February 17, 2006
Reagan vs. Bush: Federal Spending and Budget Deficits

By John McIntyre

Ryan Sager reports that at last week's 33rd annual Conservative Political Action Conference in Washington, on the issue of federal spending many were pushing for a return to Reagan policies versus those of this President Bush. Rep. Mike Spence told the audience:

Whether it's called 'compassionate conservatism' or 'big government Republicanism,' after years of record increases in federal spending, more government is now the accepted Republican philosophy in Washington.

Pence reached for the Reagan legacy, quoting the former President in 1975: "A political party cannot be all things to all people. It must represent certain fundamental beliefs which must not be compromised to political expediency, simply to swell its ranks."

Andrew Sullivan has also taken to castigating President Bush for out of control spending and ballooning deficits:

Remember when conservatism meant fiscal responsibility? When you add it all up (Bush’s spending), you get the simple, devastating fact that Bush, in a mere five years, has added $1.5 trillion to the national debt. The interest on that debt will soon add up to the cost of two Katrinas a year……

This may, in fact, be Bush’s real domestic legacy. All a Democratic successor has to do is raise taxes to pay for his splurge, and we will have had the biggest expansion of government power, size and responsibility since the 1930s. What would Reagan say?

Well, let’s take a look at the Reagan legacy on federal spending and deficits. In 1980, the last year of Jimmy Carter’s presidency, government outlays were running at 21.7% of GDP and the budget deficit was 2.7% of GDP. (The economy was also a basket case, which is when you would expect budget deficits to be at their worse.) In 1988, Reagan’s last year in office, outlays as a percent of GDP were running at 21.3% with a deficit of 3.1% of GDP. The budget deficit over Reagan’s eight years averaged 4.2% and ran as high as 6.0% in 1983.

Bush entered office with an economy that was booming: in 2000 government outlays ran at 18.4% of GDP with a budget surplus of 2.4%. But the stock market implosion, 9/11 and the war quickly changed the budget dynamics and the surplus switched to a deficit of 3.5% in 2003 and 3.6% in 2004. In 2005, the budget deficit came in at 2.6%, with government outlays running at 20.1% of GDP.

The point here is that there is lot of hyperventilating about the Bush administration’s spending and “out of control” deficits, much of it by folks who praise Reagan yet trash Bush. But the most recent “out of control” Bush deficit at 2.6% of GDP is far below the eight-year Reagan average of 4.2%.

This is not meant to disparage Reagan, only to provide perspective. When you look at the numbers on a proportional basis - which is the only way to honestly compare different eras - Bush’s federal spending is not “out of control,” at least in comparison to Ronald Reagan.

What is not fully appreciated in analyzing the Bush legacy is that the combination of the stock market implosion (Nasdaq: 5,000 – 1100, S&P: 1500 - 800 ) and the economic impact of 9/11 created a perfect storm of forces that came perilously close to tipping the economy into a deflationary depression. The tandem of the Bush tax cuts (and deficits) coupled with the FED’s fire hose of money led by a 1% FED Funds rate saved the economy from a real disaster. Given the circumstances Bush inherited in his first 18 months in office, the economic growth we have sustained over the last 4 years is nothing short of miraculous. And when it comes to talking about spending and deficits, growth is the most important factor – something critics of the President seem quick to overlook.

It wasn’t Bill Clinton or the GOP Congress that ultimately balanced the budget in the late 90’s, it was the growth of the US economy and the corresponding tidal wave of additional revenue. Conservatives may harp on President Bush for increasing government outlays from 18½% to 20%, but the increase is almost exclusively spending on defense, homeland security and the war - all of which is a response to 9/11. The growth in non-security discretionary spending has been cut every year of the Bush presidency.

Notwithstanding all we have heard recently on earmarks, the real spending problem stems from entitlement programs. Bush spent most of last year trying to get the Congress to proactively deal with the impending Social Security crisis. In the end the President failed, but politically I don’t know that is fair to blame Bush for not reforming Social Security.

The new prescription drug entitlement is a different story, and there is a consensus developing among conservatives that this was a mistake. The reality, however, is that some kind of prescription drug package was going to become law at some point and the White House made a political decision that this bill was good enough to take the issue off the table.

After several years of solid economic growth - with the FED having recouped 14 quarter-point bullets in their holster and with a Republican Congress and Republican President (unlike President Reagan who had to contend with a Democratic House) - it is not unreasonable for conservatives to demand some fiscal restraint. We have seen some attempts to slow the growth in entitlements in the recent budget. Now we’ll see whether Bush and the Congress can follow through and deliver on some of these savings.

The point isn't to say the size of government can't be reduced or Bush can't do a better job on the spending, only that a little historical perspective is in order before people go about trashing Bush's reputation as a conservative using comparisons with Reagan's spending record.

John McIntyre is the co-founder of RealClearPolitics.

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