How We Got Here, Why It Matters

As discussed in Chapter 2, from the nation’s founding until about 1980, debt as a share of the economy rose only during wars or recessions, and it fell rapidly after the war or recession ended due to lower defense spending or rapid revenue growth.Reagan’s tax cuts and defense spending changed that pattern, raising debt significantly during a time of peace and prosperity. Fiscal restraint by Presidents Bush and Clinton helped turn deficits into surpluses. But tax cuts and spending increases under the second President Bush, Obama, and Trump, along with the Great Recession of 2007 to 2009, boosted debt. The main lesson from the nation’s history is that the old solutions will not work this time around. The source of the country’s rising debt isn’t a war or recession but, instead, a built-in and growing imbalance between taxes and spending. The debt buildup cannot be stopped by cutting defense or boosting growth. Consequently, tough choices must be made about which programs to cut and which taxes to raise.