Federal Government Budget Deficit

The purpose of this research is to examine the issue of the federal government budget deficit in the United States. Factors addressed are historical development, reasons for growth, impact on the economy, and measures to control the deficit.

HISTORICAL DEVELOPMENT OF THE DEFICIT

When Ronald Reagan campaigned for the presidency in 1980, one of his most consistent themes was that of the economic evils of the irresponsibly high federal budget deficits attributed to the Carter Administration. Candidate Reagan pledged to restore economic sanity by, among other things, eliminating federal budget deficits by the end of the third year of his first term as president.

During the four fiscal years in which Jimmy Carter was president (fiscal years 19771980), the federal budget deficits totalled $226.8 billion (Council of Economic Advisers [CEA], 1988, July, p. 32). This cumulative Carter Administration deficit followed a cumulative deficit of $144.1 billion in the 19731976 fiscal year period of the Nixon/Ford presidency. The cumulative four year deficit increased $82.7 billion, or 57.4 percent, from Nixon/Ford to Carter, in terms of current dollars (CEA, 1984, p. 32).

Under President Reagan, the cumulative budget deficit in the Administration's first term (fiscal years 19811984) was $599.9 billion (CEA, 1988, July, p. 32). The cumulative four year deficit increased $373.1 billion, or 164.5 percent, from Carter to Reagan, in

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text of fiscal management was that the former did not attempt to simultaneously increase federal government spending, and reduce federal taxation levels. During the 1980s, the Reagan Administration did not have to deal with energy price rises (in fact, quite the opposite occurred), but like the preceding administrations in the 1970s and 1980, it had to deal with recession, inflation, and the maintenance of social services. While the Reagan Administration had no war on its hands, it did engage in the heaviest military spending in the history of the country war or no war. On top of everything else, the government cut federal taxation levels. The resulting record federal budget deficits were all too predictable for everyone except the Administration. IMPACT ON THE ECONOMY In 1980, the conventional wisdom of the economists advising candidate Reagan held that high federal budget deficits would lead to higher interest rates, doubledigit inflation, and increased unemployment. The economic record of the 19811988 period knocked the props from under those arguments at least in the shortrun. The Reagan deficits appear to have had Keynesian effects on the economy, to the chagrin of the Administration'

Category: Government - F