The four causes of the deficit


Here’s an interesting graph from Ph.D. economist Steven Stoft, who runs a website called You should look around his website to see a wide variety of information about the national debt, the deficit and other political/economic topics. (Thanks to Brian Etheridge for calling Stoft’s website to my attention.)

To make sure we’re on the same page, note that this graph shows deficits, year by year, as a percentage of the gross domestic product. The graph illustrates the following points:

  • The biggest cause of the deficit for some years now is the reduction in tax revenue. This is in part attributable to lower tax rates but also to the recession itself, which meant that people were making less income to be taxed.
  • The second biggest cause was the increase in unemployment payments, food stamp outlays, and people beginning to collect Social Security early because they couldn’t find jobs.
  • Military spending increased for a while but is coming back to previous levels.
  • The Troubled Asset Relief Program signed by President Bush and the job stimulus program created by President Obama added little to the deficit, and both programs were temporary.

As a nation, we have to tackle the problem of deficits and debt. As a voter, you have to figure out which candidate you trust to provide more leadership on the issue. My own conclusion is that tax cuts and the “trickle down” mentality haven’t gotten the job done.  Check out the graph below, also from zFacts, to see why I feel this way. (Note that we had about 30 years of debt reduction – as a percent of GDP – until the supply-side, trickle-down theories were put into practice under President Reagan.)

From zFacts.comIf you want to try your hand at solving the problem, go here and give it a go.

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