Not all deficits are created equal.
In designing policy responses, it is important to distinguish between “cyclical” and “structural” deficits.
Cyclical deficits are caused by a weak economy. Recessions drive down government revenue because many workers and businesses are no longer earning as much taxable income. At the same time, government spending rises because more people need assistance through programs such as Medicaid, unemployment benefits and food stamps.
While much has changed in the past 25 years, this fundamental reality has not: Federal budget policy remains on an unsustainable track, driven by structural forces that increase federal spending faster than revenues.