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  • Print publication year: 2012
  • Online publication date: December 2012

3 - Destabilizing Tax Policy – Vietnam and the 1970s

Summary

From 1949 to 1960, there were seven balanced budgets. Over the next two decades, the budget was balanced only once – in FY 1969 – and the relative size of deficits increased. In the late 1970s, deficits reached nearly 3 percent of GDP, just slightly below the average level for the 1930s. The gap between revenues and spending was amplified by the economic turmoil of the 1970s, but it was rooted in the expansion of domestic spending that began in the Kennedy and Johnson administrations and became even more pronounced in the 1970s.

By 1980, the defense share of the budget had dropped to less than 25 percent, yet total spending–GDP was at its highest level since World War II. As Democrats cut defense budgets and increased social welfare entitlements and discretionary domestic programs, partisan differences over spending policy became much greater, and the tax policy needed to support that spending became more politicized. As more revenue was directed toward the emerging welfare state, support for tax increases among Republicans and conservative Democrats evaporated.

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