Lecture Extender Examples 543
Chapter 14 Deficit Spending and the Public Debt
Republicans and Democrats and the Deficit
The Bush administration began with a $300 billion budget surplus in 2001. The deficit declined to
$318 billion in 2005. Then fiscal year 2008 ended with a $454 billion deficit. The reason that the
budget surplus disappeared was because of tax cuts by the Bush administration and the Republican
Congress and war spending.
Two different views of the effects of the tax cuts and increased war spending and resulting deficits
emerged from the Republicans and the Democrats. The Republicans argued that the economy was in
Since 2002, state governments across the United States have faced shortfalls in their state budgets
collectively averaging about $15 billion per year until 2008, when they ballooned during the recession
and afterward. As various state governments searched for new sources of revenue to reduce their budget
deficits, applying state sales taxes to Internet purchases has emerged as one possibility. At present, a large
portion of the market transactions that take place on the Web are not subject to state sales taxes. How much
In 2010, the Republicans regained control of the House of Representatives running on a platform of
eliminating the defict or at least drastically reducing it largely by the use of spending cuts. Two problems face
the Republicans. Entitlement spending grew to about 58 percent of the federal budget in 2010. If interest on
the national debt is added, a little more than 65 percent of the budget is committed. The Republicans in their
Pledge to America pledged not to cut Social Security, Medicare, or defense spending. If entitlements and
544 Miller Economics Today, Nineteenth Edition
defense spending are not to be cut, and interest on the national debt cannot be cut, then off-limits spending
accounts for about nearly 75 percent of the budget, which is accounted for by spending that is committed and
off limits to reductions for new spending. Entitlements will increase as the Baby Boomers retire and begin
drawing Social Security and enrolling in Medicare. The Democrats have also pledged to increase
Deficits and the Real Tax Rate
Historically, Republicans were considered fiscal conservatives and Democrats the opposite. Republicans
have historically been associated with balanced budgets or low deficits. In modern times, that is no longer
true. Democrats argue much more against deficits than do Republicans. Indeed, under Republican
administrations, deficits have been larger than under Democratic administrations.