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A new report from the Federal Reserve Bank of St. Louis reminds Americans that, contrary to the narrative that huge deficits and debt are merely a recent product of the Great Recession, the problem began over forty years ago.
Daniel Thornton, the St. Louis Fed's Vice President and economic adviser, finds what conservatives have been saying all along is true: it's steadily increasing government spending, not a lack of tax revenues, that's causing all of this.
[A]fter 1970, both revenues and expenditures increased on average relative to the previous two decades; however, revenue increased marginally while expenditures increased significantly... on average, the government spent 2.4 percent of GDP more than it received in revenue during the 38-year period.
The new study confirms that what's been driving the increases in spending hasn't been that old liberal boogeyman defense spending. It's entitlement programs - Medicare, Medicaid, Social Security, and other transfer and welfare programs.
Finally, Thornton concludes, the progressive response that all the U.S. has to do is raise taxes is bankrupt.
The long-run perspective offered here shows that there is a deeper and more fundamental issue that must be addressed if the problem is to be resolved solely or primarily by raising taxes. Specifically, the analysis shows that the deficit/debt problem began when the government decided to increase spending significantly without increasing taxes.
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- Topics:
- Debt
- Deficit
- budget deficit
