FISCAL FACT CHECKER: The Obama-Hensarling Exchange

CRFB decided to fact check the exchange between President Obama and Congressman Hensarling at the Republican retreat. Here is the transcript with our comments.

First Congressman Hensarling (emphasis added):

Mr. President, a year ago I had an opportunity to speak to you about the national debt. And something that you and I have in common is we both have small children. And I left that conversation really feeling you're sincere commitment to ensuring that our children, our nation's children do not inherit an unconscionable debt. We know that under current law that government -- the cost of government is due to grow from 20 percent of our economy to 40 percent of our economy right about the time our children are leaving college and getting that first job.

In 2009, the government actually cost 24.7 percent of GDP. But that number is uncharacteristically high due to the recession—during most of the 2000s spending was below the 20 percent of GDP number cited by the Congressman. In terms of government growth, Hensarling is right that it will eventually hit 40 percent of GDP -- but this is not projected to occur "about the time [his] children are leaving college." Under current law, CBO projects government spending will reach 40 percent around 2070. Under a current policy baseline*, which makes some seemingly more realistic assumptions, it would hit that level around 2050.

Mr. President, shortly after that conversation a year ago, the Republicans proposed a budget that ensured that government did not grow beyond the historical standard of 20 percent of GDP. It was a budget that actually froze immediately non-defense discretionary spending. It spent $5 trillion less than ultimately what was enacted into law. And unfortunately, I believe that budget was ignored.”

It is true, they did propose a budget, which froze “non-defense, non-veterans’ benefits, and non-homeland security” discretionary spending activities (the same as the Obama freeze except the President starts a year later, goes for three rather than five years, and includes international affairs in the exemptions), although it wasn't quite as austere as he suggested. The budget would have brought spending down from 22.8% in 2010 to a low of 20.6% in 2012 and 2013, and it would have then hovered around 20.7% for the rest of the decade. The Republican alternative budget proposed spending $36,913 trillion over 10 years, or $4.8 trillion less that the Obama budget proposed-though the President's budget was not (and never is) what was enacted into law.

And since that budget was ignored, what were the old annual deficits under Republicans have now become the monthly deficits under Democrats. The national debt has increased 30 percent.

Not quite. Since January 21st (Obama’s inauguration) of 2009, debt held by the public has increased from $6.3 trillion to $7.8 trillion – an increase of around 23 percent. 

Now, Mr. President, I know you believe -- and I understand the argument; I respect the view -- that the spending is necessary due to the recession. Many of us believe, frankly, it's part of the problem, not part of the solution, but I understand and I respect your view. But this is what I don't understand, Mr. President. After that discussion, your administration proposed a budget that would triple the national debt over the next 10 years.

Almost true. According to CBO estimates, debt would hit $17.3 trillion in 2019 under the President's FY 2010 budget. That is 270% bigger as the $6.3 trillion debt when the President took office. It is worth noting, however, that debt was already scheduled to increase significantly under current law, and would have increased by more than the President's budget if Congress simply chose to continue a number of expiring policies that were already in place (for example the 2001/2003 tax cuts, the AMT patch) without paying for them.

Surely you don't believe 10 years from now we will still be mired in this recession. It proposed new entitlement spending and moved the – the cost of government to almost 24.5 percent of the economy.

This is true; CBO estimated spending in the Obama budget would increase to 24.5 percent of GDP in 2019. That compares to 22.3 percent of GDP under the current law baseline estimates at the time.

Now, very soon, Mr. President, you're due to submit a new budget and my question...

OBAMA: “Jeb, I know there's a question in there somewhere, because you're making a whole bunch of assertions, half of which I disagree with. And I'm having to sit here listening to them. At some point, I know you're going to let me answer.”

HENSARLING: “That's the question. You are soon to submit a new budget, Mr. President. Will that new budget, like your old budget, triple the national debt and continue to take us down the path of increasing the cost of government to almost 25 percent of our economy? That's the question, Mr. President.”

OBAMA: “All right. Jeb, with all due respect, I've just got to take this last question as an example of how it's very hard to have the kind of bipartisan work that we're going to do, because the whole question was structured as a talking point for running -- running a campaign. Now, look, let's talk about the budget, once again, because I'll go through it with you line by line. The fact of the matter is, is that when we came into office, the deficit was $1.3 trillion. $1.3 trillion.”

This is consistent with OMB "current policy" estimates, and not far off of CBO's current law estimates. CBO’s January baseline, published not long before the President took office, estimated a deficit of $1.19 trillion in 2009. That said, there have been some major technical readjustments since between the January baseline and the final deficit calculation (particularly regarding the treatment of Fannie Mae and Freddie Mac), so this figure may not be useful for "apples-to-apples" comparisons. We will discuss this more in a future blog post.

So -- so when you say that suddenly I've got a monthly budget that is higher than the annual -- or a monthly deficit that's higher than the annual deficit left by Republicans, that's factually just not true, and you know it's not true. And what is true is that we came in already with a $1.3 trillion deficit before I had passed any law. What is true is, we came in with $8 trillion worth of debt over the next decade.

Not under standard CBO practice, but it depends on your baseline. Under CBO's current law baseline, in its January assessment, cumulative deficits between 2010 and 2019 were projected to be $3.1 trillion; or $4.1 trillion between 2009 and 2018. Under the "current policy" baseline from the President's budget, though, cumulative deficits between 2010 and 2019 are actually $9.3 trillion.

[This] had nothing to do with anything that we had done. It had to do with the fact that in 2000, when there was a budget surplus of $200 billion, you had a Republican administration and a Republican Congress, and we had two tax cuts that weren't paid for, you had a prescription drug plan -- the biggest entitlement plan, by the way, in several decades -- that was passed, without it being paid for, you had two wars that were done through supplementals, and then you had $3 trillion projected because of the lost revenue of this recession. That's $8 trillion.

The President's claim here, essentially, is that deficits over the next decade will be entirely the result of revenue loss from the recession and of continuing policies from the Bush Administration. These numbers seem plausible, although we need to check into it further. CBO's cumulative economic adjustments since since September of 2008 have reduced revenues by roughly $2.8 trillion over ten years; continuing all the 2001/2003 tax cuts (including the interaction effect with AMT patches) would reduce revenues (and increase refundable outlays) by around $3.2 trillion; the wars in Iraq and Afghanistan will cost more than $850 billion over the next decade -- even if we reduce the number of troops to 60,000 by 2015; and  we have seen estimates that Medicare Part D would add as much as $750 billion to the deficit over the next decade. When interest costs from past and future borrowing as a result of these policies is included, the numbers would likely reach the $8 trillion claimed by the President.

Of course, this does not alleviate the current President and Congress from dealing with these problems. Although President Obama cannot be held responsible for the economic recession or the policies of the previous administration, the same is not true with regards to the continuation of these policies. This is particularly true for the tax cuts which are scheduled to expire at the end of 2010 -- but most of which President Obama is proposing to renew without offsetting.

Now, we increased it by $1 trillion because of the spending that we had to make on the stimulus.

This is roughly true. The CBO estimates that the American Recovery and Reinvestment Act will cost around $860 billion. With interest costs, this will likely exceed $1.3 trillion.