The Clinton administration departed with an unprecedented $127 billion budget surplus, but two prolonged wars and a plummeting economy under President Bush have left the country reeling with a record-setting $455 billion deficit for fiscal year 2008. At a hefty $12 billion per month during 2008, the war in Iraq is one factor that accounts for the runaway red ink. The overall jump in annual defense spending, which ballooned from $295 billion in 2000 to $547 billion in 2007, was another factor. Meanwhile, the rising cost of health care, the economic downturn, and the Bush administration’s 2001 tax cuts have compounded the problem. (Without the tax cuts, for example, the nation would have had a budget surplus as late as 2005.) During Bush’s first year in office, the deficit stood at $32 billion; by 2002, the deficit had skyrocketed by nearly 1,000 percent to $317 billion.
In historic terms, the deficit remains a comparatively modest 3.2 percent of gross domestic product — as opposed to the deficits of the mid-1980s, which hit a record 6 percent of GDP after President Reagan’s tax cuts. But that’s scant comfort for citizens who have watched record surpluses turn into historic deficits, with more bad news likely on the horizon. In September, Office of Management and Budget Director Jim Nussle blamed the deficit on “the slow economy and the bipartisan decision to enact a stimulus package.” The solution, said Nussle: growing the economy “by keeping spending in check.”
In October 2008, the Congressional Budget Office estimated that the deficit for FY 2009 could reach up to $700 billion. But that was before the full impact of the slumping economy and the financial bailout became clear; now some experts say the deficit may rise to a staggering $1 trillion in 2009. That sort of deficit could reach a record-breaking 7 percent of GDP. And it could well constrain the scope of President-Elect Barack Obama’s ambitious agenda.