Where Did the Deficit Come From?

Here’s a graph based on a paper by the Pew Trust which compares CBO projections from January 2001 with what actually happened between then and now.  The CBO, by the way, was projecting in 2001 that we would essentially retire our debt by 2012.

 

Here’s what happened.

We had two recessions which meant that we didn’t have as much tax revenue as we had originally projected because businesses and individuals were not as productive as they would have been if the economy grew at the expected rate through the decade.  We also had increases in spending for things like unemployment insurance because people were out of work.  That accounts for 28% of our current deficit.

68% of the increase was the result of federal legislation.  40% of that was tax cuts enacted in 2001, 2003, and 2010.  30% was the wars in Afghanistan and Iraq.  20% were other spending increases.  Those included Medicare Part D, TARP, and Stimulus Spending.

The important conclusion reached by Pew was that other than the recession, we put ourselves here by a combination of tax cuts and deficit spending.  Over the past decade we increased spending by three dollars for every two dollars we decreased revenue.   Pew says, “No single policy or piece of legislation, however, is overwhelmingly responsible for the $12.7 trillion shift in CBO’s debt projections for 2011 that occurred between January 2001 and March 2011.”

It wasn’t just the Stimulus Spending during the Obama administration.

It wasn’t just the wars or the tax cuts that started in the Bush administration either.

It was the failure of the theory that lowering taxes will increase federal revenue.

It was also the failure of those in power to either bring spending in line with reduced federal revenue or increase federal revenue to compensate for increased spending.

Next up: The incredible disappearing deficit

3 Responses to “Where Did the Deficit Come From?”

  1. keith says:

    As fair minded of a post as you have ever made….I’m wearing you down? 🙂

    Please now refer to the debt commision. There conclusions are largerly the same. They then show the road map to recovery by addressing each item AND entitlements…..it really isn’t difficult. The alturnitive isn’t good. Wheather Herman Cain is 100% correct isn’t the question. The question is who can do what he is proposing, MAKE REAL CHANGE? The debt commision isn’t even THAT difficult to swallow.

    Also to be agruementitive and fair, the graph and analisis doesn’t go back far enough. Why not start in 1976? 1960? etc, the set of circumstances from 2001 until now are unique, just as 1980 – 2001 was unique. I stand by my position “Lower Taxes are good.” However republicans miss the boat by always saying we should “lower taxes.” The Lafer curve, though not spacific, should have an exact point, not a continuing sliding one.

    Well done my friend……

  2. Jeff Beamsley says:

    First of all, thank you for the complement.

    Second, if I’m not mistaken, then Democratic super committee proposal is the closest that we’ve seen so far to the original debt commission recommendations. The Republicans have predictably again responded with an “all cuts no taxes” approach.

  3. keith says:

    the republicans are incorrect….and the dems aren’t close to the debt commision. its simple, Obama should just say, “I appointed the committe, this is what they came up with, I support them. End of story let the chips fall where they may.

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