Federal Reserve Study: Taxes, Not A Lack Of Government Spending, Hurting America's Economy


According to the left, particularly people such as economist and New York Times columnist Paul Krugman, America’s economic woes are related to government austerity. The local governments, and the federal government, are simply not growing spending fast enough and that’s hurting the economy.

Not so, finds the San Francisco Fed, which sees increasing taxes as the real problem:

Surprisingly, despite all the attention federal spending cuts and sequestration have received, our calculations suggest they are not the main contributors to this projected drag. The excess fiscal drag on the horizon comes almost entirely from rising taxes. Specifically, we calculate that nine-tenths of that projected 1 percentage point excess fiscal drag comes from tax revenue rising faster than normal as a share of the economy.

The fed also finds that “federal fiscal policy was unusually expansionary during the Great Recession” thanks mostly to “the economic stimulus program passed by Congress in 2009.” As a result, “the deficit grew faster—than our historical norm would predict.”

The fed did find that after the economic recovery supposedly began post-stimulus, “fiscal policy sharply reversed course” and became “much more contractionary than normal.” But that’s a direct consequence of the spike in spending resulting from the stimulus. We inflated a spending bubble, then deflated it. What goes up, must come down.

Which fits in with what conservatives have been saying about stimulus spending all along. Whatever economic benefit may stem from it is short term. Temporary, due to the fact that all the money spent must inevitably be paid for with taxes. Even money borrowed by the government must be paid back by the taxpayers.

You cannot fill a swimming pool by taking water from one end and pouring it back into the other.