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276 IRET Congressional Advisory 1 (2011)

handle is hein.taxfoundation/iretcgadv0273 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION
IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing
the public about policies thait will promote growth and efficient operation of the market economy.

July 6, 2011

Advisory No. 276

PAST RECESSIONS OFFER PERSPECTIVE ON THE FEDERAL
GOVERNMENT'S DEFICIT AND DEBT PROBLEMS

The federal government's deficit usually rises
during recessions, and the depth of the last recession
contributed to the red ink. However, the rise in the
deficit this time was extraordinary. Why did the
federal deficit increase so much more during and
after this recession
than  during  and
after   previous       Table 1   Federal Goverr
recessions?              And Debt Held By The F
Fiscal Y

This    paper
examines  the   10
U.S.   recessions
since  1950.    It
concludes that an
upsurge in federal
spending   is  the
primary reason for
federal deficits of a
magnitude not seen
since World War II.

Since then, the federal government deficit has
exploded. Measured as a share of GDP, the deficit
was 10.0% in fiscal year 2009, 8.9% in 2010, and an

estimated 10.9% in 2011.
federal government debt held
iment Receipts, Outlays, Deficits,
3ublic As Percentages Of GDP,
ears 2005-2011

Fiscal Year     Receipts   Outlays  Surplus or Federal Debt
Deficit (-) Held By The
Public
2005               17.3      19.9      -2.6       36.9
2006               18.2      20.1      -1.9       36.5
2007               18.5      19.6      -1.2       36.2
2008               17.5      20.7      -3.2       40.3
2009               14.9      25.0     -10.0       53.5
2010               14.9      23.8      -8.9       62.2
2011 estimate      14.4      25.3     -10.9       72.0
Data Source: U.S. Office of Management and Budget

The   federal
government was running a budget deficit prior to the
recession that officially began in December 2007, but
the red ink appeared tolerable relative to the size of
the economy. The Office of Management and Budget
reports that, as a share of gross domestic product
(GDP), the deficit was 1.9% in fiscal year 2006 and
1.2% in fiscal year 2007.1 (See Table 1.) Because
real output was growing faster than the debt, federal
debt held by the public was actually declining slightly
compared to GDP, from 39.6% in 2005 to 36.5% in
2006 and 36.2% in 2007.

credible plan for reducing them.
Federal government finances
post-1950 recessions

From 2007 to 2011,
by the public will have
doubled,    from
36.2% of GDP to
an estimated 72.0%.
The    huge
deficits of recent
years,  and   the
consequent
mushrooming    of
debt, are not long
sustainable.  The
debt crisis that has
engulfed  Greece
illustrates   the
danger  when    a
government incurs
outsized  deficits
and debt without a

during and after

The National Bureau of Economic Research
(NBER), a non-partisan, non-governmental economic
research organization, is the traditional arbiter of
when recessions begin and end.2 It has recorded 10
recessions since 1950. The most recent began in
December 2007 and officially ended in June 2009.

S    I      gg~        g         ~gg

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