Widely ignored AP piece: "U.S. Debt caused by weak economy, not gov't spending"

[ProfessionalLeftist]

This AP Fact Check from over the weekend seemed to have slid under a lot of radars. It’s a quiet item that received little fanfare but cuts straight to the heart of current economic policy and inflamed political rhetoric, specifically the contention that the U.S.’s enormously high debt is due to a weak economy and not “runaway” government spending.

Of course a incredibly common refrain among GOP presidential candidates has been the belief that the U.S.’s presently increased debt is correlative with an increase in government spending, especially under the Obama administration. But this rather significant political point has gone mostly unchecked, and has been repeated so often that its completely believed to be fact, in the same way that our ancestors were dead certain that the earth was flat. In fact, it’s not an unreasonable concept, and has reasonably shape congress’s debt debates this past summer. But the AP now reports that “the math isn’t so simple,” and that what the Republican’s assumption fails (or maybe neglects) to account for is recession.

“The number at the heart of the battle cry of the Republicans and their tea party allies — that federal spending has risen to an alarming 25 percent of the economy — is skewed by recession dynamics,” they contest. Worried only that the government is spending too much without making enough back, Republicans are not accounting for a country’s increased needs during recession periods. And so, governments hoping to maintain the basic needs of their citizens must brace for an increase in spending, and accordingly, debt.

MORE...

http://www.mediaite.com/online/report-u-s-debt-is-caused-by-weak-economy-not-government-spending/

[dkf]

1. It's the capital gains...no gains in the stock market, not enough revenue for the Govt.

http://www.ritholtz.com/blog/2011/04/do-capital-gains-taxes-drive-the-budget-deficit/




Jim Bianco has an interesting thought on Cap Gains:

“Since the Tax Reform Act of 1986, capital gains taxes have been highly correlated to the budget deficit. The chart below shows capital gains is a driving force of revenue into the Treasury.  Thanks to the recent financial crisis that affected stocks, bonds and real estate, there are fewer capital gains to tax and government revenues are suffering.  State and local governments have a similar problem (but to a smaller degree) because of their reliance on real estate taxes and the inability to raise assessments because of the slump in home prices.”

[Fumesucker]

2. Correlation does not imply causation.. n/t