This “glide path” was forecast in George W. Bush’s Feb. 28th, 2001 budget, A Blueprint for New Beginnings; A Responsible Budget for America’s Priorities.
The centerpiece of the legislation was a $1.35 trillion tax cut over 10 years which was signed into law on June 7, 2001. This cut was supposed to spur growth and thus increase federal revenues in spite of the tax cut (sound familiar?)
The exact wording from Blueprint for New Beginnings:
Over the next 10 years, the Federal Government is projected to collect $28 trillion in revenues from American taxpayers. The President’s Budget devotes roughly $22.4 trillion to extend the Government we have today, including the President’s new initiatives. This leaves a $5.6 trillion surplus. The President’s Budget takes a cautious approach to allocating this staggering sum, starting by saving the entire Social Security surplus—nearly 50 percent of the total surplus—for Social Security and debt retirement. None of the Social Security surplus will be used to fund other spending initiatives or tax relief.
By devoting these revenues to debt retirement, the Nation will be able to pay off all the debt that can be redeemed—an historic $2 trillion reduction in debt over the next 10 years. The only remaining debt will be those securities with maturity dates beyond 2011. In all likelihood, American taxpayers would have to spend an additional $50 to $150 billion in bonus payments to bondholders to accelerate the repayment of those notes, a wasteful and senseless transaction. It makes more sense to allow the securities to mature naturally, leaving the Nation on a glide path to zero debt post 2011.
By 2011, Federal debt will have fallen to only seven percent of GDP—its lowest level in more than 80 years. Net interest payments on this debt will be less than 0.5 percent of GDP, less than one quarter of today’s share and only three percent of the budget. This represents a great national achievement.
Meanwhile, the threat of recession intervened, and the Federal Reserve ratcheted down interest rates. America went on a borrowing and speculation binge, focused on real estate and the building industry. Government, Wall Street and Main Street were all complicit, greedy investors buying up “investment property,” Wall Street packaging them as “risk-free” CMO’s, and homeowners indulging in the practice of using their homes as a piggy bank, with exotic no money down, no initial interest payment loans, the repayment of which was dependent on future appreciated real estate values. At the same time we continued to outsource our manufacturing capabilities to China and other emerging economies. Why work when Utopia could be achieved by merely borrowing?
So returning to the halcyon Blueprint for New Beginnings, another lesson to be learned from China: "Forecasting is difficult, especially about the future.” This is why the brinksmanship of raising the debt limit is such political grandstanding. Where was the outcry about the buildup of the national debt during the Bush years or holding Congress accountable for the failure of Blueprint for New Beginnings? While the stock market was climbing to new highs by 2007 and real estate prices were soaring, making homeowners and investors feel (not be) wealthy, not one peep about the national debt. We were borrowing against the future.
Depending on how one defines accountability to an administration (which takes control in late January every four years, but really does not have much impact until at least the end of the following Sept. 30 fiscal year), one could argue that Bush administrations were responsible for about a $6 trillion increase in National Debt (9/30/2001 - 9/30/2009) and the Obama administration for about $2.5 trillion thus far. (See this link for historical figures.)
Of course, debt growth has been more dramatic over the last few years (including the final year of the Bush administration) as Keynesian spending of “saving the world” from a depression soared. In spite of that spending, economic growth has been slow, unemployment persistently high, and real estate and associated industries remain in the doldrums.
These are the serious issues, as well as the national debt, which must be addressed. While I am the first to argue for fiscal responsibility, a balanced budget cannot be achieved overnight and cannot be achieved without some revenue increases via taxes. The best argument against pinning hopes that spending cuts, alone, will achieve a balanced budget is simply to reread Blueprint for New Beginnings. Allowing the US to default on its debt is a hopelessly reckless option.
PS: An interesting follow up to the above published by Bloomberg news two days later.