I tossed and turned in my sleep last night. I generally sleep well when I have had a fruitful day, and I finished the very difficult post on the 2016 Congressional concurrent budget resolution (H.R. 114-96) shortly before going to bed. I should have been satisfied, and I should have slept soundly. I wasn’t, and I didn’t.
It was my concerns about the national debt that kept me up. I was skeptical about Congress’ claim to balance the budget by 2024, but I still expected some solid plans in the budget resolution to get the deficit under better control. After all, I’m old enough to remember the last time we had a budget surplus, so the concept of a balanced budget is not an unreasonable idea. But I’m also old enough to remember the situations that impacted changes in the federal deficit and I feel we have placed ourselves in a very difficult situation. My mind hashed these ideas out while I should have been soundly asleep.
We have become a country of short-term thinkers. Or rather, some of our leaders may think long-term, but they act for short-term gain. Donald Trump’s “Make America Great Again” slogan sounds like long-term thinking, but his supporters want change that will improve their lives immediately. Improve to what? To the way things were – good pay for jobs that do not require a college degree, the defeat of terrorism, an end of political correctness so white people can say and do as they wish. You know – the good old days.
So here’s my abbreviated history lesson. President Nixon left office in disgrace and the American voters punished the Republican Party by electing the Democratic candidate In 1976 – Jimmy Carter. The top income tax bracket was 70%. Yes, 70%.
Carter’s one term was plagued with problems. The 1973-1974 Arab oil embargo triggered a recession from November 1973 through March 1975, but it’s impact lasted throughout the Carter presidency and into the first Reagan term. Generally during a recession, inflation drops because there is less demand for the available products, and consequently, less price support. Carter received some bad advice from economists who were absolutely wrong about how to bring the country out of recession and the government’s monetary policy led to very high interest rates. The Consumer Price Index hit a high of 14.8% during Carter’s term and was at 12.5% the month he lost the presidential election to Ronald Reagan.
During the Carter’s presidency, prices were skyrocketing, fuel and heating oil were expensive and in short supply and recovery from the 1973-1975 recession was slow, and another recession began in 1980 as a result of high interest rates. Reagan promised to change all that, and he did. Working with a willing Congress, Reagan reduced the top income tax bracket to 50% in 1982, to 38.5% in 1987, and to 28% in 1988. With the lowered tax rates, the recovery from the 1980-1981 recession was the strongest of all post World War II recoveries in both GDP and employment growth.
The federal budget deficits began to grow during Reagan’s presidency and the national debt went from $908 billion when he took office to $3 trillion when he left. President Bush presided over a income tax increase and the top tax rate became 31% in 1991. Despite the higher tax rate, the growth rate of federal income (total receipts) slowed during Bush’s term and the budget deficit remained a problem.
Average Annual Change in Federal Income, Carter-Obama
Bush (41): +4.4%
Bush (43): +2.5%
Obama (1st 6 years): 2.5%
Average Annual Change in Federal Spending, Carter-Obama
Bush (41): +6.3%
Bush (43): +6.2%
Obama (1st 6 years): 2.5%
Shortly after taking office, Clinton and Congress raised taxes and the top tax rate became 39.6% in 1993. There is some revisionist thinking going on in fiscally conservative media sources. The Cato Institute has a commentary entitled, “No, Bill Clinton Didn’t Balance the Budget.” The Heritage Foundation has an article entitled, “Ten Myths About Budget Deficits and Debt.” In both, of these sources, the credit for balancing the budget is not given to Clinton, but to the Republican Congress or pure chance. In some sources, the tax increase is reported to have led to a decrease in revenue; in others, it’s a non-factor.
The data shows, however, that federal government revenue increased significantly following the tax increase – up 5.8% in 1993, 9.0% in 1994 and between 7.4% – 10.8% during the remainder of Clinton’s term. http://www.justfactsdaily.com/blame-for-the-national-debt contains a graph which shows that revenues increased and expenditures decreased beginning in 1993. The decrease in spending came from welfare reform, reduced military outlays in the wake of the fall of the Soviet Union, and other cost cutting legislation.
I think it is also important to emphasize that the economy did not collapse – in fact, it performed very well – following the Clinton tax hike. Note that the tax hike was designed to have little impact on low and middle income families and individuals. It incrementally raised taxes on the higher income earners.
Now I’m beginning to feel hopeful again. While the promise of a balanced budget from Congress seems to be mostly trickery and marketing, there is evidence that changes can be made to once again achieve a balanced budget. We have a big hole to dig out of, but there is hope. Let’s think about this.