Obama vs. Reagan: Current Administration's Spending and Deficits Make Reagan Seem Austere


Posted by Jeremy Sawyer on Thursday, July 26th, 2012, 5:01 PM PERMALINK


This content is provided by Americans for Tax Reform Foundation.

The interrelated issues of spending, deficits, and debt are increasingly central to national political discourse in the United States, and with good reason. Problems that have never been given high priority must now be dealt with if America is to continue its historical rise to prosperity.

When President Reagan entered office, spending, deficits, and debt had been steadily rising for decades. Yet the nation’s fiscal situation was under control and the federal government’s spending did not pose nearly the threat it does today. The national deficit in FY 1980 was only 2.6 percent of GDP.

Faced with a Democratic Congress and the challenge of curbing the power of the evil Soviet Union, President Reagan could not adopt his full agenda for cutting both marginal tax rates and spending; he had to choose to prioritize one over the other. Reagan correctly opted to focus on tax cuts, and the Economic Recovery Tax Act, which provided for an across-the-board reduction in marginal income tax rates over three years, passed in 1981.

The tax cuts signed into law by President Reagan were wildly successful. They contributed directly to the strong growth of GDP that occurred during the Reagan presidency. Historical data from President Obama’s budget show that revenue grew dramatically over Reagan’s term as a result. The federal government’s receipts rose from $599.3 billion in FY 1981 to $991.1 billion in FY 1989, a 65.8 percent increase that far outpaced inflation.

Most importantly, Reagan kept spending close to historical averages during his presidency. Federal spending during peacetime has traditionally fluctuated between 18-22% of GDP in the post-World War II era, and the federal government’s outlays remained within the range of 22-23.5% of output throughout the Reagan presidency.

President Reagan has often been pilloried for having increased deficits and debt, but the reality of the situation is kind to the former president. The nation’s fiscal condition was never out of hand during the 1980s. The highest deficit recorded under President Reagan was $221.2 billion in FY 1986, and the highest deficit as a percentage of GDP was 6.0 percent in FY 1983. Debt held by the public was equal to a reasonable 36.5 percent of GDP.

In contrast, President Obama took office with spending, deficits, and debt far grave concerns than they were in the 1980s, and if he were aligned with the American people he would have made budget-cutting one of his highest priorities. Yet as the economy has failed to expand significantly under his tenure despite massive spending, deficits have grown.

Largely due to the stagnant economy, each year of the Obama presidency has seen federal receipts below their level in FY 2008, the last year of George W. Bush’s presidency. Moreover, President Obama has pursued irresponsible policies that have increased deficits and brought debt to previously unimaginable levels.

Under the guise of remedying the financial crisis, President Obama pushed for a $787 billion stimulus that largely consisted of long-standing liberal spending priorities. Moreover, he has ignored the recommendations of his own fiscal commission to cut discretionary spending and reform entitlements.

Crucially, President Obama has overseen a level of spending never before seen in US history. At 25.2, 24.1, and 24.1 percent of GDP respectively, the figures for federal outlays as a percentage of GDP over the first three years of his presidency are the three highest on record.

In the first three fiscal years of the Obama presidency, the national debt held by the public has increased by 2.58 trillion dollars. Since Obama took office, the federal government has recorded annual deficits greater than 1.25 trillion dollars in three consecutive years. Deficits as a percentage of GDP have risen beyond historical norms.

America has now arrived at the point at which the legacy of political leaders will be largely determined by their willingness to deal with the overspending that plagues the nation. While President Reagan’s place in history is secure on this count, President Obama will be judged a failure in this crucial area unless his administration changes its direction.

This content is provided by Americans for Tax Reform Foundation. To donate to ATRF, click here.

More from Americans for Tax Reform

hidden