Federal Deficit

Examples of Federal Deficit in the following topics:

• Debt and the Stock Market Plunge

  • The United States became the world's largest debtor, borrowing domestically and internationally to finance the federal deficit.
  • During the Reagan Administration, federal receipts grew at an average rate of 8.2% (2.5% attributed to higher Social Security receipts), and federal outlays grew at an annual rate of 7.1%.
  • The policies were labeled by some as "Trickle-down economics," because the combination of significant tax cuts and a massive increase in Cold War-related defense spending caused large budget deficits, the U.S. trade deficit expansion, and the stock market crash of 1987, all of which contributed to the Savings and Loan crisis.
  • John Kenneth Galbraith called the Saving and Loans crisis "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time. " In order to compensate for these new federal budget deficits, the United States borrowed heavily, both domestically and abroad, raising the national debt from $997 billion to $2.85 trillion.
  • Such programs included Social Security, Medicaid, Food Stamps, and federal education programs.

• The George H.W. Bush Administration

  • Bush's presidency from 1989 to 1993, he negotiated the end of the Cold War, struggled with a large federal deficit, and signed several new laws.
  • Reagan’s policies of cutting taxes and increasing defense spending had exploded the federal budget deficit, making it three times larger in 1989 than when Reagan took office in 1980.
  • Bush was further constrained by the emphatic pledge he had made at the 1988 Republican Convention—“read my lips: no new taxes”—and found himself in the difficult position of trying to balance the budget and reduce the deficit without breaking his promise.
  • The budget included measures to reduce the deficit by both cutting government expenditures and raising taxes, effectively reneging on the “no new taxes” pledge.
  • However, John Sweeney of The Boston Globe argued that "the U.S. trade deficit with Canada and Mexico ballooned to 12 times its pre-NAFTA size, reaching $111 billion in 2004."

• Gridlock in Government

  • Early in his term, Bush faced the problem of what to do with leftover deficits spawned by the Reagan years.
  • Reagan’s policies of cutting taxes and increasing defense spending in relation to the Cold War had exploded the federal budget deficit, making it three times larger in 1989 than when Reagan took office in 1980.
  • The deficit had reached a high of $220 billion in 1990.
  • Bush was dedicated to curbing the deficit, believing that America could not continue to be a leader in the world without doing so.
  • Angered Republican congressmen defeated Bush's proposal which would enact spending cuts and tax increases that would reduce the deficit by $500 billion over five years.

• Budget Cuts

  • Reaganomics was the subject of debate with supporters pointing to improvements in certain key economic indicators as evidence of success, and critics pointing to large increases in federal budget deficits and the national debt.
  • Conversely, Congress passed and Reagan signed into law tax increases of some nature in every year from 1981 to 1987 to continue funding such government programs as Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Social Security, and the Deficit Reduction Act of 1984 (DEFRA).
  • However, federal Income Tax receipts increased from 1980 to 1989, rising from $308.7 billion to $549 billion.
  • Following his less-government intervention views, Reagan cut the budgets of non-military programs including Medicaid, food stamps, federal education programs and the EPA.
  • In order to cover newly spawned federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national debt from $997 billion to $2.85 trillion.

• The Affordable Care Act

  • According to White House and Congressional Budget Office figures, the maximum share of income that enrollees would have to pay would vary depending on their income relative to the federal poverty level.
  • In March of 2010, the Congressional Budget Office estimated that the net effect of both laws will be a reduction in the federal deficit by $143 billion over the first decade.
  • Following its passage, they called numerous times for its repeal, and more than 24 states sued the federal government to stop its implementation.
  • It also helped spawn the Tea Party, a conservative movement focused primarily on limiting government spending and the size of the federal government.
  • On June 28, 2012, the Supreme Court ruled by a 5–4 vote in National Federation of Independent Business v.

• The Varieties of Progressivism

  • Progressive-Era reformers sought to use the federal government to make sweeping reforms in politics, education, economics, and society.
  • Rather than any dominating party affiliation, therefore, American progressives shared a common goal of wielding federal power to pursue a sweeping range of social, environmental, political, and economic reforms.
  • For progressive reformers, the Constitution represented a loose guideline of political governance, rather than a strict authority on the political development of the United States or the scope of federal power.
  • More, not less, regulation was necessary to ensure that society operated efficiently, and therefore, most progressives believed that the federal government was the only suitable power to combat trusts, monopolies, poverty, deficits in education, and economic problems .
  • The federal government should allow these companies to exist but regulate them for the public interest.

• Banking and Finance Reform

  • It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed.
  • Three-quarters of the banks in the Federal Reserve System reopened within the next three days.
  • The act also established the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $2,500, ending the risk of runs on banks.
  • Adherence to the gold standard prevented the Federal Reserve from expanding the money supply in order to stimulate the economy, fund insolvent banks, and fund government deficits which could "prime the pump" for an expansion.
  • This measure enabled the Federal Reserve to increase the amount of money in circulation to the level the economy needed.

• Clintonomics

  • Economist Alan Greenspan served as the Chair of the Federal Reserve's board of governors throughout Clinton's presidency.
  • Among many parts of Clinton's policy to lower the deficit, he allowed for the passing of laws that raised the money in the U.S.
  • Year after year, job growth increased and the deficit shrank.
  • Increased tax revenue and budget cuts turned the annual national budget deficit from close to $290 billion in 1992 to a record budget surplus of over $230 billion in 2000.
  • Alan Greenspan was the Chairman of the Federal Reserve throughout the Clinton presidency.

• Nixon and the Economy

  • Nixon's domestic policies were shaped by the ideas of New Federalism, which proposes the decentralization of political power.
  • The Great Society had been enacted under Johnson, and its expensive policies were, together with the costs of the Vietnam War, causing large budget deficits.
  • Nixon's broader philosophy on domestic policy was informed by the ideas of New Federalism, which proposed the decentralization of political power and the transfer of certain powers from the United States federal government back to the states.
  • The primary objective of New Federalism, as opposed to the 18th-century political philosophy of Federalism, is the restoration to the states some of the autonomy and power which they lost to the federal government during the New Deal, including the power to administer social programs.
  • Pursuing New Federalist policies, Nixon's budget included grants to the states and the sharing of federal revenue with states.

• Reaction and Recession

  • Some blame Roosevelt's too early attempts to curb deficit by cutting spending after years of pouring money into costly New Deal programs.
  • Others point to the changes in monetary policies introduced by the Federal Reserve that in 1936 doubled reserve requirements and tightened credit requirements  (requiring banks to keep more reserves led to contraction in the money supply).
  • First, Roosevelt gave up on the idea to balance the budget (curb deficit) and announced more New Deal programs that would increase spending.
  • The Federal Reserve decreased reserve requirements and the government's intervention in controlling gold reserves already in the country and coming into the country decreased.