RebelCapitalist: Financial Information for the Rest of Us

Deficits Do Matter

Oct 22, 2010 | By: Mr_Blue | Tags: fiscal policy, budget deficit, federal deficit

Federal budget deficits have been the historic norm in the U.S. Deficits allow the private sector, including you and me, to save. BUT, deficits can, as a result of fiscal policy (tax and spending policy), redistribute income - either upward or downward. These graphs show what happens when deficit and fiscal policy redistributes upward.

Center for Budget and Policy Priorities published these two graphs. These graphs are based on analysis of IRS data by Professors Saenz and Picketty.

These two graphs show why deficits do matter. They matter because they can and do redistribute income. Since 1980, with the exception of brief period during the Clinton Administration, fiscal policy and budget deficits have favored top incomes and corporations. Not only in the form of tax cuts but corporate subsidies, privatization of public services and spending cuts in important programs that target poor and working class Americans.

It would be better for poor and working class Americans if we used fiscal policy and deficit to put people to work in the form of a direct jobs program or Job Guarantee. Full employment or near full employment will go a lot further to reducing the deficit (more tax revenue) as opposed to painful spending cuts or even tax increases that will only hurt the most vulnerable more. The issue is NOT the size of the deficit but WHO benefits from it. This is another reason why deficits do matter.

Good luck.