The Missed Opportunities in the $1,294,000,000,000 Deficit
This afternoon, Treasury Secretary Tim Geithner and Office of Management and Budget Acting Director Jeffrey Zients gave one final report on the United States’ fiscal year:
Due to careful stewardship of the emergency programs, their effect on the deficit was much smaller than previously estimated. **The Troubled Asset Relief Program (TARP) had outlays of just $9.0 billion in FY 2010, which was $25.9 billion or 74 percent below previous estimates from July 2010. Aid to Fannie Mae and Freddie Mac was $52.6 billion in FY 2010 — $16.4 billion or 24 percent less than the most recent forecast. **
This played a large part in reducing the deficit, which as a percentage of gross domestic product (GDP) fell to 8.9 percent, down from 10.0 percent of GDP in FY 2009. This improvement — 1.1 percent of GDP — was the most rapid one-year improvement since FY 1987.
The takeaway: TARP worked and Fannie and Freddie did not need as much as the Treasury thought. Therefore, the deficit came in smaller than expected, at $1.294 trillion. That’s nine percent smaller and $122 billion less than last year.
But a smaller deficit is not necessarily a good thing — not during times of sustained, 9.6 percent unemployment. Democrats and most economists actually wanted a much bigger deficit, indicating massive government spending to juice the economy in the face of low aggregate demand. (Keynes, in simplified English: Because regular consumers aren’t buying things, employers are cutting payrolls. If the government buys things, employers will start hiring, meaning more consumers can buy more things, putting the economy back on track.)
The report shows that the government spent billions less on stimulus programs than it intended to, for a variety of reasons. Here are a few examples, comparing what the government actually spent with what it thought it would spend mid-year. (MSR stands for the Mid-Session Review of the FY 2011 Budget, which came out in July.)
- The MSR included an allowance for jobs initiatives, which reduced expected receipts by $1 billion. Delay in enactment of a job creation package increased FY 2010 receipts $1 billion relative to the MSR.
- Actual outlays for the Supplemental Nutrition Assistance Program were $2.1 billion lower than MSR estimates. Outlays for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) were also lower by roughly $1.2 billion, as actual WIC participation and food costs were lower than expected.
- Outlays for the Department of Commerce were $13.2 billion, $2.7 billion less than the MSR estimate. Three-fifths of the difference is due to favorable performance of the 2010 Decennial Census, including higher-than-expected workforce productivity and a higher-than-expected Census questionnaire mail-back response rate that reduced the need for costly non-response follow-up operations, resulting in no need to tap contingency funds set aside for disasters or major operational failures.
- Outlays for the Department of Labor were $172.9 billion in FY 2010, $7.8 billion less than the MSR estimate. Most of the difference was due to lower-than-expected spending on unemployment compensation benefits, including Emergency Unemployment Compensation.
- Outlays for the Department of Transportation were $77.8 billion, $7.7 billion lower than projected in the MSR. The surface transportation programs, which were $6.0 billion below MSR projections, were affected by uncertainty due to numerous short-term program authorization extensions. The largest difference was in the Federal Highway Administration, where Federal Aid Highway program outlays were $4.4 billion below the MSR projection. In addition, Federal Transit Administration program outlays were $1.4 billion below expected levels. For these two programs, short-term authorizations limited States’ ability to obligate funds in a timely manner.
- Outlays for the Child Tax Credit and Making Work Pay Credit were below MSR estimates by $1.8 billion and $2.4 billion, respectively, as the state of the economy generally reduced taxpayers’ eligibility for these credits. These below-MSR outlays were partially offset by COBRA program outlays nearly $3.1 billion above the MSR estimate.