Tax-n-Spend – Don’t Believe Everything You Hear

The President’s Budget for 2013 was recently released, and along with it comes reams of useful data, including data from 2011 showing the Obama Administration’s third year in control. As we move toward the November 2012 elections, I think that it is valuable to take a look at the data, separate it from the emotional nonsense that always envelopes politics, and see what the record shows. I recently put up a post on the size of government over the past 40 years showing – in terms of employment — which administrations grew the size of government and which shrank it. Today I will do the same for actual spending and revenue.

Table 1.3 of the Historical Tables within The President’s Budget for 2013 shows almost all the information we need. Here it is as a graph, but shortened down to the same timeframe I have used before.

The first thing to take a look at here is the black line. That’s the deficit the US Government has run every year except for 1998-2001. One thing that is very, very clear if we look at this graph is that the Obama Administration has not increased the deficit, they’ve shrunk it. “Ahh!” you say, “How can this be so? I’ve heard otherwise, and look at that plummeting line in 2009! It’s the highest deficit in US history and it happened under Obama’s watch!”

True. And while I could argue that the overall trend within the Obama Administration over the last three years is not downward, I have something much more powerful to argue my case. Next graph, please.

What I did here is shift the Presidencies to the right by one year to reflect the fact that for the first year of every new President, they are running under the previous President’s budget, not their own. For example, the money that was spent in 2009 during President Obama’s first year in office was authorized and allotted by the GW Bush Administration, not the Obama Administration. Looked at this way – and it is really the only way to look at it, all of the increase in our deficit came before President Obama’s first budget was enacted, and ever since we’ve been on President Obama’s budgets, the deficit hasn’t gotten any worse. It hasn’t gotten much better, but it certainly hasn’t gotten any worse.

But that’s also worth a few minutes of our time. Why hasn’t the deficit gotten smaller? If we look at spending under President Obama’s budgets, the increase has been very mild, so spending isn’t causing the increase in the deficit. That only leaves one culprit, which is revenue.

Look at the green line and it tells not only why deficits have held flat under President Obama even as he reduced spending, as well as why GW Bush’s exploding deficit happened. Unlike what supply-side enthusiasts (Typically Reagan Republicans.) preach, the data again proves pretty conclusively that lowering taxes has no effect on the economy other than to reduce revenue and thereby drive up the deficit. Even under the Reagan Administration, which should have gotten a massive bump as they reduced top marginal tax rates from 70% to 50%, we only see a small change when compared to the overall growth rate. In GW Bush’s two terms in office, despite the significant tax cuts offered to the top earners in the country we end at significantly lower tax revenues. Had those higher marginal rates not been lowered, revenues would almost certainly be higher now, resulting in a higher reduction in the deficit.

How does this play out in graph form? Here’s the same data as the graphs above, but represented as rates of change. In an ideal world, the rate of change for revenue would be equal or higher than the rate of change for outlays. There are only two Presidents in the period below where receipts (The orange line.) are consistently higher than outlays (The blue line.): Clinton and Obama.

If you run the data, what you find is the following:

The GW Bush Administration is the only one in this analysis that actually managed to decrease revenues on average over the entire time it held office. His father, G Bush, scraped by with just a 0.3% increase. Presidents Clinton and Obama are the only ones to actually decrease the deficit, but they did it in different ways; President Clinton grew tax receipts faster than he grew outlays, while President Obama has actually shrunk spending. On average, Democratic Administrations shrank the deficit by 20.2% each year they were in office, while Republican Administrations grew the deficit by 15.4% each year. The Republican Administrations did this by achieving both a lower average increase in revenues and a higher average increase in outlays than their Democrat counterparts. In other words, Republican Administrations took in less money and spent more. Democratic Administrations took in more money and spent less. Based on this, the only reasonable conclusion is that – at least historically – Democratic Presidents have shown much more fiscal responsibility than their Republican counterparts.

To wrap this up, it’s complicated, and there are lots of moving parts. I didn’t include any analysis of who controlled the House and Senate during these periods because to explain everything and look at how the House and Senate are actually put together is confusing and tedious. What I decided to focus on is the actual receipts and outlays, as well as who signed the budget. The buck has to stop somewhere, and there is nobody after the President to whom the buck can be passed. In the end, the President must assume responsibility for the budget they sign, and when we look at history through these conditions, Republican Presidents have spent more and generated less revenue. The average increase in tax receipts for Republican Presidents has been less than the worst Democrat President (Carter), and the average increase in outlays for Republican Presidents is higher than for the worst Democrat President (Carter). The result has been that for the 16 years where Democrats controlled the White House in this analysis, they reduced the deficit by an average of 20.2% a year. Unfortunately, for the 20 years the Republicans have controlled the White House in the same period, their average has been to increase the deficit by 15.4% a year. Those extra 4 years of Republican spending are largely responsible for the current deficit.