Why is the Obama recovery the weakest recovery since the Great Depression? According to a new study by the Federal Reserve Bank of San Francisco, it is not because the federal government failed to borrow and spend too little during the height of the economic downturn.
Surprisingly, despite all the attention federal spending cuts and sequestration have received, our calculations suggest they are not the main contributors to this projected drag. The excess fiscal drag on the horizon comes almost entirely from rising taxes. Specifically, we calculate that nine-tenths of that projected 1 percentage point excess fiscal drag comes from tax revenue rising faster than normal as a share of the economy.