Debt

What matters is how big the national debt is compared to the national economy. As you can see in the graph, that ratio went down from the end of World War II until Reagan's first budget. So what went wrong?

US national debt-to-GDP ratio. Who did it?

In 1981, supply siders, took over Regan's budget. Their supply-side "theory" said that cutting the taxes of people in high tax brackets, the rich, would increase government revenues. So they did. And since government revenues would increase, it was OK for Reagan to increase the military budget. As it turned out, lower taxes and more spending did just what you'd expect. And, so the Republicans became the party of barrow-and-spend. And for 20 out of 20 budgets under Reagan and the Bushes, the Republicans raised the debt relative to the size of the economy.

When Bush handed the economy to Obama he had the debt growing at the rate of $3 trillion per year, and his last budget didn't end for another eight months. A debt growing like this is hard to stop because when the government cuts spending or raises taxes, the two things that balance the budget, it hurts the economy. And since the economy Obama was handed was collapsing at the rate of 10 million jobs per year, that was not an option.

The green line in the graph shows what would have happened if the Republicans had balanced their budgets, as they claim should be done. Notice that Clinton would have reduced the debt even more. This is because, much of his budget problem was interest on the debt accumulated by Reagan and Bush Senior. Without the burden, he would have almost finished paying of the entire national debt.

 

Recession Deficit

recession deficit

Two Main Deficit Facts

  1. It took off under Bush, because the recession caused it.
  2. Almost half of it is caused by people and business paying less taxes (because they have less income to tax).

Specifics

  • Income tax payments dropped 51% for corporations and 23% for people. So the government had to borrow.
  • Bush signed the FY 2009 budget and the TARP bank bailout.
  • But, the Recession itself caused most of the deficit.
  • Obama's job stimulus barely got started before the FY 2009 budget ended on Sept. 30, and by then the deficit had exploded.

Now see the three reasons spending has increased.

 

 

Deficit Causes

recession-deficit-cause.png

What Are the Four Causes?

  1. The biggest cause: Reduced tax payments
  2. Second: Automatic increases in unemployment insurance and food stamps, and people starting social security* early because they can't find jobs.
  3. Military spending also increased, but is now fading.
  4. Bush's TARP and Obama's Jobs Stimulus (top layer) account for little of the deficit, and they are temporary.
  • The deficit is from the safety-net helping the poor and the unemployed in a terrible recession, and helping all of us (including businesses!) with lower taxes.

* There are two main definitions of the Debt and the Deficit.  Because Social Security has run a large surplus for years it reduces the small of these definitions, but not the larger ones which excludes its net income. During the great recession, this net income stopped for a while. This caused the smaller (and more common) definition of the deficit to increase.

Now find out: Is the federal government growing?

 

 

Government Size?

federal-government-employment.png

  • Under Reagan, federal employment increased by 200,000.
  • Under Obama, federal employment increased by 38,000  (thru 3/12).
  • Under both, federal employment held the same % relative to population.
  • The up-tick in 2010 was mostly census workers, but also some administration of Obama's jobs stimulus.

So why do we keep hearing about the ballooning federal government? Who started this rumor?

It's pretty simple. The Republicans want to cut middle-class programs. So they argue "the government is too big." But if it was bigger back in the 1950s and '60s when growth was stronger, that argument sounds a little silly.

So they need to tell a story that government is getting huge and out of control. So they just tell that story. As I said, it's pretty simple.