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Running in the red: How the U.S., on the road to
surplus, detoured to massive debt

View
Photo Gallery —  Congressional Republicans and Democrats have waged a
long fight in trying to agree on a budget plan to slash federal spending and
avert a government shutdown.

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By Lori Montgomery,

The nation’s unnerving
descent into debt began a decade ago with a choice, not a crisis.

In January 2001, with the budget balanced and clear sailing ahead, the
Congressional Budget Office forecast ever-larger annual surpluses indefinitely.
The outlook was so rosy, the CBO said, that Washington would have enough money
by the end of the decade to pay off everything it owed.

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Graphic

From surplus to debt

Video

Treasury Secretary Tim Geithner discusses the U.S. budget
deficit. Geithner, speaking with Peter Cook on Bloomberg Television's ‘’In the
Loop,’’ also discusses banking regulation and the European debt crisis. (April
19)

More on this Story

Running
in the red: How the U.S. detoured to massive debt

Gallery:
Battle over the budget

Video:
Geithner urges enforcement on enforceable limits

More
Democrats threaten to vote against raising borrowing limit

View
all Items in this Story

Treasury
quietly plans for failure to raise debt ceiling

What’s
the debt ceiling and why do people care?

Voices
of caution were swept aside in the rush to take advantage of the apparent
bounty. Political leaders chose to cut taxes, jack up spending and, for the
first time in U.S. history, wage
two wars solely with borrowed funds. “In the end, the floodgates opened,”
said former senator Pete Domenici (R-N.M.), who chaired the Senate
Budget Committee when the first tax-cut bill hit Capitol Hill in early
2001.

Now, instead of tending a nest egg of more than $2 trillion, the federal
government expects to owe more than $10 trillion to outside investors by
the end of this year. The national debt is larger, as a percentage of the
economy, than at any time in U.S. history except for the period shortly after
World War II.

Polls
show that a large majority of Americans blame wasteful or unnecessary federal
programs for the nation’s budget problems. But routine increases in defense and
domestic spending account for only about 15 percent of the financial
deterioration, according to a new analysis of CBO data.

The biggest culprit, by far, has been an erosion of tax revenue triggered
largely by two recessions and multiple rounds of tax cuts. Together, the economy
and the tax bills enacted under former president George W. Bush, and to a lesser
extent by President Obama, wiped out $6.3 trillion in anticipated revenue.
That’s nearly half of the $12.7 trillion swing from projected surpluses to
real debt. Federal tax collections now stand at their lowest level as a
percentage of the economy in 60 years.

Big-ticket spending initiated by the Bush administration accounts for
12 percent of the shift. The Iraq
and Afghanistan
wars have added $1.3 trillion in new borrowing. A new prescription drug
benefit for Medicare recipients contributed another $272 billion. The
Troubled Assets Relief Program bank bailout, which infuriated voters and led to
the defeat of several legislators in 2010, added just $16 billion — and
TARP may eventually cost nothing as financial institutions repay
the Treasury.

Obama’s 2009 economic stimulus, a favorite target of Republicans who blame
Democrats for the mounting debt, has added $719 billion — 6 percent of
the total shift, according to the new analysis of CBO data by the nonprofit Pew
Fiscal Analysis Initiative. All told, Obama-era choices account for about
$1.7 trillion in new debt, according to a separate Washington Post analysis
of CBO data over the past decade. Bush-era policies, meanwhile, account for more
than $7 trillion and are a major contributor to the trillion-dollar annual
budget deficits that are dominating the political debate.

As Congress prepares this week to launch a high-stakes battle over whether to
raise the legal limit on borrowing, the analyses offer a clearer view of the
drivers of the debt — and of the difficulty of re-balancing the budget without
new tax revenue.

Continued

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