Friday, October 19, 2012

Deficit Declines Again But Don’t Expect Press to Report it That Way

Slowly Getting U. S. Fiscal Follies Under Control

To understand the U. S. government’s deficit one has to understand the U. S. fiscal year.  A fiscal year is one that is different from a calendar year, and for reasons no one understands the United States is on an October to September fiscal year.  So for the government 2013 started about three weeks ago.

What this means is that when  a President takes office in January, as Mr. Obama did in January 2009 the current government fiscal operations have been underway for more than three months.  For Mr. Obama this meant that 2009 was Mr. Bush’s last year, not Mr. Obama’s first year, just as if Mr. Romney is elected 2013 will be Mr. Obama’s fiscal policy, not Mr. Romney’s.

So when we talk about how well or how poorly the U. S. deficit has behaved, one has to start with 2010.  Mr. Obama’s four years will be fiscal 2010 to 2013.  And now the 2012 results are in (the year ended on September 30 remember) and once again the deficit is lower as a percent of GDP and in absolute dollars.

imageThe deficit was roughly 7.0% of the country's 2012 gross domestic product, a measure of the total output of goods and services, the Treasury Department said Friday. That is the lowest share since President Barack Obama took office, but still one of the largest since World War II.

The 2012 budget gap was down from the 2011 deficit of $1.297 trillion, or 8.7% of GDP. The deficit peaked in 2009 at $1.413 trillion, or 10.1% of GDP.

So yes, at over $1 trillion the deficit is high, but that is something Mr. Obama inherited.  And yes everyone wishes that deficit was lower, but the truth (those pesky mathematics that have a built in liberal bias) is that as a percent of GDP the deficit has declined about 30% from 10% to 7%, and in absolute dollars it is down a couple of hundred billion dollars.

This is progress, and one expects that if Mr. Obama is elected and he is able to allow the Bush era tax cuts to expire on the wealthy, that along with the payroll tax cut expiration will produce even more progress.  On the other hand, if Mr. Romney is elected and his program of higher defense spending and tax cuts for the wealthy is enacted, well the deficit will behave as it always behaves with programs like that (See Reagan, Ronald, 1981-1988).  But don’t worry, Mr. Romney and Mr. Ryan will always have Mr. Obama to blame it on.

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