Besides my contributions to the rehabilitation of the fine art of karaoke, one of my favorite contributions to humanity is the phrase, “Believing Is Seeing.” (It is self-affirming since many of you probably initially read the post title as, “Seeing Is Believing.”) Today’s example comes from a recent Noah Smith blog post, where Noah wrote:
The U.S. federal deficit, which had been decreasing since the end of WW2, began to trend upward beginning around 1980: [Smith then inserted a chart of federal debt.]
Why? Well, the proximate cause was big tax cuts, without any offsetting spending cuts. The beast was not starved, and tax cuts did not pay for themselves.
Then Noah goes on to give a theory to explain this “fact.” And yet, he never really established the premise of his argument. Even though “everybody knows” that the Reagan Administration ran up huge deficits because of irresponsible “tax cuts for the rich,” it’s not obvious that this is what happened.
First, let’s look at the federal budget deficit, as a share of the economy, to get a sense of historical context:
There are a few takeaways from the chart above. First, the budget deficits of the Reagan years weren’t unprecedentedly large looking at any year in isolation. For example, they were comparable to the “do-nothing” Herbert Hoover’s budget deficit in 1932, and there were isolated years in the decades following World War II where the deficit was in the same ballpark as the Reagan years after the early 1980s recession. (The deficit sounded unprecedented in the 1980s because people were hearing it quoted in absolute dollar terms, not as a share of the economy.) The reason the federal debt (as a share of the economy) mushroomed so much in the 1980s–as Noah shows in his post–was that there was a consistent string of large deficits; it wasn’t that the deficit in any particular year was that much larger than it had been under previous Administrations.
Now let’s look at the level of federal spending and tax receipts (in historical dollars), using the White House historical tables:
The above chart is calibrated in billions of historical (i.e. not inflation-adjusted) dollars. As the data indicate, there was no point during the Reagan years during which federal revenues actually went down. They treaded water for two years during the worst economy since the Great Depression, but then they began rising again.
Now Noah might be tempted to say that the trend under Carter was clearly interrupted by the tax rate reductions of the early 1980s; federal spending continued its typical growth, while receipts never recovered from the shortfall of the recession years.
If that’s how Noah wants to interpret the chart, fair enough, except I would ask that he be consistent. If we use the above chart to rate Carter vs. Reagan, then we should do the same thing with Bush vs. Obama:
To repeat, if Noah thinks it is obvious that the debt problem under Reagan was due to irresponsible tax cuts without comparable spending cuts, then it shouldn’t be a problem for us to find posts from 2009 and 2010 where Noah is decrying the irresponsible tax cuts of the Obama Administration. Indeed, federal tax receipts didn’t even recover to their pre-recession levels until a good three years after Obama took office.
Finally, let’s look at federal outlays and receipts as a percentage of GDP:
The above chart shows that if we compare federal outlays and receipts during the Reagan years to their average values under the Carter years, we conclude the following:
(1) Federal spending under Reagan (as a share of the economy) was consistently and much higher than under Carter.
(2) Federal tax receipts under Reagan (as a share of the economy) were higher during the recession years than under Carter, and for the middle three years were moderately lower than they had been during the Carter years.
So, if you are OK with the way I’ve chosen to slice and dice the data in that last chart, we would reach the exact opposite conclusion from Noah Smith: Namely, the explanation for the explosion of federal debt during the Reagan years is that the federal government took in about the same share of the economy (over the whole period) in receipts, but increased spending.
In conclusion, let me admit that Noah could play with Excel and probably come up with a different way to make his case; there is a lot of wiggle room depending on how we treat Fiscal Year 1981, for example–is that a Carter year or a Reagan year? (Fiscal year 1981 ran from October 1, 1980 through September 30, 1981. Ronald Reagan was elected in November 1980 but not sworn into office until January 20, 1981.) Even harder to evaluate, do we count the big rise in tax receipts as a share of the economy in 1981 and 1982 as due to deliberate policy, or as due to the collapse in economic output during the awful recession?
All I’m trying to do with this post is show that the standard progressive line that the 1980s were due to “tax cuts for the rich” is hard to square with the facts. For sure, it is impossible to simultaneously maintain the progressive narratives regarding Herbert Hoover, Ronald Reagan, and Barack Obama. They would have to adjust their metrics and definitions between presidents for their stories to hold up.
One last thing: I am NOT defending the “Reagan Record” in this blog post. If the Reagan Administration had lived up to the wonderful speeches of the Gipper, then we wouldn’t have these arguments. If President Reagan had actually signed into law massive “spending cuts” as his critics often allege, then nobody would dare suggest that “tax cuts for the rich” had led to a fiscal problem.