Why We Have Federal Deficits: An Updated Analysis

Abstract

This study tabulates and quantifies legislated contributions to the federal government’s fiscal imbalance according to three criteria: (a) the share of the federal government’s structural, long-term fiscal imbalance attributable to the legislation; (b) the share of the fiscal year (FY) 2021 federal deficit attributable to the legislation; and (c) the amounts of federal deficits (as a percentage of GDP) attributed to different lawmakers’ fiscal management. Nearly three-fifths of the federal government’s long-term, structural fiscal imbalance derives from legislation enacted between 1965 and 1972. That critical period witnessed the enactments of Medicare and Medicaid in 1965, subsequent expansions of both programs in 1971–1972, and substantial increases in Social Security benefits in 1972. The largest contributions to the FY 2021 federal deficit consist of legislation enacted during the COVID-19 pandemic, both at the start of the Joseph R. Biden Jr. administration as well as during the final year of the Donald J. Trump administration. These bills increased spending on various income security benefits as well as on Medicaid and other mandatory spending programs, reduced federal tax collections, and added to domestic discretionary appropriations. Among recent presidential administrations, the largest federal deficits were overseen by the Trump administration, whereas the Barack H. Obama administration placed second. Despite all the political rhetoric expended today to cast blame for skyrocketing federal deficits on current officeholders of opposing political parties, the largest drivers of the structural federal fiscal imbalance were enacted roughly a half-century ago. Consequently, the federal fiscal outlook cannot be stabilized unless and until those deficit drivers, specifically federal health and retirement programs, are reformed in future legislation to moderate their growth rates.

Keywords: Deficit, debt, federal deficit, fiscal policy, federal budget, fiscal imbalance, structural deficit, tax cuts, Medicare, Medicaid, Social Security, entitlements

JEL Classification: E62, E65, H5, H6