A Money GUIDE TO THE ELECTION
One of the most contentious debates in D.C. today is how to tame the ballooning budget deficit. What measures--spending cuts, tax hikes, or both--are needed? How fast must it happen? For context, consider how we got here and how big our big debt really is.
Budget deficits are bipartisan affairs
The deficit, or the gap between what the federal government collects and what it spends, has plagued Democratic and Republican administrations alike. Policy shifts like tax reform and new programs matter, but so does the economy: A booming one tends to shrink the deficit; recessions bring stimulus spending and lower tax revenue owing to less economic activity.
A two-year recession begins.
Reagan takes office. Tax cuts and defense buildup lead to biggest deficit since WWII.
Clinton-era tax hikes take effect.
Longest run of surpluses since pre-Depression era; 2001 forecast: debt to be gone in 10 years.
First Bush tax cuts take effect.
Bailouts and stimulus hike spending, while recession and tax-cut extension ding revenue.
If current policies were to stay in place, including low tax rates, the deficit forecast is dire. Under the President's budget, higher taxes on the wealthy and military cuts would shrink deficits. The House Republican plan from Rep. Paul Ryan slashes more through deep cuts to non-entitlement spending. Ryan would also cut tax rates. Details are scarce, but he says fewer loopholes and an optimistic economic growth forecast will make up the diff
PROJECTED DEFICIT AS A PERCENTAGE OF GDP |
2013 | |
Republican budget plan | 5.0% |
White House | 6.1% |
Current Policy | 6.3% |
2022 | |
Republican budget plan | 1.2% |
White House | 3.0% |
Current Policy | 5.9% |
Rising deficits are adding up fast
Measured against the economy, the national debt is the highest it's been since 1950 (but still far shy of Greece's burden). Economists don't...