FRONT PAGE CONTRIBUTOR
Leviathan: A Little History
Just Wait For The Obama Budgets
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. 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.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 – 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.
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.