Why We Have Federal Deficits: The Policy Decisions that Created Them

Abstract

This study examines the causes of federal deficits from three vantage points. Over three-fourths of the projected long-term federal fiscal imbalance derives from policies enacted between 1965 and 1972. The long-term imbalance is driven primarily by growth in Medicare, Medicaid, Social Security, and the new health-insurance exchanges established as part of the 2010 Affordable Care Act. Most Medicare and Medicaid costs derive from the programs' initial enactment in 1965 during the Lyndon B. Johnson administration. They, along with Social Security, were the objects of significant benefit expansions in 1972 during the Nixon administration. Responsibility for the federal deficit in 2013 (the second vantage point) is more diffuse. The current deficit exists largely because of growth in Social Security, Medicare, and Medicaid spending, in combination with recent expansions of income security programs and lower-than-typical revenue collections. A third vantage point assigns responsibility for federal deficits according to their absolute levels during elected officials' terms of office. These deficits have been substantially higher during the current presidential administration than in any other period studied. Each of these perspectives represents a legitimate way of understanding the federal budget.