Public Policy, U.S. Economy

With the failure of the Congressional "supercommittee," national attention is once more focused on the issue of ever-mounting federal budget deficits. This paper provides a primer on budget deficits, and surpluses from the creation of the federal government. From 1790 to 2010, government spending averaged 8.7 percent of GDP; today it is 25 percent, fueling debt of historic levels. The only meaningful solution to reducing debt levels, the authors argue, is to cut entitlement programs, and then set a tax rate sufficient over the course of the business cycle to fund government spending.