The Taxonomist

During the House debate in early March on the first round of the Bush tax cuts, Majority Whip Tom DeLay of Texas stood up on the House floor and tried to revise history. "Mr. Speaker," said DeLay, "I have to say, that the Democrat leadership has no credibility when it comes to fiscal responsibility. They are the ones that were in charge and who drove up the debt. They point to Reaganomics as the reason for the debt going up, but what they do not point out is that ... the Democrat-controlled House drove spending up... . It is spending, stupid. It is spending that creates the deficit."

Well, that's an interesting fable. But it has nothing to do with what really happened back in the 1980s.

Under Ronald Reagan, the federal budget deficit grew from 2.7 percent of the gross domestic product in fiscal 1980 to 5 percent of the GDP in 1986. (The deficit actually peaked in 1983, at 6 percent of the GDP, before some of the Reagan policies began to be reversed.) Here's how that occurred.

The Democratic-led House and Republican-led Senate, at Reagan's insistence, did cut spending--except for defense. From fiscal 1980 to fiscal 1986, domestic appropriations--what DeLay would call "Democrat programs"--fell from 4.7 percent of the GDP to 3.3 percent. All other nondefense outlays fell by 0.2 percent of the GDP. And non-income-tax revenues, mostly payroll taxes, rose by 0.5 percent of the GDP. The sum of these changes by themselves would have lowered the budget deficit by more than 2.1 percent of the GDP--essentially balancing the budget.

But, of course, that didn't happen. From fiscal 1980 to 1986, defense spending jumped from 4.9 percent of the GDP to 6.2 percent. Personal and corporate income taxes fell from 11.3 percent of the GDP to 9.3 percent, reflecting the 1981 Reagan tax cuts. And consequently, interest on the national debt ballooned from 1.9 percent of the GDP in fiscal 1980 to 3.1 percent by fiscal 1986. The effect of these combined changes was to increase the deficit. In other words, big cuts in "Democrat programs" in the first half of the 1980s were outweighed by the huge cost of Republican tax cuts and defense increases. We finally got to a budget surplus this year by abandoning the Reaganomic fiscal policies that Tom DeLay so reveres and (along with President George W. Bush) wants to revive.

Since 1986, defense spending has plummeted from 6.2 percent of the GDP to 2.9 percent this year, reflecting the end of the Cold War. Meanwhile, personal and corporate income taxes rose from 9.3 percent of the GDP in 1986 to 12.2 percent of the GDP this year--largely because of tax increases on the highest earners enacted under Presidents George H.W. Bush in 1990 and Bill Clinton in 1993. In conjunction with the resulting drop in interest payments on the national debt, the post-1986 defense cuts and tax increases explain virtually all of the shift from the deficits of the 1980s to the current surplus.

Which goes to show that cutting spending and raising revenues was the only logical and effective way to eliminate the deficit. Old-fashioned but obvious, one might say--except, it seems, to Tom DeLay, George W. Bush, and their ilk, who in their heart of hearts probably feel that Ronald Reagan actually balanced the budget. And whose oddball view of history may hold the seeds for a resurgence of deficit spending in the not-toodistant future, unless wiser heads in the Senate prevail later this year.

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