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What causes deficits?

By Ezra Klein

James Fallows posts a table created by Chuck Spinney that shows -- or attempts to show -- the change in debt under different types of administrations. The basic takeaway is that it's not just that Democrats tend to reduce the deficit or Republicans increase it, but that it's specifically Republican presidents who arise out of the post-Goldwater conservative movement who increase it:

SpinneyGraf.png

There's important information in there -- notably that tax cuts do, indeed, increase the deficit. But to understand why deficits happen, I'd direct people to this mega-chart that The Post's Alicia Parlapiano made: It compares GDP growth, deficits and control of both the Congress and the White House, and gives you a more comprehensive idea of what's going on:

Thumbnail image for deficit-ezra.jpg

Basically, deficits happen when recessions happen. Anytime GDP shrinks, deficits explode. Sustained growth, by contrast, tends to bring the budget into balance. That's not to say policy doesn't matter. If you put $4 trillion of tax cuts on the deficit, you need a whole lot of growth to make that back up. But policy -- and even control of the White House -- matters a lot less than the economy does.

By Ezra Klein  | November 16, 2010; 1:16 PM ET
Categories:  Charts and Graphs, Economic Policy  
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Next: What a clean tax code would look like

Comments

That people are posting about the deficit, rather than jobs and the economy, is a major victory for the rightwingers.

The deficit should not be a topic of conversation until the economy recovers.

Posted by: fuse | November 16, 2010 1:43 PM | Report abuse

I was unaware that from '49 to '80 we had no recessions. That must be the case since our debt load kept falling.

How's this for a rule: Deficits happen when irresponsible politicians happen.

Or more snappily: Republicans cause deficits.

Posted by: theamazingjex | November 16, 2010 1:59 PM | Report abuse

Klein apparently gets that growth,is the way to balanced budgets. Why, then, does he seem to advocate revenue-maximizing, rather than growth-maximizing tax policy?

Posted by: jeff46 | November 16, 2010 2:14 PM | Report abuse

You can make a similar calculation of how the budget deficit as a fraction of GDP changes over the course of each administration, and you reach a similar conclusion. Comparing the deficit in the last fiscal year of each administration with the last year of the previous administration:

Truman - deficit REDUCED by 5.5% of GDP (7.2% to 1.7%)
Eisenhower - deficit REDUCED by 1.1% of GDP (1.7% to 0.6%)
JFK/LBJ - deficit REDUCED by 0.9% of GDP (0.6% deficit to 0.3% surplus)
Nixon/Ford - deficit INCREASED by 3.0% of GDP (0.3% surplus to 2.7% deficit)
Carter - deficit REDUCED by 0.1% of GDP (2.7% to 2.6%)
Reagan - deficit INCREASED by 0.2% of GDP (2.6% to 2.8%)
GHW Bush - deficit INCREASED by 1.1% of GDP (2.8% to 3.9%)
Clinton - deficit REDUCED by 5.2% of GDP (3.9% deficit to 1.3% surplus)
GW Bush - deficit INCREASED by 11.2% of GDP (1.3% surplus to 9.9% deficit)

Every Democratic administration coincided with a REDUCTION of the deficit as a fraction of GDP. Every Republican administration except Eisenhower coincided with an INCREASE in the deficit.

Posted by: DavidinCambridge | November 16, 2010 2:37 PM | Report abuse

You're missing the current president, of course.

Posted by: krazen1211 | November 16, 2010 3:12 PM | Report abuse

"I was unaware that from '49 to '80 we had no recessions. That must be the case since our debt load kept falling.

How's this for a rule: Deficits happen when irresponsible politicians happen.
"

You talking about Lyndon Johnson?

His Medicare/Medicaid programs have added more government spending to every administration that has followed him.

Posted by: krazen1211 | November 16, 2010 3:14 PM | Report abuse

"Klein apparently gets that growth,is the way to balanced budgets. Why, then, does he seem to advocate revenue-maximizing, rather than growth-maximizing tax policy?"

I don't think he does.

We know very well that revenues during George W. Bush's presidency were at the same level or higher than the Eisenhower/Kennedy/Johnson presidencies in terms of GDP.

It's not revenue levels that matter.

Posted by: krazen1211 | November 16, 2010 3:23 PM | Report abuse

Note that liberals like Ezra like to frame everything as "%-of-GDP". In other words, if they showed REVENUE in pure dollars, it would tell people that REVENUES increased even after tax cuts. So they have to frame it in "%-of-GDP", so they can give a skewed view that leads people to believe tax cuts led to shrinking revenue and therefore created deficits.

I've posed these questions/numbers several times, but Ezra has igored them...and I assume will continue to do so. It's really quite simple:
1) what was the average annual growth in federal tax REVENUE from 2001 to 2010?
2) what was the average annual growth in federal SPENDING from 2001 to 2010?

When you look them up and realize what those numbers are, anyone with common-sense (or who took 5th grade math) knows that any talk about 'deficits' has to start with the SPENDING side of the equation.

Only those who are ignorant or who have a liberal-progressive agenda trying to fool people with fuzzy graphs will ever be able to continue attacking 'tax cuts' as the primary culprit behind deficits.

You can choose which category you believe Ezra fits....

Posted by: dbw1 | November 16, 2010 7:22 PM | Report abuse

Wonder if Ezra has the guts to post the same numbers, but labeled with which party was in control of Congress (and, therefore, the purse strings) during the same time periods?

I'm happy to join anyone criticizing the GOP congress of 2001-2006 for SPENDING increases, but I'll continue to show the fallacy of the math used by liberals to keep blaming "tax cuts" for creating the bulk of our deficit(s).

Posted by: dbw1 | November 16, 2010 7:25 PM | Report abuse

"I've posed these questions/numbers several times, but Ezra has igored them...and I assume will continue to do so. It's really quite simple:
1) what was the average annual growth in federal tax REVENUE from 2001 to 2010?
2) what was the average annual growth in federal SPENDING from 2001 to 2010?"

I have data through 2008. The average growth in federal tax revenue in constant dollars from 2001 to 2008 was 0.99%.

The average growth in federal spending from 2001 to 2008 was 3.37%. Curiously the growth rate in the years the Democrats controlled Congress, 2006-2007, was only 2.85%, while from 2001-2006 when the Republicans controlled Congress it was 3.54%. Any contention that the Democrats spend more than Republicans is just not supported by the data, at least not recently.

Other interesting numbers:

1993-2000
Ave growth in tax revenues = 5.82%
Ave growth in spending = 1.15%

1989-1992
Ave growth in tax revenues = 0.94%
Ave growth in spending = 2.93%

1981-1988
Ave growth in tax revenues = 2.50%
Ave growth in spending = 2.72%

1977-1980
Ave growth in tax revenues = 5.95%
Ave growth in spending = 3.63%

Biggest growth in tax revenues were under Carter and Clinton, not so much under Reagan, Bush and Bush.

Growth in spending largest under Carter and Bush II, by far the lowest under Clinton.

It's not an accident the 1990s ended in a surplus.

Posted by: DavidinCambridge | November 16, 2010 9:00 PM | Report abuse

DavidinCambridge:

Credit for trying, but some problems with your numbers.

"The average growth in federal spending from 2001 to 2008 was 3.37%."

I didn't take time to go through dissecting all your other numbers after I read this first one, because this obviously can't be.

A 3.37% annual growth rate would imply federal spending only rose about 30% over that time span. Two sources I use (taxpolicycenter.org and usgovernmentspending.com) both show total federal expenditures increased twice that much (60%) over that time period. Further, federal spending has grown nearly 100% since 2001 if you extend out two more years to 2010....which obviously just shows the extreme irresponibility of Obama and the Democrats in the past two years.

"Growth in spending largest under Carter and Bush II, by far the lowest under Clinton."

I think you have to be extremely generous to credit Clinton with the slow-down in spending growth during the 90's, especially given what he tried to do in his first two years. For credit as to why spending was held in check so well during this time period, one might be led to look toward the other end of Pennsylvania Ave.

But the more important point was this....liberals keep talking about tax cuts being the reason for the deficits. To do so (like Ezra does), they have to argue that the same economic activity would have occurred regardless of the tax rates. Meaning, progressives pretend that employment would have been the same, capital investments in the U.S. would have been the same, etc. Any simple understanding of economics would tell us this is unbelievable.

If the Bush tax cuts had NOT been implemented, how can progressives claim to know how much more revenue would have flowed to government coffers when we know fewer businesses would have made capital investments in their businesses, fewer people would have been employed as a result, and therefore there would have been less economic activity upon which to assess the higher tax rates?

Posted by: dbw1 | November 17, 2010 9:54 AM | Report abuse

DavidinCambridge:

Credit for trying, but some problems with your numbers.

"The average growth in federal spending from 2001 to 2008 was 3.37%."

I didn't take time to go through dissecting all your other numbers after I read this first one, because this obviously can't be.

A 3.37% annual growth rate would imply federal spending only rose about 30% over that time span. Two sources I use (taxpolicycenter.org and usgovernmentspending.com) both show total federal expenditures increased twice that much (60%) over that time period. Further, federal spending has grown nearly 100% since 2001 if you extend out two more years to 2010....which obviously just shows the extreme irresponibility of Obama and the Democrats in the past two years.

"Growth in spending largest under Carter and Bush II, by far the lowest under Clinton."

I think you have to be extremely generous to credit Clinton with the slow-down in spending growth during the 90's, especially given what he tried to do in his first two years. For credit as to why spending was held in check so well during this time period, one might be led to look toward the other end of Pennsylvania Ave.

But the more important point was this....liberals keep talking about tax cuts being the reason for the deficits. To do so (like Ezra does), they have to argue that the same economic activity would have occurred regardless of the tax rates. Meaning, progressives pretend that employment would have been the same, capital investments in the U.S. would have been the same, etc. Any simple understanding of economics would tell us this is unbelievable.

If the Bush tax cuts had NOT been implemented, how can progressives claim to know how much more revenue would have flowed to government coffers when we know fewer businesses would have made capital investments in their businesses, fewer people would have been employed as a result, and therefore there would have been less economic activity upon which to assess the higher tax rates?

Posted by: dbw1 | November 17, 2010 9:54 AM | Report abuse

dbw1, are your numbers corrected for inflation? Mine are.

Posted by: DavidinCambridge | November 17, 2010 3:29 PM | Report abuse

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