Does Government Have a Revenue or Spending Problem?

People say the government has a debt problem. But what causes federal government debt? Deficits cause debt. Every time government spending is greater than the amount government collects in tax revenue, the government runs a deficit, which increases the debt. In this video, economics professor Antony Davies traces the root cause of government debt to find out if the problem is too much spending or too little government tax revenue.

Davies examines the data to determine whether the government debt problem is really a revenue problem. It turns out that federal tax revenue today is significantly greater than it was in the 1950s. Even adjusted for inflation and population growth, the federal government collects three times more tax revenue per person than it did 50 years ago. So if revenue isn’t a problem, why are we still in debt?

Ultimately, the data suggest that the debt problem is really a spending problem: No matter how robustly our tax revenue grows, government finds a way to spend everything it collects and more. Professor Davies concludes that the root cause of the government debt is spending, not a lack of tax revenue.

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