're 17 and a half trillion dollars in debt and it's climbing every day. And so somebody's going to have to deal with that. I think it's our obligation. If not us, who? If not now, when? How are we going to have to deal with the nation's debt?

KEITH: Duncan and other Republicans also don't like seeing the deficit reduced by tax increases. And the big villains are still out there. Oklahoma Republican Tom Cole says Washington still needs to deal with the long-term drivers of government spending - rising healthcare costs and an aging population.

REPRESENTATIVE TOM COLE: If we don't, we'll see the deficit back, unfortunately, in very few years to where it was just a couple of years ago.

KEITH: The Congressional Budget Office projects the deficit will begin to rise again later this decade. But in the meantime, Cole knows Congress will want to put off the painful decisions on Medicare and Social Security.

COLE: Yeah, it's sort of like when you go on a diet, you know, and you lose the first 10 pounds and it's great - I guess I can go out and splurge tonight. And you find out you really can't. You have to stay at it. So we're going to have to get at deficit reduction, which means entitlement reform at some point. Unfortunately that's something the two sides have not been able to come together on.

KEITH: And voters are sending mixed signals on the matter. If you were to ask the average person whether the deficit situation is improving or getting worse, they'd probably say it's getting worse.

MICHAEL DIMOCK, DIRECTOR, PEW RESEARCH CENTER FOR THE PEOPLE AND THE PRESS: People certainly don't feel like we're making progress on the deficit.

KEITH: Michael Dimock is vice president of research at the Pew Research Center, which conducts nationwide polls.

PRESS: In December, we asked people whether we've made progress in reducing the budget deficit. And only 29 percent said yes, 66 percent said no, we haven't.

KEITH: Dimock chalks this up partially to confusion about the difference between the deficit and the debt. But also, when the budget deficits were huge and growing, they got a whole lot more attention than the shrinking deficit is getting now. Dimock says that may explain why there's been a huge drop in the percentage of people polled who think cutting the deficit should be a top priority.

PRESS: It's the biggest drop in public priorities that we saw between last year and this year. And for an issue that had been rising as a concern so consistently, to see it turned down so sharply really does stand out.

KEITH: It's worth noting that Republicans polled think it is far more important than Democrats. Population wide, though, reducing the deficit has now fallen below strengthening the economy, preventing terrorism, improving education and protecting Social Security. Tamara Keith, NPR News. Transcript provided by NPR, Copyright NPR.