A budget deficit of nearly half a trillion dollars is hardly something to cheer about, but the big decline in federal red ink as a share of our national output has been a stunning achievement. The new April budget update from the Congressional Budget Office tells us that, in 2009, Barack Obama and the Democrats rang up an elephantine $1.3 trillion deficit, which amounted to 9.8 percent of GDP. This year, the deficit is expected to fall to 2.8 percent of GDP. This seven-percentage-point, two-thirds decline in borrowing is gigantic progress in four years. It’s the most sizable cut in deficit spending since the demobilization of the military after we won World War II.
So how did it happen? The overlooked story here has been the triumph of the Republican-controlled House of Representatives elected by Tea Party activists and other fiscally conservative voters who were fed up with the reckless path set by Mr. Obama in cahoots with Senate majority leader Harry Reid and House speaker Nancy Pelosi. Their Keynesian playbook told them that the more money the government spent and borrowed — even when it subsidized failed projects like Solyndra or turned one in seven families into food-stamp recipients – the faster the economy would heal. The theory didn’t turn out so well, as evidenced by the flimsy pace of recovery over the last four and a half years.
In 2011, we saw a U-turn change in fiscal direction. New House speaker John Boehner went to the mat on the debt ceiling and insisted on big cuts in spending and hard caps for the rest of the decade. Barack Obama wanted higher taxes, and the GOP wisely refused to capitulate. It was John Boehner’s finest hour.
In the end, as the debt-ceiling deadline drew closer and closer and bond traders shouted “default,” Democrats caved and agreed to tight spending caps in domestic and defense programs, and automatic “sequester” cuts if those ceilings were violated. The deficit started to tumble almost immediately, and the progress continues to this day. Yes, big spenders in the GOP forced House Republicans to foolishly agree to raise the spending caps last year by about $1 trillion over ten years, but even these elevated caps are better than the previous regime of an unlimited credit card.
The budget deal of 2011, which was all spending controls and no tax increases, will go down in history as one of the great achievements of modern times. Mr. Boehner and Senate minority leader Mitch McConnell of Kentucky negotiated the fiscal surrender of Barack Obama — the most liberal president since FDR. Liberals now whine about just how badly they got rolled.
Many conservatives don’t appreciate how much spending has actually fallen. It hit nearly 25 percent of GDP in the first year of the Obama stimulus but is now close to 21 percent. More than half of that cut came out of defense, but the programs that liberals care about — green-energy subsidies, foreign aid, job training, and transit grants — have also been whacked.
Entitlements haven’t been touched, of course, and Obamacare is the biggest expansion of the entitlement state since the 1960s. But the best way to force Democrats to modernize these programs is by draining funding for everything else.
The key now, as Mr. Boehner tells me, “is to hold the line on those spending caps and don’t let Barack Obama slip out of them. It’s our best leverage right now.” Obama wants a $100-billion-plus infrastructure bank, but, sorry, Mr. President, the spending caps you agreed to make that a non-starter.
The worry is whether Republican appropriators can live within the discipline that the Budget Control Act of 2011 imposes. Spending restraint is the best way to hold the line on taxes and debt, and if we can get the economy growing at 4 percent — where it should be — the spurt of revenue from more people working could produce a balanced budget over the next several years.
So who brought the budget deficit down? The much-maligned tea-party movement and the people they put in control of Congress back in 2010 to right the ship. The April budget update from the CBO is a reminder of how the tea partiers helped save the country in those dark early days of the Obama presidency. They deserve to take a bow.
— Stephen Moore is chief economist at the Heritage Foundation.