Bush, Obama and the federal deficit

deficits-since-2000The great economist, John Maynard Keynes, said that governments should set taxes and expenditures so that they run a surplus when times were good and a deficit when times are bad, but balance over the period of the economic cycle.   This is much like the advice that Joseph gave to Pharaoh in the Bible.

The Clinton administration, with maybe some nudging from Republicans in Congress, followed that advice.   Bill Clinton was lucky in his timing.  He came into office at the start of an economic recovery and got out before the next crash.

The boom in itself helped bring the government’s budget into balance.  Tax revenues increased, and it was easier to cut spending.  Clinton made good use of that opportunity.  A commission headed by Vice President Al Gore streamlined the government so that, at the end of his administration, there was less spending (in inflation-adjusted dollars) and fewer civilian employees [1] than at the beginning.

Clinton persuaded Congress to increase taxes [2] by a few percentage points, which also helped.  Taxes still were low compared to what they were prior to the Reagan era.

I don’t think increasing taxes makes it easier to spend money.  On the contrary, the fact that it is necessary to pay for what is spent creates an incentive to avoid unnecessary spending.

President George W. Bush changed this.  He persuaded Congress to cut tax rates while launching an expensive war.  Nevertheless, the economic recovery during his administration brought the federal budget closer to being in balance, until the crash.

Notice that a fiscal year starts on October 1 of the previous year.  Thus fiscal 2001 began on Oct. 1, 2000, and fiscal 2009 began on Oct. 1, 2008.  This means the first Bush budget was in 2002 and the first Obama budget was in 2010.

deficits-2018

In 2010, the first Obama budget, the federal budget deficit began to close.  Maybe the need to appease Republicans in Congress had something to do with this.  Maybe the decrease is not enough since, even though the deficit is being reduced, it still exists and the debt in cumulative.   I won’t argue either point.

What I will argue is that if budget balance is your main priority, the Clinton era shows how to do it.  Cut unnecessary spending, raise enough taxes to cover the rest and hope for economic growth.

§§§

Click on The falling deficit has been a disaster for the GOP for analysis by Ezra Klein of the Washington Post.  The charts in this post come from Klein’s article.

[1]  I don’t know whether the Clinton-era reduction in civilian employment included contract employees.  If it wasn’t, then it is possible that the lower number of government employees was offset by an increased number of contractor employees.  I have no specific reason to think this is the case, but the possibility exists.

[2]  I don’t think that increasing taxes results in increased spending.  On the contrary, paying for what is spent creates an incentive to avoid unnecessary spending.   When does a person spend more—when they pull cash out of a billfold, or when they pull out a credit card?

 

Tags: , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: