Economic Policy of The George W. Bush Administration - Effect of Policies On Federal Budget Deficit and National Debt

Effect of Policies On Federal Budget Deficit and National Debt

The cumulative debt of the United States in the fiscal years 2001-2007 was approximately $4.08 trillion, or about 40.8% of the total national debt at the time of that completion of approximately $10.0 trillion.

The total surplus in FY 2001 was $128 billion. A combination of tax cuts and spending initiatives has added almost $1.7 trillion—through budget deficits—to the national debt since then (October 1, 2001 through September 30, 2007). It should be noted that yearly debt accumulation often exceeds the yearly budget deficit, because, for example, paying the interest on the debt is not planned in the budget to be paid off or because Social Security receipts run a surplus (see Fiscal policy of the United States). The total budget deficit for FY 2007 was $162 billion.

From the end of Fiscal Year 2001 (ending Oct. 1, 2001) to the fourth quarter of 2007, the economy has produced $6.5 trillion (in constant 2000 dollars) over and above third quarter 2001 GDP levels of $9.87 trillion per year. In the same period the federal government accumulated $3.0 trillion in gross debt (in constant 2000 dollars) or a debt load of 46.5¢ per dollar of the increased production (for comparison purposes in expressing the size of the debt; that is, new debt didn't exceed new production, but growing economies of growing populations are dependent for their vitality to certain consumption levels, so the increased production isn't necessarily immediately usable in its entirety to pay for the debt).

Most debt was accumulated as a result of tax cuts and increased national security spending. According to Richard Kogan and Matt Fiedler, "the largest costs — $1.2 trillion over six years — resulted from the tax cuts enacted since the start of 2001. Increased spending for defense, international affairs, and homeland security – primarily for prosecuting the wars in Iraq and Afghanistan – also was quite costly, amounting to almost $800 billion to date. Together, tax cuts and the spending increases for these security programs account for 84 percent of the increases in debt racked up by Congress and the President over this period." Lawrence Kudlow, however, noted "The U.S. has spent roughly $750 billion for the five-year war. Sure, that’s a lot of money. But the total cost works out to 1 percent of the $63 trillion GDP over that time period. It's miniscule ." He also reported that "during the five years of the Iraq war,. . .household net worth has increased by $20 trillion." Nobel laureate Joseph Stiglitz has estimated the total cost of the Iraq War at closer to $3 trillion.

Interest on the debt (including both public and intragovernmental amounts) increased from $322 billion to $454 billion annually. The share of public debt owned by foreigners increased significantly from 31% in June 2001 to 50% in June 2008, with the dollar balance owed to foreigners increasing from $1.0 trillion to $2.6 trillion. This also significantly increased the interest payments sent overseas, from approximately $50 billion in 2001 to $121 billion during 2008.

President Bush also signed into law Medicare Part D, which provides additional prescription drug benefits to seniors. The program was not funded by any changes to the tax code. According to the GAO, this program alone created $8.4 trillion in unfunded obligations in present value terms, a larger fiscal challenge than Social Security.