The latest projections have the US budget deficit falling to 3% of GDP in fiscal year 2015, which started this past Wednesday, October 1st. 3% is the magic threshold for deficits. Under that level, they are theoretically sustainable forever, because the US economy, on average, grows by that amount every year.
On inauguration day, January 20th, 2009, the Obama administration inherited a projected budget deficit of $1.2 trillion for fiscal year 2009. (“FY 2009” began October 1, 2008, while Obama was still a senator.) Fiscal stimulus packages and other legislation passed soon thereafter added an additional $200 billion, to create what would become FY 2009’s largest-ever deficit in US history ($1.4 trillion). As a fraction of US GDP (9.8%), it was and is the largest deficit since WWII.
It’s remarkable how much the US fiscal outlook has since improved. Following FY 2009, the US experienced three more years of trillion-dollar deficits – albeit each year’s deficit was smaller than that of the year before. The deficit for FY 2014, which ended on Tuesday, September 30th, is expected to be less than $650 billion. It’s projected to shrink to about $450 billion in FY 2017, when Obama leaves office – about 2% of GDP. (For the past several years, actual deficits have proved smaller than Congressional Budget Office projections.)
To put this in historical perspective, consider that between FYs 1982 and 1993, Reagan and Bush ran precisely one deficit of less than 3% of GDP – and six that were 4.4% or greater. But under Carter and Clinton, every deficit was less than 3% of GDP. Half of Bush Duh’s eight years saw deficits surpass 3%, culminating in FY 2009’s record-setting $1.4 trillion in his last year in office. The pattern could not be more apparent. During the 32 year period 1977-2009, the annual US budget deficit was less than 3% for all 12 years that Democrats held the White House – but over 3% for 14 out of 20 years that conservative Republicans held it. And under Obama the deficit has only ever shrunk.
Obama’s fiscal stewardship is impressive. CBO now projects Obama will become the first two-term president in US history under whom budget deficits will shrink year-over-year, every year. (Bill Clinton and Andrew Jackson came close, each with declining deficits in their first seven years in office.)
The icing on the cake is what finally pushed US deficits under the 3% threshold: Medicare. Under the ACA, growth in healthcare costs have fallen to their lowest rate ever recorded, and Medicare is leading the way, with the public insurer returning slower cost-growth than private insurers.
The Obama administration has returned the US from typical conservative Republican fiscal irresponsibility to moderate Democratic sensibility – enduring conservative recriminations all along the way. It’s the same thing Clinton experienced while he was turning red ink into surpluses. Just as Al Gore cast the tie-breaking vote to enact the tax increase that put the US on track for the Clinton boom and balanced budgets, so Nancy Pelosi and Harry Reid used a side-door reconciliation scheme to enact the ACA, which was the last step the US needed to get under the 3% threshold – without a scintilla of GOP support.