For the first time in five years, the U.S. budget deficit fell below $1 trillion, finishing at approximately $680 billion for fiscal year 2013, which closed its books on September 30, 2013.
Higher revenues of 13.3% and a decrease in spending of 2.4% were the reasons behind the reduction. After four years of massive deficits, is this finally proof that Obamanomics works?
Obamanomics: Central Principle
Per Investopedia, ‘Obamanomics’ is as follows:
A buzzword used to describe the economic philosophies of United States President Barack Obama. While Obamanomics encompasses all of President Obama’s policies and proposals, it is often used to refer primarily to his philosophy that the rich should pay their fair share of taxes, or what his detractors derisively call the “redistribution of wealth”
Obama has made it a central theme of his presidency that income inequality is a major problem in the United States. As recently as last July, he pledged to reverse the that trend. “This growing inequality isn’t just morally wrong; it’s bad economics,” he asserted. “Because when middle-class families have less to spend, guess what, businesses have fewer consumers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. “
That being said, Obama was forced to acknowledge in a September appearance on This Week with George Stephanopoulos that little changed during his first term in office. According to a UC Berkeley study, the upper 1% of income-earners enjoyed 95% of the gains seen during the economic recovery. In fact, after accounting for inflation, median household income has fallen $4,000 since 2000. He placed the blame on congressional Republicans, saying: “You’ve got a portion of Congress whose policies don’t just want to, you know, leave things alone, they actually want to accelerate these trends.”
Obamanomics and Tax Revenues
Increasing tax revenues from higher-income Americans has been a central tenet of Obamanomics, for two reasons: His stated belief that they can afford to pay more, coupled with the political populism the argument stirs.
From a macroeconomic perspective, raising taxes appeared to be overdue. Tax revenues during the first four years of Obama’s presidency fell to under 16% of total GDP, the lowest percentages since the early 1940’s. By contrast, the Clinton budgetary surplus years of 1998-2001 saw the highest tax revenues as a percentage of GDP since the end of World War II, hovering around 20%. The decline in tax revenues between the Clinton era and the Obama presidency — as well as the surging budget deficits — can be attributed at least in part to the Bush tax cuts.
The argument of “redistribution” also had merit, for the reason mentioned earlier: The top income-earners enjoyed a disparate amount of wealth-building not just during the Obama years, but dating back to the Reagan administration. The American public would never support an across-the-board increase, but were firmly behind Obama’s call to sunset the Bush tax cuts for the wealthiest Americans.
Government Spending Under Obama
As contentious as the tax debate has been over the past several years, government spending is an area in which Obama’s principles have utterly clashed with congressional Republicans. While Republicans support true spending cuts, Obama and the Democrats generally advocate a slower rate of spending growth, coupled with increased tax revenues. The philosophical divide is largely the reason why a formal budget has not been passed in over four years.
Thus, spending under Obamanomics cannot be judged under the microscope of austerity, but instead as to its stimulative effects on growth. As such, with the economy growing at a still-modest 2.8% in the third quarter of 2013, it would seem that it has been less than effective.
Does Obamanomics Work?
From a budgetary standpoint, President Obama’s economic policies have had uneven contributory impacts. After having raised taxes by $600 billion over the next ten years, along with other tax targeted increases associated with paying for Obamacare, the revenue side of the equation has indeed improved, with potentially more income to come by closing loopholes and other measures as the politicians negotiate in advance of the next debt ceiling deadline. On the expenditures front, although government spending declined in FY 2013, the sequester is the primary culprit, with still more to come as it takes hold over the next few years.
In the final analysis, Obamanomics has been a mixed bag. The record-high deficits may be coming down, but sub-normal economic growth and high unemployment continue to dog the Obama presidency. As Lauren Bacall once said, “We live in an age of mediocrity”.
Indeed we do.
Investopedia. Obamanomics. (2013). Accessed November 11, 2013.
Yousuf, Hibah. Obama admits 95% of income gains gone to top 1%. (2013). CNN Money. Accessed November 11, 2013.
Mercia, Dan. Obama charges Republicans want to ‘accelerate’ income inequality. (2013). CNN Politics. Accessed November 11, 2013.
Saez, Emmanuel. Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2012 Preliminary Estimates). (2013). UC Berkeley. Accessed November 11, 2013.
Tax Policy Center. Historical Source of Revenues as Share of GDP. (2013). Accessed November 11, 2013.
Manuel, Dave. History of Deficits and Surpluses in the United States. (2013). DaveManuel.com. Accessed November 11, 2013.
Smith, Matt. Obama signs bill warding off fiscal cliff. (2013). CNN Politics. Accessed November 11, 2013.
Brainy Quote. Mediocrity Quotes. (2013). Accessed November 11, 2013.