Barack Obama on the debt- Facebook

On Facebook today.

  Mark Zukenber: So my question to kind of start off is:  What specifically do you think we should do, and what specifically do you think we can cut in order to make this all add up?

     THE PRESIDENT:  Well, let me, first of all, Mark, share with you sort of the nature of the problem, because I think a lot of folks understand that it’s a problem but aren’t sure how it came about.

     In 2000, at the end of the Clinton administration, we not only had a balanced budget but we actually had a surplus.  And that was in part because of some tough decisions that had been made by President Clinton, Republican Congresses, Democratic Congresses, and President George H.W. Bush.  And what they had said was let’s make sure that we’re spending wisely on the things that matter; let’s spend less on things that don’t matter; and let’s make sure that we’re living within our means, that we’re taking in enough revenue to pay for some of these basic obligations.

     What happened then was we went through 10 years where we forgot what had created the surplus in the first place.  So we had a massive tax cut that wasn’t offset by cuts in spending.  We had two wars that weren’t paid for.  And this was the first time in history where we had gone to war and not asked for additional sacrifice from American citizens.  We had a huge prescription drug plan that wasn’t paid for. 

And so by the time I started office we already had about a trillion-dollar annual deficit and we had massive accumulated debt with interest payments to boot.  Then you have this huge recession.  And so what happens is less revenue is coming in -- because company sales are lower, individuals are making less money -- at the same time there’s more need out there.  So we’re having to help states and we’re having to help local governments. 

And that -- a lot of what the recovery was about was us making sure that the economy didn’t tilt over into a depression by making sure that teachers weren’t laid off and firefighters weren’t laid off, and there was still construction for roads and so forth -- all of which was expensive.  I mean, that added about another trillion dollars worth of debt.

So now what we’ve got is a situation not only do we have this accumulated debt, but the baby boomers are just now starting to retire.  And what’s scary is not only that the baby boomers are retiring at a greater rate, which means they're making greater demands on Social Security, but primarily Medicare and Medicaid, but health care costs go up a lot faster than inflation and older populations use more health care costs.  You put that all together, and we have an unsustainable situation. 

So right now we face a critical time where we’re going to have to make some decisions how do we bring down the debt in the short term, and how do we bring down the debt over the long term.

     In the short term, Democrats and Republicans now agree we’ve got to reduce the debt by about $4 trillion over the next 10 years.  And I know that sounds like a lot of money -- it is.  But it’s doable if we do it in a balanced way.

     What I proposed was that about $2 trillion over 10 to 12 years is reduction in spending.  Government wastes, just like every other major institution does, and so there are things that we do that we can afford not to do.  Now, there are some things that I’d like to do, are fun to do, but we just can’t afford them right now.

     So we’ve made cuts in every area.  A good example is Pentagon spending, where Congress oftentimes stuffs weapons systems in the Pentagon budget that the Pentagon itself says we don’t need.  But special interests and constituencies helped to bloat the Pentagon budget.  So we’ve already reduced the Pentagon budget by about $400 billion.  We think we can do about another $400 billion.

     So we’ve got to look at spending both on non-security issues as well as defense spending.  And then what we’ve said is let’s take another trillion of that that we raise through a reform in the tax system that allows people like me -- and, frankly, you, Mark -- for paying a little more in taxes.  (Laughter.) 

     MR. ZUCKERBERG:  I’m cool with that.

     THE PRESIDENT:  I know you’re okay with that.  (Laughter.)  Keep in mind, what we’re talking about is going back to the rates that existed when Bill Clinton was President.  Now, a lot of you were -- (laughter) -- I’m trying to say this delicately -- still in diapers at that time.  (Laughter.)  But for those of you who recall, the economy was booming, and wealthy people were getting wealthier.  There wasn’t a problem at that time.  If we go back to those rates alone, that by itself would do a lot in terms of us reducing our overall spending.  And if we can get a trillion dollars on the revenue side, $2 trillion in cutting spending, we can still make investments in basic research.

We can still invest in something we call ARPA-E, which is like DARPA except just focused on energy, so that we can figure out what are the next breakthrough technologies that can help us reduce our reliance on fossil fuels.
    
     We can still make investments in education, so we’ve already expanded the Pell Grant program so that more young people can go to college.  We’re investing more in STEM education -- math and science and technology education.  We can still make those investments.  We can still rebuild our roads and our bridges, and invest in high-speed rail, and invest in the next generation of broadband and wireless, and make sure everybody has access to the Internet.  We can do all those things while still bringing down the deficit medium term.

     Now, there’s one last component of this -- and I know this is a long answer but I wanted to make sure everybody had the basic foundations for it.  Even if we get this $4 trillion, we do still have a long-term problem with Medicare and Medicaid, because health care costs, the inflation goes up so much faster than wages and salaries.  And this is where there’s another big philosophical debate with the Republicans, because what I’ve said is the best way for us to change it is to build on the health reform we had last year and start getting a better bang for our health care dollar. 

The budget deficit and debt

The Budget Deficit and the Debt
What You Need to Know

 

1. The deficit is the gap between what the government spends and the revenues it collects each year. We didn’t always run deficits. When President Clinton left office, the federal budget was running a surplus of $236 billion, or about 2% of the U.S. economy. And that extra revenue was being used to pay down the national debt. To understand how we moved from big surpluses to a growing deficit, it’s helpful to examine each of the major factors driving our nation’s current deficits.
2. Every million additional jobs we generate reduces the deficit by $54 billion.
3. It’s misleading (and dangerous) to confuse the short-term budget shortfall with the medium-term deficit or the long-term debt. Here’s a way of understanding it:
   1. The Short-Term Recession Shortfall (1-3 years): The Great Recession wasresponsible for 61 percent of the deficit last year.
      1. Tax receipts fell as people lost jobs and income and businesses failed; federal tax revenues declined from 18.5% of GDP in 2007 to 14.8%.
      2. Spending rose with government supports such as unemployment insurance, the Recovery Act, TARP funds, payments to Fannie Mae and Freddie Mac and discretionary outlays for defense spending, from 19.6% of GDP in 2007 to 24.7%.
   2. The Medium-Term Bush Deficit (10 years):
      1. We ran a $236 billion surplus before the Bush tax cuts, but we have run deficits for the past 9 years.
      2. The ten-year projected deficit is entirely explained by the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq. Bush tax cuts and the wars made up $500 billion of the 2009 deficit and will create $6 trillion in deficits and debt service over the next decade. From the Economic Policy Institute.http://www.epi.org/publications/entry/investing_in_americas_economy