The Obama deficit increase a myth?

DNC-logo-on_white-sq-250“Myth:  President Obama has increased the deficit”

—DNC’s “Your Republican Uncle” website, Nov. 27, 2013

 

 

Overview

The deficit claim is true, in a radically oversimplified and misleading way.

The Facts

The DNC was able to explain the myth and then some in two sentences:

Since President Obama took office, the deficit as a percentage of GDP has been cut by more than 50% . And by the way, if Republicans manage to repeal the Affordable Care Act, that’s actually going to increase the deficit by something like $109 billion over the next 10 years.

 

The DNC provides two sources in support of its claims.  The first support comes from the White House:

The Office of Management and Budget and the Department of the Treasury today released the fiscal year (FY) 2013 budget results, which show that we are continuing to make significant progress in reducing the deficit.  The final 2013 deficit was $680 billion, $409 billion less than the 2012 deficit and $293 billion less than forecast in President Obama’s April Budget.  As a percent of Gross Domestic Product (GDP), the deficit fell to 4.1 percent, representing a reduction of more than half from the deficit that the Administration inherited when the President took office in 2009.  The deficit reduction since that point represents the fastest decline in the deficit over a sustained period since the end of World War II.

 

To obtain the deficit “inherited when the President took office” the White House subtracted 2009 stimulus spending from Fiscal Year 2009.

The DNC’s second support came from CNN, intended to support the DNC’s secondary claim that repealing the Affordable Care Act would increase the deficit.  Our quotation picks up with CNN’s quotation of a Congressional Budget Office report:

“On balance, CBO and JCT estimated, repealing the ACA would affect direct spending and revenues in ways resulting in a net increase in budget deficits of $109 billion over the 2013-2022 period.”

The ACA law as written requires a lot of money to be shelled out over the next 10 years – $1.4 trillion. But it also raises tax revenue and the hope is that it will help cut health care costs.

 

So the CBO estimated the ACA would increase tax revenues about $1.5 trillion while spending about $1.4 trillion.  The estimate yields a net deficit reduction over 10 years of $109 billion.

Analyzing the Rhetoric

We recently analyzed the related claim that President Obama has presided over the fastest rate of deficit reduction since the World War II era.  We noted that what on the surface look like impressive deficit reduction numbers tell a different story on close examination.

First, FY2009 is a perfect baseline for cherry-picking.  The deficit ballooned that year chiefly because of bailout loans and increases in unemployment compensation.  As banks and entities like Fannie Mae and Freddie Mac later repay bailout loans it lowers the appearance of spending in later years.  The deficit reduction in 2013 touted by the White House, for example, relies largely on a $59.3 billion payment from Fannie Mae.  The government counts the repayments as “negative spending,” making it seem that the government spent less.

That’s right:  President Bush’s bailout loans are mostly repaid to look like lower spending by the Obama administration.

Second, the historical context makes comparisons to other presidents a stretch until one reaches the World War II era.  Why?  Because 2010 marked the first year since 1946 the deficit exceeded 3 percent of GDP while the deficit exceeded 60 percent of GDP.  Those two limits represent the European Union’s standards for stewardship of public debt.

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The deficit of 4.1 percent of GDP is the highest going back to 1992, under President George H. W. Bush, and it still exceeds the EU standard of 3 percent.

The bad news?  The deficit’s not going down fast enough to pull down the debt.  Deficit reduction in the postwar period brought the debt down under 60 percent of GDP by 1953, where it stayed until 2010.

The 2009 baseline

The DNC requires the 2009 baseline comparison to power its claim.  But using that year produces multiple distortions.  As noted, much of the spending increase under Bush was in the form of loans later repaid to the government under Obama.  As a matter or record, the Bush deficit for FY2008 was only slightly over 3 percent of GDP, and that number also reflected spending increases from bailouts and unemployment compensation.  Spending a great deal during his first two years in office should not earn Obama credit when he cuts down on his own spending, especially when bailout repayments and congressional opposition to his spending proposals help cut the deficit.

Using any year from 1993 through 2008 as a baseline, Obama increased the deficit.

What credit does Obama deserve?

Obama’s best claim for credit in deficit reduction comes from tax increases.  The health care reform bill he signed contained about $1.5 trillion in tax increases over 10 years.  Obama also dealt with Congress to allow the Bush tax cuts to sunset on higher income earners, raising an estimated $617 billion in revenue over 10 years.

Obama can more controversially claim credit for lowering medical costs via the ACA.  The sequestration bill has also helped lower the deficit by slowing the growth of federal spending, though the parties have taken turns blaming each other for the indiscriminate cuts resulting from that law.

To put things in perspective, the average deficit as a percentage of GDP for Bush’s worst four years, and counting Obama’s 2009 spending on Bush, is 5.1 percent.  With FY2013 under his belt, Obama now has four years of data from which to draw.  The average deficit during that time, as a percentage of GDP, is 7.2 percent.  And the debt is over 60 percent of GDP and growing.

“[I]f Republicans manage to repeal the Affordable Care Act, that’s actually going to increase the deficit by something like $109 billion over the next 10 years.”

As noted above the CBO estimates $109 billion cut to the deficit thanks to the ACA.  But the CBO has emphasized the great uncertainty of its projections.   This part often gets left out when citing the ACA’s beneficial deficit effects (bold emphasis added):

Projections of the budgetary impact of H.R. 6079 are quite uncertain because they are based, in large part, on projections of the effects of the ACA, which are themselves highly uncertain. Assessing the effects of making broad changes in the nation’s health care and health insurance systems requires estimates of a broad array of technical, behavioral, and economic factors. Separating the incremental effects of the provisions in the ACA that affect spending for ongoing programs and revenue streams becomes more uncertain as the time since enactment grows.

 

We looked last month at some of the specific problems with the CBO’s estimates of the ACA’s budget effects in a Nov. 16 fact check, among them the CBO’s practice of using current law as its baseline for comparison.

Maybe the ACA will reduce the deficit over 10 years and maybe it won’t.  But if it cuts the deficit the credit goes mostly to its tax increases.

Summary

“Since President Obama took office, the deficit as a percentage of GDP has been cut by more than 50%.”

True Statement false cause fallacy icon One-Sideness fallacy icon

Though the DNC’s claim is trivially true, it leads the audience toward false or questionable conclusions about the reasons why the deficit has decreased since Obama took office.  That’s the false cause fallacy.  The argument also relies heavily on the 2009 baseline year.  That fiscal year was highly atypical.  The message of the ad relies on people forgetting the deficit trends leading up to 2009.  It’s a fallacy of one-sidedness.

“[I]f Republicans manage to repeal the Affordable Care Act, that’s actually going to increase the deficit by something like $109 billion over the next 10 years.”

True Statement icon Missing Context icon black-or-white fallacy icon

The DNC cites CBO estimates the CBO says are highly uncertain.  Even if the CBO is correct, Congress can achieve the same budget effect by repealing the ACA and replacing it with a modest tax raising $109 billion over the next 10 years.  The deficit decrease projected for the ACA, after all, relies on its projected $1.5 trillion in tax increases.  There’s no stark choice between repealing the ACA and preserving a $109 billion cut to budget deficits over 10 years.  The DNC’s suggestion counts as a black-or-white fallacy.

“Myth:  President Obama has increased the deficit”

True Statement Minimal charitable interpretation icon Texas sharpshooter fallacy icon

President Obama plainly increased the deficit for every year in which the $800 billion stimulus bill resulted in a deficit increase.  That fact, among others, is forgotten if we focus on a comparison between 2013 and the atypical baseline year of 2009.  That’s the Texas sharpshooter fallacy.

Given the unusually high spending in FY2009, any president should have decreased the deficit compared to that year.

 

References

The Democrat’s Guide to Talking Politics with Your Republican Uncle.” Yourrepublicanuncle.com. Democratic National Committee, 27 Nov. 2013. Web. 03 Dec. 2013.

Trujillo, Mario. “DNC Releases Talking Points for ‘your Republican Uncle’TheHill. Capitol Hill Publishing Corp., 27 Nov. 2013. Web. 03 Dec. 2013.

White, Bryan W. “Is the Federal Deficit ‘falling at Fastest Rate in 60 Years’?Zebra Fact Check. Zebra Fact Check, 12 Aug. 2013. Web. 03 Dec. 2013.

Gross, Daniel. “Fannie Mae Just Made a $59.3B Payment—and It’s All Deficit Reduction.” The Daily Beast. Newsweek/Daily Beast, 28 June 2013. Web. 03 Dec. 2013.

Linden, Michael, and Michael Ettlinger. “Revenue from the Fiscal Cliff Deal in Context.” Center for American Progress. Center for American Progress, 3 Jan. 2013. Web. 03 Dec. 2013.

Cutler, David. “David Cutler: How ACA Is Already Reducing Medical Costs.” The Cap Times. Madison.com, 12 Nov. 2013. Web. 03 Dec. 2013.

White, Bryan W. “Marco Rubio Says Defense Sequester Cuts Were Obama’s Idea.” Zebra Fact Check. Zebra Fact Check, 14 Feb. 2013. Web. 03 Dec. 2013.

Viebeck, Elise. “CBO: Repealing Obama Healthcare Law Will Increase Budget Deficit.” TheHill. Capitol Hill Publishing Corp., 15 May 2013. Web. 03 Dec. 2013.

Letter to the Honorable John Boehner Providing an Estimate for H.R. 6079, the Repeal of Obamacare Act.” CBO. Congressional Budget Office, 24 July 2012. Web. 04 Dec. 2013.

Historical Tables.” The White House. The White House, n.d. Web. 03 Dec. 2013.

Table 1.3—Summary of Receipts, Outlays, and Surpluses or Deficits (-) in Current Dollars, Constant (FY 2005) Dollars, and as Percentages of GDP: 1940–2018.” The White House. The White House, n.d. Web. 3 Dec. 2013.

Mulligan, Casey B. “The Minimal Impact of the Stimulus.” The New York Times. The New York Times Company, 2 Mar. 2011. Web. 04 Dec. 2013.

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