Probably one of the more creative ideas I have heard in a long while came from the lips
of a news commentator some years ago. He asserted that the cause of the $ 6 billion
federal debt was clear to him -- that was the amount the Reagan tax cut had cost the
federal government in revenue. Had Reagan not cut taxes as he did, that money would
have filled the federal treasury and there would have been no deficit spending during the
last nearly two decades. I have often wondered whether that pundit ever regretted saying
anything so utterly absurd -- if he ever realized the total nonsense of his remarks. At least,
I used to wonder. I have now heard others say the same thing. Indeed, in a discussion not
long ago with one of my liberal colleagues in the teaching profession (that really narrows it
down, doesn't it?), when I made mention of the analysis, his reply was to the effect of ,
"Of course . . ." I was dumbfounded. I have grown used to the idiocies which are spewed
out in academia, though they never cease to disgust me, but such flagrant disregard for
facts was something I was not prepared to encounter. It turned out to be a good
inoculation; in recent months, the ravings of the left have grown ever more outlandish. I
am becoming convinced that they have lost touch with reality all together. The teaching
profession has become a clear and present danger to the republic. As much as we need to
expose the left in politics and the media for what they are, we need even more to act
against this plague that has infected our schools. Indeed, an iron curtain has descended on
America, and it is almost certain that it is going to require a new cold war to burn the
scourge out of academic circles.
Not that it will be of much help, because if any of these closed minded autocrats were
to read it they would reject it out of hand, but it is possible to trace the development of the
federal deficit. Doing so provides precise identification of the root of the problem. To
begin, it is necessary only to plot the receipts, expenditures, and deficits of the federal
government over the past four decades.
The big changes in federal outlays come well before the Reagan years. Indeed, they are
precisely where one should expect them to be -- at the beginning of the Great Society.
This is even more apparent when the figures are adjusted for inflation. The combination of
spending on the war in Vietnam and the new social programs cause big increases in
expenditures, even when they are corrected for inflation. There are important changes in
receipts during this period, too. With the Kennedy proposed tax cuts, enacted in 1964,
government revenue increases dramatically -- until LBJ's 10% surtax, which was supposed
to increase revenue to help pay for the war and the Great Society. At that point, the
receipts of the federal government suffer dramatically, falling precipitously. However, with
the end of the surtax, there is a huge increase in receipts (in fact, 1969 marks the only
'recent' balanced budget).
TABLE I -- FEDERAL BUDGET FIGURES
Fiscal
Year Receipts Outlays Deficit
Ending
1960 92482 92191 +301
1961 94388 97723 3335
1962 99676 106821 7146
1963 106560 111316 4756
1964 112613 118528 5915
1965 116817 118228 1411
1966 130835 134532 3698
1967 148822 157464 8643
1968 152973 178134 25161
1969 186882 183640 +3242
1970 192807 195649 2842
1971 187139 210172 23033
1972 207309 230681 23373
1973 230799 245707 14908
1974 263224 269359 6135
1975 279090 332332 53242
1976 298060 371779 73719
1976t 81232 95973 14741
1977 355559 409203 53644
1978 399561 458729 59168
1979 463502 503464 40162
1980 517112 590920 73808
1981 599272 678209 78936
1982 617766 745706 127940
1983 600562 808327 207764
1984 666457 851781 185324
1985 734057 946316 212260
1986 769091 990231 221140
1987 854143 1003804 149661
1988 908166 1063313 155151
1989 990701 1144020 153319
1990 1031308 1251776 220469
1991 1054265 1323757 269492
1992 1091692 1381895 290204
1993 1153175 1408532 255357
1994 1257187 1460557 203370
1995 1305576 1514389 163813
TABLE II -- CHANGES IN FEDERAL RECEIPTS
Fiscal ^Receipts %^Rec. ^CPI Real %^
Year
Ending
1960 -------- -------- 1.7 --------
1961 1896 2.1 1.0 1.1
1962 5288 5.6 1.0 4.6
1963 6884 6.9 1.3 5.6
1964 6053 5.7 1.3 4.4
1965 4204 3.7 1.6 2.1
1966(1) 14018 12 2.9 9.1
1967 17987 13.8 3.1 10.7
1968(2) 4151 2.8 4.2 -1.4
1969(3) 33909 22.2 5.5 16.7
1970 5925 3.2 5.7 -2.5
1971 -5668 -2.9 4.4 -7.3
1972 20170 10.8 3 7.6
1973 23490 8.3 6.2 2.1
1974 32425 14.1 11.0 3.1
1975 15866 6.0 9.1 -3.1
1976 18970 6.8 5.8 1.0
1976t ----- ---- ----- -------
1977 57499 19.3 6.5 12.8
1978 44002 12.4 7.6 4.8
1979 63941 16.0 11.3 4.7
1980 53610 11.6 13.5 -1.9
1981 82160 15.1 10.3 4.8
1982 (4) 18494 3.1 6.2 -3.1
1983 (4) -17204 -2.8 3.2 -6.0
1984 (5) 65895 10.97 4.3 6.67
1985 (5) 61600 10.1 3.6 6.5
1986 (5) 35034 4.8 1.9 2.9
1987 (5) 115052 14.96 3.6 11.36
1988 54923 6.3 4.1 2.2
1989 82535 9.1 4.8 4.3
1990 (6) 40607 4.1 5.4 -1.3
1991 (7) 22957 2.2 4.2 -2.2
1992 (7) 37427 3.6 3.0 .6
1993 61483 5.6 3.0 2.6
1994 194012 9.0 2.6 6.4
1995 (8) 48389 3.8 2.8 1.1
(1) Impact of Kennedy tax cut
(2) Impact of Johnson surtax
(3) Impact of end of Johnson surtax
(4) Impact of Carter/Fed recession
(5) Impact of Reagan tax cut
(6) Impact of 1989 Budget Deal
(7) Impact of recession
(8) Impact of Clinton retroactive tax increase
TABLE III -- CHANGES IN FEDERAL SPENDING
Fiscal ^Outlays %^Outlays Real %^ Party in Control of Budget
Year Process
Ending Congress Pres
1960 ------- --------- --------- D R-E
1961 5532 6.0 5.0 D R-E
1962 9098 9.3 8.3 D D-K
1963 4415 4.0 2.7 D D-K
1964 7212 6.5 5.2 D D-K
1965 -300 -.0025 -1.6 D D-J
1966 16304 13.8 9.9 D(1) D-J
1967 22932 17.1 14.0 D D-J
1968 20670 13.1 8.9 D D-J
1969 5506 3.1 -2.4 D D-J(N)(2)
1970 12009 6.5 .8 D D-J(N)
1971 14532 7.4 3.0 D R-N
1972 20509 8.9 5.7 D R-N
1973 15026 6.5 .3 D R-N
1974 23652 9.6 -1.4 D R-N
1975 62973 23.4 14.3 D(3) R-N/F
1976 39447 11.9 6.1 D R-F
1976t ----- -----
1977 37424 10.1 3.6 D R-F(C)
1978 49526 12.1 4.5 D D-C
1979 44735 9.8 -1.3 D D-C
1980 87456 17.4 3.9 D D-C
1981 87284 14.8 4.5 D D-C
1982 67497 11.7 5.5 S R-R
1983(4) 62621 8.4 5.2 S R-R
1984 43454 5.4 1.11 S R-R
1985 94535 11.1 7.8 S R-R
1986 43915 4.6 2.7 S R-R
1987 13573 1.4 -2.2 S R-R
1988 59509 5.9 1.8 S R-R
1989 80707 7.6 2.8 S R-R
1990 107756 9.4 5.0 (5) D R-R/B
1991 71981 5.8 1.6 D R-B
1992 57038 4.3 1.3 D R-B
1993 126637 (6) 9.2 6.2 D R-B(C)
1994 52025 (7) 3.7 1.1 D D-C
1995 53832 3.7 .9 D(R) D-C
R D-C
(1) Huge Dem increase after 1964 election
(2) Increase is moderated by Nixon 'impoundment', etc.
(3) Huge Dem increase in Congressional control after 1974 election/Outlawing of impoundment
(4) First real Reagan budget
(5) S&L Bailout
(6) Clinton retroactive budget and tax hikes
(7) Despite Clinton's 'election' (largely due to Perot's candidacy), the GOP increased its strength in
Congress substantially. And in spite of losing the tax hike vote by a razor thin margin,
the more moderate Congress was able to begin reigning Clinton and his allies in.
With the Nixon Administration beginning in 1969, even though the budgets of his first
year at least was already enacted by the previous Congress and President, outlays fall and
continue much lower than they had been under Johnson. This is largely attributable to
Nixon's dramatic use of impoundment to control spending. However, they soar once again
with 1974 and 1975. This marks the resignation of Nixon, and the outlawing of
impoundment by the strengthened Democrat majority in the Congress. The increase in
outlays continues higher, even after adjusting for inflation since spending on the war had
ended at this point. The increases in spending were thus due to the more costly pattern of
the social programs of the Great Society. Nor can it be attributed to the increase in
military spending by the Reagan administration. It has been entitlement spending that has
run rampant. Indeed, when military spending was reduced, after Vietnam and in the wake
of the Cold War, the deficit actually increased!
The impact of the Reagan Administration is easy to see. Government receipts actually
fall due to the recession continuing from the Carter years, but then make dramatic
increases from the Kemp-Roth Reagan tax cuts of the early 1980's. Reagan was also able
to curtail the growth of spending greatly for most of his administration, too. What is more,
the outlays increased regularly through the Reagan years, even as the rate of increase was
diminished. Of course, in the lexicon of contemporary Washington and the press, such an
increase in spending is still a 'cut.'
The growth of the deficit begins to show dramatically from the point of the end of
impoundment, and it continues to grow with the recession, but then begins to shrink as
Reagan's fiscal restraint, aided by a GOP controlled Senate and strengthened presence in
the House (also in part due to the big increases in revenue). Even when that advantage
begins to wane with about 1985, the deficit, although it increases again, also begins to
close by the end of the Reagan Presidency. By the last year of the Reagan Presidency, the
budget deficit was no larger compared to the total budget than it had been after the
beginning of the Great Society programs in 1968 -- down by half from what it had been at
the beginning of his watch with his first budget in 1983 (this 'debt burden' had doubled
during the Carter budget years). (See Table V)
With the Bush Administration, however, the deficit begins to expand once more. The
reason for this is multi-faceted. A major cause of it was the cost of the Savings and Loan
bail-out, but then came the recession which was fed by it and the 1989 Budget Deal,
increasing taxes. With the pumping up of the money supply in 1992 by the Federal
Reserve and the subsequent recovery, the deficit begins to track smaller once again.
Receipts do not grow very much until the recovery takes hold. Even with the huge tax
increase of 1993, there is but a modest growth in revenue before that, and in 1995, there is
virtually no increase in government revenue. This is especially important because by this
time the government was reaping a 'windfall' from the spinning off of assets held by the
RTC from the Savings and Loan bail-out. Where there is change is in outlays. There is a
huge increase in spending until the strengthened hand of Republicans in the Congress is
able to force it down. The decline in the deficit has had nothing at all to do with the
Clinton Administration, despite its not infrequent mouthings to take credit for it. Clinton
was campaigning in 1996 as the first President since the Civil War to have four straight
years of declining deficits. However, had he won enactment of his proposals and his
budgets, the deficit would not have closed. Indeed, it would have grown far beyond any
recent range. It was only the growing restraint of the Congress, increasingly in Republican
hands, that lent the degree of fiscal restraint to the federal budget that is bringing it toward
a balance perhaps as early as 1998.
Yet another bragging point of the Clinton Administration has been its alleged impact
on interest rates. It claims responsibility for the decline in rates over the past several years.
Yet, the assertion conveniently overlooks some important influences. One may trace the
changes in the interest rate and compare them to the strength of the parties in the
Congress and White House. With the election of Clinton, rates began to climb, but they
began to fall immediately with the 1994 election of a Republican Congress. After Clinton's
re-election in 1996, interest rates once again began to edge up, but, with of the continued
hold on Congress by the GOP, the tendency for them rising has been tempered somewhat.
Indeed, the rather steady but slow economic growth of the last five years can also be
traced to the declining deficits and the Fed's monetary growth policies -- hardly any result
of any Clinton economic program.
The average rate of growth in federal expenditures (adjusted for inflation) since 1983
has been a mere 2.2%, and that includes the two years of 1990 and 1993 when they grew
much more rapidly -- pushing the average up. At the same time, the increase in receipts
during that time has been 3.2 %. Projecting that into the future is a bit precarious because
in five of the most recent six fiscal years, the percentage increase was considerably below
that level. If that growth rate could be maintained along with constraint on spending, the
deficit would close steadily. Actually, however, had it not been for the big tax increases of
1989 and 1993 which dampened the growth of receipts, the deficit would have been much
smaller than it has been. Prior to 1989, it had been increasing at an average of almost 5 %
per year. Had we been able to maintain a 5 % annual increase in receipts, the deficit would
have been eliminated by about 1996-- if it had not been for the tax increases of 1989 and
1993, and the bigger than average increases in spending in 1990 and 1993. Even with the
recession, it would be approaching closure by 1998.
One impact of the regular deficit and accompanying burgeoning of the public sector
has been the settling of the rate of national economic growth. In another amusing
juxtaposition, I can recall hearing complaints on one national network radio news in 1992
as to the slow rate of such growth of just over 3 %, while the same commentator in 1996
was touting the robust rate of growth of just over 2 %! But the slowing of growth is
lawful. It is also perhaps lawful that the commentator would say what he said. Clinton
himself has taken to professing the position that more than about 3 % annual growth rate
is 'too' much. The growth rate of the American economy remained above that average
throughout the post-war years until the middle sixties, but, with the Great Society, it has
been much slower since -- with the exception of the middle 1980's. Had the burgeoning
public sector not exploded in the manner it did, economic growth would have been much
greater on a consistent basis, government spending would not have accelerated in the way
it did, and there would have been no structural deficit problem, if there was a deficit
problem at all.
TABLE IV -- AVERAGE PARTISAN SPENDING INCREASES
(Adjusted for inflation)
DEM PRES 4.1
REP PRES 3.5
DEM CONG 4.9
REP CONG Insuff.
DIVIDED GOV/PR-R, C-SPLIT 3.6
DIVIDED GOV/PR-R,C-D 2.99
__________________________________________________________________________________
JFK 5.4
LBJ 7.8
NIXON 1.0
FORD 10.2
CARTER 3.04
REAGAN 3.09
BUSH 2.6
CLINTON 2.7
__________________________________________________________________________________
This data clearly shows that the biggest increases in spending came when both the
White House and Capitol Hill were controlled by the Democrats -- the largest increases
occurred after resounding Democratic victories in the previous years elections (after 64
and 74). Beyond that, the most substantial rises in average spending have occurred when
Democrats controlled the Congress, with Democrat Presidential control only slightly
behind that figure. When there was a Republican residing at 1600 Pennsylvania Avenue,
the average increase in spending was considerably less.
The most successful President of those since Ike in holding the line on spending
increases seems to have been Nixon, while Ford was the least successful. However, it
must not be overlooked that Ford's position was rather tenuous and his ability to constrain
spending was tremendously inhibited by the losses of seats to the Democrats in the 1974
elections and their subsequent outlawing of impoundment, which was an important
weapon in Nixon's arsenal. To the cynic, it might be easy to see why Nixon caught the
kind of hell he was subjected to.
Behind Ford, and without those mitigating factors, the most egregious administration
in spending hikes was that of the Great Society of Johnson. No surprise there. Carter's low
average is probably as much due to the massive rates of inflation which the country
suffered under during his Presidency. Nominal increases in spending under Carter are
significantly higher that the real average increases. With inflation under control, Reagan
was able to sustain a prolonged record of spending restraint, and Bush was able to better
even that. With Clinton, the average has once more increased, but not as much as it would
have, by any means, without the growing conservatism in the Congress he had to contend
with -- the real reason for the relatively low levels of increase during this period.
A similar pattern tracks along these lines for the deficit itself, it being a function of both
problems in the constraint of spending coupled with poor taxation policies inhibiting the
growth of revenue. Higher tax rates have fueled the deficit, while reducing them has
tended to increase it.
TABLE V -- DEFICIT AS % OF REVENUE
Revenue Deficit Deficit/Revenue
1968 152973 25161 .16448
1978 339561 59168 .17425
1982 617766 127940 .20701
1983 600562 207764 .34595
1988 908166 155151 .17084
The point here is not merely to assign blame. It is to identify precisely where the deficit
became structured into the budget and from that to draw conclusions as to why and how it
developed. Blaming it on Reagan just is not borne out by the figures. Where the cause
does lie is also obvious -- it evolved with the rampaging growth of the federal
government, and particularly entitlements, on the Great Society.
In spite of the size today of the deficit in actual numbers being greater than it was in
the middle sixties, the Nixon/Reagan/Bush/Republican legacy has been one of bringing the
structural deficit under control. It may be headed into even more serene waters if present
efforts in the Congress continue to bear fruit. Since Reagan, it has been brought back to
the level it had been at with the inception of the Great Society.
The sources of this data are the Survey of Current Business, the Federal Reserve Bulletin, the Economic
Report of the President, and the Government's Economic Indicators as reprted in Irvin Tucker's 1997 1st
edition West Publishing Economics for Today.
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