NCPA - National Center for Policy Analysis

Spending, Not Tax Cuts are the Deficit Problem

April 1, 2004

President Bush's tax cuts are being blamed for large deficits and declining tax revenues to the federal government. However, a look at the numbers shows that tax revenues have remained steady while spending has increased, according to the Heritage Foundation.

  • Between 1951 and 2000, tax revenues were about 18.1 percent of gross domestic product (GDP), and will continue to remain so for 2012 to 2014, even if tax cuts are made permanent.
  • Federal spending, however, has increased from 18.4 percent of GDP in 2000 to 20 percent of GDP in 2004, and will likely increase substantially in the future due to funding promises to baby boomers through Social Security and Medicare.
  • National defense, which is often identified as the culprit of massive spending, only accounts for 4 percent of GDP, much lower than post World War II average of 6 percent.

The government squanders financial resources by allocating money to political rather than economic concerns, weakening the economy. Moreover, the tendency for government to address social problems that are better handled by private and charitable institutions creates disincentives for communities to address and solve their problems, says Heritage.

Source: Daniel J. Mitchell, "Spending Growth -- Not Tax Cuts -- Is the Reason for Fiscal Imbalance," Executive Memorandum 913, February 12, 2004, Heritage Foundation.

 

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