Spending Increases Cause Deficits

January 26, 2007

The Congressional Budget Office released its Budget and Economic Outlook: Fiscal Years 2008 to 2017 yesterday. In the coming days we are sure to hear the familiar refrain that tax cuts caused the budget deficit, which CBO estimates at $172 billion for 2007. As most budget insiders would tell you, though, rapidly increasing government spending is more responsible for the deficit.

Tax cuts on wages such as those enacted in 2001 have certainly reduced tax revenue from the level it would hypothetically have reached absent tax cuts. But despite those rate cuts, revenue has grown considerably since 2001, the last year of budget surpluses that began in 1998. In fact, it has risen $551 billion, or 27.8%.

Spending, meanwhile, has risen almost twice as fast since 2001: $851 billion, or 45.6%. So for every additional dollar the government brought in since 2001, it spent $1.54.

Table 1: Rising Spending Continues to Drive Federal Budget Deficits

($ Billions)

2001

2007 (e)

Difference ($)

Difference (%)

Revenues

$1,991

$2,542

$551

27.6%

Outlays

$1,863

$2,714

$851

45.7%

Deficits(-)/Surplus

$128

-$172

$300

Source: Congressional Budget Office, Tax Foundation.

Certainly short-term budget deficits are a problem that could be fixed through reduced spending, but lawmakers need to be keenly aware of the looming disaster on the horizon entitlement spending will cause on its current path. The CBO chronicles this problem in its Long-Term Budget Outlook and Long-Term Effects of Chronically Large Deficits.


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