What Created the Federal Deficits?

December 3, 2013

In a new study published by the Mercatus Center at George Mason University, Charles P. Blahous, a Mercatus Center senior research fellow and public trustee for Medicare and Social Security, examines the causes of federal deficits by systematically examining the federal budget itself, quantifying all contributions to the deficit regardless of when they were enacted.

Washington will never gain control of federal budget deficits unless it clearly identifies their underlying causes. The study uses three perspectives to quantify the policy choices that contribute to the fiscal gap.

First Perspective: The Policy Decisions that Drive the Long-Term Imbalance.

  • The long-term imbalance is driven primarily by growth in the costs of Medicare, Medicaid, Social Security and the new health insurance exchanges established as part of the 2010 Affordable Care Act (ACA).

Second Perspective: The Policy Decisions that Created the Current Year.

  • The current-year deficit exists largely because of growth in Social Security, Medicare and Medicaid spending, in combination with recent expansions of income security programs and lower-than-typical revenue collections.

Third Perspective: Officeholders' Fiscal Stewardship Records.

  • Measuring absolute deficits during policymakers' times in office produces the finding that these deficits have been substantially higher during the current presidential administration than in any other period studied, by a wide margin.

The Congressional Budget Office projects that federal deficits and debt will ultimately reach untenable levels -- the ultimate cost of which is reduced economic growth, higher tax burdens for fewer government services and a lower standard of living for Americans. Washington's ability to successfully address this problem requires an understanding of which current policies give rise to these projections, and the extent to which alteration of these policies can improve the fiscal out­look.

Source: Charles Blahous, "Why We Have Federal Deficits: The Policy Decisions That Created Them," Mercatus Center, November 14, 2013.

 

Browse more articles on Tax and Spending Issues