Coalition cuts are deeper and faster than Tea Party’s

Right-wingers claim that the Coalition has cut by a "smaller amount" than the US debt deal. The truth is that they are faster and deeper than anything in the Tea Party's wildest dreams.

Right-wing commentators have been crowing that the US debt deal. Tim Montgomerie calls it a big victory for “small government” while Toby Young claims that the UK government has cut by a “smaller amount“. The truth is that the UK’s cuts are faster and deeper than anything in the Tea Party’s wildest dreams.

The independent Congressional Budget Office released estimates yesterday of the total effect on deficit reduction of the Budget Control Act 2011. It found that for 2012, the deficit would fall by $21 billion above and beyond the $83 billion deficit reduction set out in President Obama’s March budget. The total consolidation of $104 billion in 2012 equates to 0.7 per cent of US GDP. The Joint Select Committee on Deficit Reduction was tasked with finding an additional $1.5 trillion of cuts over 10 years. But even allowing for $150 billion of that to fall in 2012 only raises the total deficit reduction to 1.6 per cent of GDP. Nobel prize winner, Paul Krugman, has described the deal as a “disaster“.

By comparison, as the graph below shows, UK deficit reduction will hit £61 billion in 2012/13 or 3.8 per cent of GDP. While total accummulated UK deficit reduction rises to 6.6 per cent by 2015/16, the US hits a maximum of 2.5 per cent by 2014 falling to 2.2 per cent in 2015.

The data show that the UK’s deficit reduction remains faster and deeper than that planned by Congress. The right will argue that this is a necessary response to the UK’s large deficit which is expected to have been 9.9 per cent for 2010-11 and 7.9 per cent for 2011-12. But the US deficit is in a similar place at 9.3 per cent of GDP in 2011.

In his excoriating op ed for yesterday’s New York Times, Paul Krugman wrote:

“We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

“The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

“Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse.”

What he would make of our own cuts is anyone’s guess.

NB: Year 1 is 2011 for the US and 2011/12 for the UK. My calculations can be found here.

Hat-tip: Anthony Painter who despite being on holiday sent over the CBO tables.


This blog and its graph have become subject to a debate at Coffee House. The graph above uses as its baseline, the budget proposed by Obama in March 2011 which included a modest fiscal easing. Accepting that this budget was made erroneous by the Budget Control Act, I have made new calculations which show the situation in an even starker perspective. The graph below is measured against the Congressional Budget Office’s March baseline and measures only the $2.5 trillion of cuts in the Budget Control Act. This includes the inclusion of $150bn in every year as a contribution towards the $1.5 trillion cuts over ten years that the Joint Select Committee is yet to make.

But we don’t need graphs to understand that the Coalition’s deficit reduction programme is faster and deeper than the Tea Party’s cuts.

Faster: At the National Review, Josh Barro writes:

“The deal includes a lot of spending cuts, but it’s important to understand how backloaded these cuts are. The headline figure is $2.5 trillion in cuts over ten years, but less than 1 percent of those cuts will come in FY 2012. The near-term fiscal changes are so small that they will matter very little for the economy. The long term changes will be subject to revision by future Congresses and will hopefully come when the economy is healthier—and the parts that do go into effect will probably not be that different from whatever fiscal adjustment we were going to have to enact sooner or later.”

Deeper: Using the CBO’s slightly odd approach of adding cumulative totals to get a five or ten year running total (eg $2.5 trillion over 10 years), we can see that the Tea Party’s cuts average 1.1 per cent of GDP over the five year period in question. By comparison, the Coalition’s deficit reduction comes to 4.9 per cent.

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