The real cause of the federal deficit

This morning’s “must read” is this post by economist Dean Baker.

The final paragraph, in particular, is worth ruminating on:

“In reality, both left and right can agree that the broken U.S. health care system is the problem. The United States already pays more than twice as much per person as the average in other wealthy countries. If our per person health care costs were the same as those in Canada, Germany or any other wealthy country, we would be looking at huge budget surpluses, not deficits.” 

In other words, while the President has certainly made some errors during the last three years — not pushing for a large enough stimulus right from the beginning comes to mind — he was  clearly right in his initial assessment that the U.S. has to  make health care reform a (if not the) top priority. Would that he could have promoted a Canadian or German-style system.


  1. david esmay

    November 23, 2011 at 10:52 am

    One would also have to include the Bush tax cuts and two unfunded wars contributing to the rise in deficits. Over all ,spending has not increased greatly, but loss in revenue due to tax cuts in 2001 and 2003, continued in 2010, along with unemployment due to the recession, which further reduced revenue are the major contributing factors. Deficit, is after all, the difference between what the government takes in, in relation to what it pays out. If you continually cut taxes, you strangle the governments ability to meet it’s obligations. This gotp strategy to reduce the size of government, while they themselves are unwilling to cut spending in programs, cut that they themselves have proposed, has created this situation. Lucky for us, Bush’s tax cuts, the wars, and the recession, are temporary problems, healthcare is a structural long term one. When we eliminate the temporary ones, the main long term one can be addressed properly.

  2. Nonanonymous

    November 24, 2011 at 10:03 am

    I dont’ disagree with either Baker or David. The headline, however, is misleading. The “real” cause of the exponentially increasing debt was brought about under Reagan, when corporations, which were paying an equal amount of the tax burden, began successfully lobbying Congress to reduce their tax burden to about 5% of individual taxes, without corresponding cuts in spending.

    Reforming health care is commendable, reforming the tax code and instituting pro jobs legislation are paramount.

  3. Eunice

    November 25, 2011 at 9:06 am

    David misses the point entirely by trying to identify the past causes of the the federal deficit, and is not even accurate with his assumptions. If you look at past government revenue numbers, you will see that tax revenues actually went up after the Bush tax cuts, and the higher tax brackets actually paid more during those years than before. What he needs to be concerned about is the current situation where Obama has piled on $ 5 trillion in debt in just 3 years with nothing but red ink projected through 2018, primarily because of increased spending. The fact that we have no budget and no plan to get out of this mess is what he should really be concerned about.

  4. david esmay

    November 25, 2011 at 12:48 pm

    Eunice, 98% of debt is caused by Bush era programs, the tax cuts of 01 and 03, medicare part D, which was unfunded, two unfunded wars, over 900 billion alone goes to interest on unpaid debt from previous administrations. Name one specific program, aside from the 2010 stimulus, that you can attribute to the Obama administration. As far as accuracy, I gathered this information from the CBO, OMB, and CBPP. Your claim that the Bush tax cuts increased revenues is not reality based. In 2010, those tax cuts and the lost jobs from 07-09 cost us 771 billion alone.

  5. Nonanonymous

    November 30, 2011 at 10:08 am

    The simple fact of the matter is that deficits, which began to increase at the end of WWII, began accelerating during the Reagan administration, and continued to accelerate in each successive administration. It isn’t one administration or another at fault, it’s the lack of fiscal control at the federal level. A balanced budget amendment would address this issue, if it’s not too late, and it may very well be now that the Fed is supposedly coming to the rescue of the Euro.

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