November 14, 2008
POLITICS: The Budget By The Numbers
Time for some hard numbers to follow on this post discussing "fiscal conservatism" and provide some historical perspective on the GOP's successes and failures in controlling taxes and spending. Here's the budget presented as a percentage of GDP since 1947, along with the partisan control of the three elected branches. The fiscal year numbers generaly refer to the year after the budget was passed, as discussed below the fold - thus, for example, Reagan was elected in 1980, took office in 1981, and his first budget was Fiscal Year 1982. Given the ongoing nature of appropriations, 2008 and 2009 are still estimated numbers. I left off the estimates for beyond that, since those will be Obama's budgets and nobody knows yet for certain what his budgets or the economy will look like, and anyone who makes any sort of fiscal projections that far ahead has no clue what they are doing. In addition to revenues, spending and the deficit I added in the national debt and expenditures on interest to give some perspective on the impact over time on the budget of deficit spending.
I continue to believe that the number that matters most is spending as a percentage of GDP, which peaked over 20% twice under all-Democrat governance (the first time, on the eve of the GOP wave of the 1952 elections), started booming regularly above 20% after the Democrats got their post-Watergate majorities in Congress (Fiscal Year 1975, actually the budget the year of Watergate before those elections when the White House was prostrate, saw spending spike from 18.7% to 21.3% in a single year) and peaked at 23.5% in the second year of the Reagan defense buildup (and while the economy was still in recession), when the GOP held the White House and the Senate, and bottomed out in 2000, Clinton's second term, when the GOP held both houses of Congress and the economy was riding the dot-com boom. Spending under Bush - driven partly but not wholly by wars and entitlements - crept back up to pre-Gingrich levels, and looks to set new post-1994 highs since Pelosi and Reid took over. One of the lessons of which is the influence of Congress, and specifically the House, on the budget. We're creeping back towards 21% for the first time since the last time we had unified Democratic governance.
As to taxes, fiscal years 1998-2000 under Clinton were the all-time high watermark for the nation's tax burden, peaking at 20.9% of GDP and setting the stage for Bush to run on a tax cut platform. Taxes under Bush bottomed out in the first year of the full Bush tax cuts at 16.4%, the lowest share of GDP since 1951, but have been rising since then with economic growth through FY 2007 (unlike spending, taxes are directly linked to the economy, but the distribution of economic activity still impacts tax receipts). Obviously that will abate with the economy's decline this year.
The deficit, of course, is the number you're familiar with; it peaked the same year as federal spending (FY 1983), dropped by two thirds from FY 2004 to FY 2007, but is rising rapidly again since the GOP Congress left town. The national debt has never really recovered from its sustained growth from FY 1982-FY1996, but lower interest rates have made the costs of that debt much more tractable (which also means that if rates ever return to late-1970s levels, the federal taxpayer is doomed).
Where do we go from here? On spending, the item most directly under political control, I'll be very surprised if we're not above 22% by Obama's second budget (and that's assuming that the checks he plans to cut to non-taxpayers are not counted as "spending"). Tax revenues will probably drop in the next year or two, as the chaos in the financial and housing markets have slashed the tax base, and that's before we get to the impact of rising marginal and investment tax rates.
Anyway, the bottom line here is pretty much what you'd expect: Republicans have had better luck cutting taxes than spending; a GOP Congress and specifically a GOP House is more important to fiscal discipline even than a GOP President (this would be even more dramatic if we looked at the size of the GOP caucus in the House); and unified Democratic governance is a recipe for growth of the federal government across the board.
Sources here, here and here, from the master GPO budget-history site here. House/Senate historical partisan breakdowns here and here.
The budget data is explained here, including this note on fiscal years:
The Federal fiscal year begins on October 1 and ends on the subsequent September 30. It is designated by the year in which it ends; for example, fiscal year 2007 began on October 1, 2006, and ended on September 30, 2007. Prior to fiscal year 1977 the Federal fiscal years began on July 1 and ended on June 30. In calendar year 1976 the July-September period was a separate accounting period (known as the transition quarter or TQ) to bridge the period required to shift to the new fiscal year.
I use 1947 as a starting point, as it's the first year after full demobilization from World War II; the war budgets were colossal - in Fiscal Year 1943, the deficit was over 30% of GDP. And before the New Deal, federal spending was generally less than 10% of GDP.
I think the Republican shibboleth on taxes should run its course. Enough already. It's bullshit.
What are major factors then, in what makes our economy sink or swim? First, last, and almost entirely in the middle, is this stupid idea of quarterly profits, reports, etc. It lets people think they are doing well when they aren't. GM is a prime case. Yes they sold SUVs and sold them well. Rush Limbaugh spent years telling everyone it was our God given right to have these gas guzzling CO2 factories under our asses. Good in the short run? Yup. In the long run? Well Japan is a major importer of oil and products for spare parts. It was in their LONG TERM interest to produce cars that would use less fuel, and last longer.
Was it really in Merrill Lynch's best interest to show some good quarterly numbers, moving shells around until the table holding the shells and pea broke under it while moving?
It's not taxes that impede people. Joe the plumber was your party's great wise man. Crap. If you cut Joe's park maintenance so his kids can't play he'll scream. If you cut out the number of cops because you can't pay them, he'll scream louder. And if he has chest pains, and the ambulance comes a lot later because there were layoffs with the EMTs, he'll scream a bit more, then stop screaming for good.
Can and should people pay more in taxes? Well nobody wants to. Why would they? I remember during one of the debates, Obama was in the middle of saying yes he wouldn't mind paying a bit more for.... then was interrupted by McCain. Rudeness counts big to women BTW. They don't interrupt men as often and me interrupt women, and trust me as a long married man, they notice.
How about some intelligent planning? Investments in energy independence. Not tax breaks because they are short term solutions. If a company is planning on moving out, they will do so anyway. I did. I didn't move out of NYC because of taxes. The rents became insane, and I cut my commuting costs dramatically. Our infrastructure is falling apart. We have an antiquated air traffic system, a road system that is systematically cracking, bridges that are falling, a railroad system that would save billions, maybe tens of billions or more in moving freight, only we won't invest in it. You think those get fixed because we give IBM some tax breaks? You think people are happy when they get a tax deduction, with a comparable reduction in services. Your cut taxes and reduce services doesn't work, because people don't want a reduction in services. You want to be the party of fiscal courage? Fine. Have social security start at age 83. Which is where it really should start.
I don't think you included a link to the source of the debt numbers. In any event, I think you are using the wrong number - the relevant number statistic is debt *held by the public*, rather than total debt. Total debt includes the debt held by the Social Security trust fund, which we all know is just an accounting fiction, as the government can't owe itself money. For purposes of analyzing the fiscal effect of our borrowing, debt held by the public is the relevant number to look at.
Sorry, fixed the link now; this is the source on the debt figures.
Debt held by the public is indeed the relevant figure for determining the interest burden. But including the "trust fund" gives you a better sense of the total unfunded obligations - that's money we'll have to pay out in the future from future revenues.
I don't think that's right, Crank. The trust fund doesn't give you a very good idea of our future obligations, as it is only a small part of our future Social Security obligation. If you want to know the money we'll have to "pay out in the future from future revenues", you have to look at the entire SS obligation, not just the x% that is paid via debt (as opposed to FICA taxes). In other words, the obligation for payment to third parties is the Social Security obligation, not the debt in the trust fund. The debt in the trust fund only tells us how much of that Social Security obligation is paid via income taxes (corporate taxes, etc) and how much is paid via FICA taxes.
Lets see Crank points out that the deficit went down by 2/3 between FY 2004-2007, when the tax cuts were enacted and now has tripled under a democratic congress in the last 2 years and that equals Republican BS on taxes. Okkkkkkay.
There is an answer to energy independece-we are sitting on untapped oil reserves all over this country that might be as much as 11 times what Saudia Arabaia has-drill for it and use it. We are , I think, sitting on the worlds largest known coal reserves-mine it and use it in clean coal plants and finally use a technology called nuclear power that, oh yeah we created, and build a few dozen power plants. Problem solved. And if any of these great "clean' power sources ever actually do anything, instead of just taking up news print for the last 30 years, we can switch over to them. But wait thats just too easy right?
"Anyway, the bottom line here is pretty much what you'd expect: Republicans have had better luck cutting taxes than spending, a GOP Congress and specifically a GOP House is more important to fiscal discipline even than a GOP President (this would be even more dramatic if we looked at the size of the GOP caucus in the House); and unified Democratic governance is a recipe for growth of the federal government across the board"
I love the data, but you really can't draw any of those conclusions with any confidence by just eyeballing it. You need more advanced statistical analysis. And you also have to determine which of these numbers you care about.
And even when you are eyeballing it, which number are you going to consider definitive? If you like debt/GDP so much, why not credit a unified democratic establishment for lowering our debt/GDP ratio from 53.4% in 1962 to 19.4% in 1969? And the republicans had the presidency AND the senate from 1982 to 1987 and the debt-to-GDP went from 35.2% to 50.5%? Why not crucify the republicans for this?
We can play with these numbers all day.
Crank, I thought the key comment of your post was what happens if we return to the interest rates of c. 1980? What happens if the markets lose confidence in the ability of Uncle Sam to service his debt? People tell me that is a silly question. Uncle Sam will never default. It's unthinkable.