In late 2002, Vice President Cheney was holding a meeting with then Treasury Secretary Paul O’Neill to discuss another round of tax cuts. O’Neill was concerned that the cuts would worsen the projected budget deficit of $158 billion. Cheney responded, “Reagan proved deficits don’t matter.” Of course, Cheney has since had a change of heart – literally, not politically.
I don’t think Mr. Cheney was expressing an accounting opinion. He meant that Ronald Reagan proved that you can get re-elected even if you do not strictly adhere to your vows to be a fiscal conservative. Reagan had run for office in 1980 on a platform of lower taxes and smaller government. When he ran for re-election four years later, the national debt had doubled. When he left office another four years after that, the national debt was almost three times greater than the amount he had inherited from Jimmy Carter.
The federal deficit is the amount by which the government’s spending exceeds its receipts (mostly taxes) in any one fiscal year. The national debt is the total amount the government owes at any given time. An annual federal deficit will increase the national debt. The national debt is often expressed as a percentage of gross domestic product (GDP), which is the value of all the goods and services produced by the country in a fiscal year. The government’s fiscal year starts in October, which means the first year for which we can pin the responsibility on Ronald Reagan is probably 1982.
There is a tendency for discussions of the national debt to become partisan, and Democrats will be anxious to point out that George H. W. Bush left office with a national debt of about 66 percent of GDP, which Bill Clinton reduced over the next eight years to 58 percent. However we should realize that the first year for which Clinton can claim budget credit is 1994 (1992 and 1993 were predetermined by the prior administration). The Clinton budget surpluses certainly benefited from an income tax increase, from the dot-com stock market boom that increased capital gains taxes, and the Social Security taxes that exceeded benefit costs. It also profited from reduced military spending with the end of the Cold War. Even though the debt declined as a percent of GDP, the absolute size of the debt still increased under Clinton. By the end of Clinton’s eight years in 2000, the debt had grown to $5.7 trillion, or $20,000 per person.
George W. Bush was anxious to assume the political mantle of Ronald Reagan and followed the Gipper’s example by almost doubling the national debt to $10.7 trillion, or 74 percent of GDP. In a previous column I poked a little critical fun at the Greek’s failure to include their defense department in their budget, but before being too critical we might want to think about the two “off budget” wars we have fought in the last 10 years – one of which is being fought against an enemy that we armed (again off budget) in the 1980s so that they could fight the Russians.
Barack Obama took over during the worst financial crisis since the Great Depression. The national debt has now increased to over $15 trillion – over $48,000 for each of us. It is now about equal to our GDP – so if we all worked hard for a year and did not pay any other bills, we could wipe out the national debt. Of course, interest on the debt is one of those bills and it currently exceeds $450 billion per year.
President Obama is being roundly criticized by his opponents for not having corrected all the problems of the past 30 years during his three years in office. The Office of Management and Budget has estimated that we will incur a further $9 trillion in deficits from 2010 through 2019. Of those deficits, $5 trillion are due to programs implemented during the Bush administration, including the 2001 and 2003 tax cuts and the unfunded Medicare D. Another $3.5 trillion is attributed to lower tax revenues and higher Social Security costs because of the recession.
The New York Times also studied the increased deficits and apportioned
them as follows:
- Recession 37%
- Policies enacted by Bush 33%
- Policies enacted by Bush and supported by Obama 20%
- New policies from Obama 10%
No matter where you wish to place the blame, we have to recognize that we are deeply in debt. China holds more than $1.1 trillion in U.S. Treasury Bills. The chairman of the Joint Chiefs of Staff has said that our budget crisis is the greatest threat to our national security.
The president established the bipartisan National Commission on Fiscal Responsibility and Reform to address this problem. The commission has developed some specific recommendations, which are detailed, tough and practical. They have been virtually ignored by everyone in Washington – including the president – because the recommendations include some unpleasant medicine and politicians are too concerned about being re-elected to tell us things we might not enjoy hearing.
To quote the commission: “Every American knows we face a moment of truth. We cannot play games or put off hard choices any longer. We have a patriotic duty to keep the promise of America to give our children and grandchildren
a better life.”
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