The main criticism of the Reagan era policies center around the increase in the national debt. Ross Perot showed charts of the federal debt rising sharply during the 1980's. In terms of dollars it did. Here are some posts which put the subject in some perspective. mshook@u.arizona.edu Hi, I saw your "Tax Cut/Revenue Increase" post on a.p.economics. You wonder about where to find data about tax revenue and federal spending during the Trickle Down Era of the 1980's. I think the problem is more how to interpret the available data- and what time frame to consider. What TIME is IT? INCOME Tax revenue jumped from $275.3 billion in 1983 to $354.4 in 1989 in constant dollars. I assume this means Consumer Price Index (CPI) corrected for inflation-more on this later. (This from the IRS). Federal revenues approximately doubled during the decade of the 1980's, from $ 517 billion in 1980 to $1,031 billion in 1990. But is this the correct time frame? Since the tax cuts didn't fully take effect until 1983 and were partially reversed by the famous budget deal of 1990, (remember, the one that would balance the federal budget by 1994!) I think the proper time frame is 1983-90. Do you agree? In 1983 federal revenue was 600 billion. This is all from the U.S. Office of Management and Budget. It ALL DEPENDS on How You CORRECT the DATA! But how should these numbers be "corrected"? Should the figures be corrected for inflation? Using CPI? But economists recognize that CPI overstates inflation. In a recent post I made the claim that "most economists agree that the CPI overstates inflation" R.E.Hawkins (rhawikns@iastate.edu) corrected me: *all* economists agree on this. I stand corrected. At any rate the CPI increased by from 1.1% (in 1986) to 6.1% in 1990. The average from 1983 to 1990 was about 3.5%. (It was much higher in '80 (12.5%) and '81 (8.9%), but this was before the tax cuts as noted before.) And should only INCOME tax revenue be counted? But the claim of the Supply Side economists was that economic growth stimulated by the tax cuts would generate additional government income so all sources should be counted. How to Measure Debt: Dollars or Months? Many economists think (and I agree) the correct measure of debt is to divide it by GNP (or GDP?) so as to express it in units of time rather than of dollars. Both "liberals" and "conservatives" do this. See for example Peddling Prosperity by (liberal) Paul Krugman, and/or the review of it on my web page. This not only puts debt in terms of the time needed (at current income) to pay it off, it automatically compensates for inflation since both the debt and the GNP are in the same kind of dollars (or lyra or francs etc. if applied to other countries). Using this measure of debt, the US debt did increase during the Reagan years, and was about the same as during the JFK administration. About 6 months of GNP. The correction that some Reagan critics want to make that I think is most unfair is this: They want to consider the federal revenue that WOULD HAVE BEEN GENERATED during that time if all else had been the same (the economic growth) and if the older high tax rates had been in effect. This "revenue loss" is then considered responsible for the deficit. I have even read someone claiming there would be no deficit now if we still had the tax rates of the 1950's with a 94% tax on all incomes above $50,000 per year. Does that sound reasonable to you? Where did the Debt Increase Come From? Since revenue increased, the debt increase was due to increased spending. Reagan supporters argue that he just put military back up to where it belonged, and the debt rise was due to domestic spending increases. But I think this is misleading. Reagan did increase military spending, even when measured as % of GNP, from about 6% to 10%. That was the cause of the deficit increase, IMHO. (Of course if domestic spending had been cut enough there would have been no deficits even with the military increased. It all depends on how you look at it) Rather than trying to hide this military increase, they should defend it as having caused the USSR to collapse (when they tried to match it and could not). By comparison FDR ran up a much higher US debt (1.2 years worth) in winning WWII. For source material on this look at The Real Reagan Record in National Review, August 1992, and (closer to home) the REAGAN HOME PAGE linked to mine in the Economics section. You make a claim I have heard before but not understood: in the '80's federal revenue went up then because "the RICH" and "companies" paid more in taxes then AS A RESULT of the government subsidizing them so heavily. (I have combined your statement with that made by several others, so it is not a direct quote, but I think it conveys the same message). Just which companies did you have in mind? And finally, you call on "common sense". Yes, IF Net spending had gone down, but the debt had gone up, it would mean revenue had decreased. But there is data available on all three of these: income, spending and debt. The question is how to interpret them. Debt and Deficit in Recent Years A post, reprinted, (and edited by jeb): From: kirkmri@infocom.net (Kirk L.) The government budget is a fiscal year--that means that it begins on October 1 and ends the next year on Sept. 30. When you refer to a fiscal year of 19XX, XX represents the year in which the fiscal year ends--for example, FY1995 ended Sept. 30 of 1995. In general terms (how theoretically it's supposed to work), the budget process starts in January of a given year with the transmittal of the President's budget (including a sequester preview report) for the fiscal year that will start on Oct. 1 of the same year and end Sept. 30 of the following year, and ends by August 20 of this same year with OMB updating the sequester preview. In between these dates is the process that involves congressional action on and approval of the president's budget and lastly the president's final approval (or not via veto) of the budget. Now, as to which President's are associated with which fiscal year budgets, let me try to help you out. Again, I'll try and go slow--I know how much you would rather deal in rhetoric and soundbites than detail, but Zeppy...the devil is in the details. When President Clinton first took office on January 19, 1993, there was still ~8 months left of Bush's last budget, FY1993. See if you can strain to remember the budget process I just explained above. The budget process for FY1993 started and ended before 1992 was up, while Bush was still in office. Now, normally the President is supposed to transmit the budget to get the process rolling between the 1st Monday in January and the 1st Monday in February. In the case of a new incoming President, the process usually gets delayed because it is not practical for an incoming President to complete a budget within a few days of taking office. After President Clinton took office on Jan. 19, 1993, he didn't submit his first budget, FY1994, until early April of 1993. Are you still with me Zeppy? Clinton's first budget was FY1994. His second budget was FY1995. FY1996 is the budget that the President and congress haven't come to terms yet on. FY1997 was just recently transmitted by the President--haven't you seen this on your sources of news? Now, the next thing you have demonstrated ignorance on, and which I will try to help you out with this one last time, is the debt and deficits. Again, I'll try and go slow because I know this is hard for someone who lacks the attention span to digest anything more than their 15 minutes of regurgitated soundbites from Cable Neutered Network. I might be making a big leap here but I'm assuming that you at least understand that it is the debt, not the yearly deficit, that we pay interest on. Do you understand that the debt is an accumulation of yearly deficits, and just because there is a reduction in the deficit for a given year, there is still a deficit that increases the debt, which increases the amount of yearly interest payments that go to service the debt. Am I going to fast? Still with me? This next part is where it gets kind of complicated for people who prefer more superficial reporting of the news. The yearly deficit figure that is almost always referred to we'll call the reported deficit. This is the favorite figure for the politicians and other assorted government apparatchiks because, like a lot of government figures, they don't tell the whole story. If you examine, year by year, the amount that the debt increases by, it always increases by more than the commonly reported deficit figure that is always bandied about. Kind of fishy huh? Maybe not, to a blind follower like you, but you might as well know why it doesn't add up. The reported deficit doesn't include the borrowing that the government does from various trust funds. The government operates many trust funds. The general fund is what is used to fund the day to day operations of the government. Other funds include such things as the OASI (Old Age and Survivors Insurance--or Social Security), HI (Hospital Insurance part of Medicare), SMI (Supplementary Medical Insurance part of Medicare), Federal Employees Retirement fund, etc., etc. To illustrate trust fund practices of the federal government, lets look at FICA contributions. FICA contributions go into 3 funds managed by the government: The Old-Age and Survivors Insurance fund (OASI), the Disability Insurance fund (DI), and the Hospital Insurance (part of Medicare) fund (HI). The Supplementary Medical Insurance (part of Medicare) fund (SMI) is financed separately from FICA--through premium income and transfers from the General Fund. In 1982, during a rare moment of looking beyond the next election, congress saw the actuarial unsoundness of the present social security system that would be created by the "baby-boomer's" retirement. Their solution (spearheaded by Daniel Patrick Moynihan and Alan Greenspan) to the inevitable collapse of the system was to raise FICA taxes almost 25% so as to start accumulating yearly surpluses beginning in 1983 to cover the future shortfalls. Since this tax increase, the Treasury has indeed been enjoying yearly surpluses comparing FICA revenue coming in versus benefit payments going out, but there has been zero accumulation of liquid assets, only government obfuscation in the form of triple-entry bookkeeping. Of note is the fact that, Senator Moynihan, disgusted with the results of the 1983 "reform", has asked for a sizeable cut in FICA taxes--reasoning that since they aren't saving the money they might as will give it back to taxpayers. Let's look at a typical year. In 1995, FICA contributions earmarked for the OASI and DI funds amounted to ~$396 Billion. Of this $396 Billion, $336 Billion went to benefit payments for 1995. That leaves a $60 Billion surplus for 1995 FICA collections apart from the HI portion of Medicare (which is no longer enjoying surpluses). Now, the question is, what happened to this $60 Billion surplus? Congress transferred every penny of this money to the General Fund and spent it. All that is left of this surplus in the OASI and DI funds are nonliquid IOU's that are now part of the federal debt--the money is gone. The government has been repeating the above practice with just about all the funds they manage--transferring surpluses to the general fund and spending the money. The reported deficit figure every year DOESN'T include the yearly surplus amounts that the government borrows from trust funds that become part of the debt--the Gross deficit figure does. These are the facts straight from the historical info. part of the FY1997 budget that President Clinton just submitted: I will separate the budgets between Reagan, Bush, and Clinton The Reagan Years ------------------------------ Fiscal Gross Reported Gross Trust Year Debt Deficit Deficit Deficit ---------- ------------ -------------- ----------- ---------- 1982 1137.3 128.0 142.5 14.5 1983 1371.7 207.8 234.4 26.6 1984 1564.7 185.4 192.9 7.5 1985 1817.5 212.3 252.9 40.6 1986 2120.6 221.2 303.1 81.9 1987 2346.1 149.8 225.5 75.7 1988 2601.3 155.2 255.2 100.0 1989 2868.0 152.5 266.7 114.2 Total increase in the debt from Carter's last budget (the debt at the end of FY1981 was $994.8 Billion) was $1.8732 Trillion The Bush Years -------------------------- Fiscal Gross Reported Gross Trust Year Debt Deficit Deficit Deficit ---------- ------------ -------------- ----------- ---------- 1990 3206.6 221.4 338.5 117.1 1991 3598.5 269.2 391.9 122.7 1992 4002.1 290.4 403.6 113.2 1993 4351.4 255.1 349.3 94.2 Total increase in the debt from Reagan's last budget was $1.4834 Trillion The Clinton Years ---------------------------- Fiscal Gross Reported Gross Trust Year Debt Deficit Deficit Deficit ---------- ------------ -------------- ----------- ---------- 1994 4643.7 203.2 292.3 89.1 1995 4921.3 163.9 277.6 113.7 Total increase in the debt from Bush's last budget has been $569.9 Billion I have been giving a figure for Clinton's two year increase in the debt as $610 Billion. I have been basing this off of the FY1996 budget which shows the FY1995 Reported Deficit to be $196.7 Billion and the Gross Deficit to be 317.8 Billion. Today I found the WWW site for the FY1997 Budget which reflects actual numbers for FY1995 instead of estimated numbers. The above data confirms what I've been saying. The increase in the debt every year is equal, not to the reported deficit, but to the gross deficit and the gross deficit is equal to the reported deficit plus the trust deficit. You take the gross debt figure for a given year, which represents what the debt is at the end of that fiscal year, and add the gross deficit figure of the next fiscal year, and that equals the cumulative debt. Now, the first thing to notice is that Bill Clinton is lying every time he opens his mouth about cutting the deficit in half. Even using the non-inclusive reported deficit figure he's a liar. Bush's last reported deficit (FY1993) was $255 Billion. Bill Clinton's FY1994 reported deficit figure was $203.2 Billion and his most recent reported deficit (FY1994) was $163.9 Billion. Maybe in Bill Clinton's world a 35% reduction in the reported deficit equals a 50% reduction. Now, since it is the gross deficit figure that the debt increases by and the debt, not the reported deficit, is what we pay interest on, lets see how much Bill Clinton has really cut the deficit from Bush's last deficit by. Comparing Bush's last gross deficit to Clinton's most recent gross deficit, the answer is 20%. I suppose that every time Clinton gives out some sort of figure, we should recognize that we need to attach a margin of error of plus/minus 40%. Now, the next thing to notice is that in comparing Clinton's gross deficits with Reagan's gross deficits, Clinton's first gross deficit is larger than seven of Reagan's gross deficits and within $10 Billion of the eighth. Clinton's most recent gross deficit is also larger than seven out of eight of Reagan's gross deficits and within $25 Billion of the eighth. What is striking is how very little difference there is between the fiscal policies of the Bush years and the Clinton years. Both Bush and Clinton presided over large tax increases and both Bush and Clinton budgets represent bigger deficits/larger yearly increases in the debt than Reagan budgets. After Reagan presided over eight budgets that increased the debt by $1.8732 Trillion, Bush and Clinton have presided over six budgets so far that have increased the debt by $2.0533 Trillion. Which brings up another point. There are some that claim that it was the deficit spending during Reagan's terms that resulted in the economic growth rates of the 80's. If that is true, you would think that the 90's would have been seeing some really high growth rates. Six years into the 90's, two large tax increases, six Clinton/Bush budgets that have managed to increase the debt by $180 Billion more over six years than Reagan budgets managed in eight years. By the logic I've seen liberals try and demonstrate, the 90's should be seeing amazing economic growth rates. The problem is, so far the 90's have seen an average real (inflation adjusted) growth rate of 1.7%--this is half the average yearly growth rate over Reagan's administration, which also started out Recessionary. The latest quarterly data on economic growth that I recall showed an economy growing at a real annual growth rate of 0.9%. The 90's so far have seen the lowest average economic growth rates for a decade since the 1930's. Liberals, you can't have it both ways...you can't blame better economic growth rates in the 80's on deficit spending to try and explain away correlations between tax cuts and more robust economic growth when the 90's yearly deficits have been even larger and growth rates, in a word, suck. Lastly, I find it amusing to refer back to President Clinton's FY1996 budget, which also included his plans for spending, deficits, etc. through the year 2000. Fiscal Gross Reported Gross Trust Year Debt Deficit Deficit Deficit ---------- ------------ -------------- ----------- ---------- 1996 5299.6 196.7 338.1 141.4 1997 5656.3 213.1 356.7 143.6 1998 6004.9 196.4 348.6 152.2 1999 6357.8 197.4 352.8 155.4 2000 6712.1 194.4 354.4 160.0 Funny how Clinton's budget proposals recently, don't look anything like this. I wonder why. What could be different now than in the first part of 1995? Has he had a 180 degree shift in his belief system in just a year? It couldn't possibly have anything to do with a nearing Presidential election...after all, Clinton is one of the most genuine Presidents we've ever had...right? Kirk L. kirkmri@infocom.net --------------------------------------------------------- "Greater love hath no man than this, that he lay down his friends for his political life." --Jeremy Thorpe ,,,,,,, ____________________ooo__(_O O_)__ooo_________________________ (_) Jim Blair (jeblair@facstaff.wisc.edu) University of Wisconsin, Madison (USA). For a good time, call http://www.execpc.com/~jeblair/index.html "This message is brought to you using biodegradable binary bits and 100 % recycled bandwidth." From: dcross1@home.com (David Cross) Organization: @Home Network Canada Newsgroups: talk.abortion, sci.econ, alt.politics.economics References: 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 > Reagan blew your national debt from $1 trillion to $3 trillion, and Bush > chucked on another $1 to $1.5 trillion. Clinton 1993 to 1996 added on about >$1 > trillion more, plus or minus a bit. Hi, So we agree on this (but say it differently) 3-1 = 2. $2 trillion (actually a little less) of the current debt of $5.5 trillion is from Reagan. But somehow he gets most of the blame. When Reagan took office the US National Debt was $940,528,000. When he left is was 2,720,000,000 Math check: $2,720,000,000 - $940,528,000 = $1,779,472,000. This is the increase in the US national debt during the Reagan administration. What I rounded of to $1.8 trillion in my post. Date: Mon, 06 Sep 1999 06:35:30 GMT From: ask@m.com (_Al) Organization: Posted via Supernews, http://www.supernews.com Newsgroups: sci.econ, alt.politics.economics >Michael L. Coburn wrote: > > > > Inflation is DEFINED as too much money in circulation relative to the > > goods. jim blair: Hi, Yes. According the 'monetary theory' school of economists. But many others define "inflation" as an increase in the price level, as measured by the Consumer Price Index. >....long theory about government debt causing inflation.... >The conclusion is that government borrowing DOES create money and that government borrowing also increases the velocity of money and converts > M-not-1 money into M1 money where it actually does become competitive > money in regard to goods being offered. > How to you explain the obvious fact that government deficit spending during the Reagan years happended along with a fall in the inflation rate as measured by the CPI? People still complain about the "wild and out of control deficits" and "greatest national debt increase in history", etc. But the high inflation of the 1970's quickly fell to point that it has not been considered a problem since. ask@m.com (_Al): >The US borrowed from the rest of the world. If the US would have >been unable to borrow the Reagan revolution would have produced >double digit inflation and unemployment. >_Al "Tweek" : _Al wrote in message news:37d35361.61048005@news.supernews.com... > > The US borrowed from the rest of the world. If the US would have > been unable to borrow the Reagan revolution would have produced > double digit inflation and unemployment. > _Al The amount of debt held by foreign investors was about 13% of the total when Reagan took office. After 8 years the percentage was virtually the same . After 4 years of Bush the ratio was still 13%. Since then the percentage held by foreigners has run up to 23% as of 1998. Source: http://www.stls.frb.org/fred/data/business/fdhbfin AND: Subject: Re: abolish the surplus! Date: Thu, 23 Sep 1999 08:32:13 -0700 From: William F. Hummel Newsgroups: sci.econ References: 1 , 2 , 3 , 4 , 5 , 6 , 7 Take a look at Wray's Policy Note 1999/3 at http://www.levy.org/publications/pubmainset.html Here is a quote from that Note. "Since 1776 there have been six periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated (Jackson's efforts); from 1852 to 1857 it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. Every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction. Further, every budget surplus has been followed, sooner or later, by renewed deficits. However, correlation?even where perfect?never proves causation. Is there any reason to suspect that government surpluses are harmful? "At the macroeconomic level, government expenditures generate private sector income; taxes reduce disposable income. When government spending exceeds tax revenue (a budget deficit), there is a net addition to private sector disposable income. This addition may well have secondary and tertiary and even further effects (for example, households may spend on goods produced domestically or abroad, thereby raising consumption or imports as measured in national GDP accounts). When the Treasury sells bonds, some of that extra disposable income is devoted to saving, accumulated as private sector wealth held in the form of government debt. Even if the Treasury did not sell the bonds, however, the private sector would be wealthier by an amount equal to the government's deficit, but this would be held in the form of non-interest-earning cash (and bank reserves) for the simple reason that the total value of checks issued by the Treasury to finance expenditures would exceed the total value of checks written by the private sector to pay taxes. "When someone in the private sector receives a Treasury check, the check is deposited in a private bank, whose reserve account at the Fed is credited; at the same time the Treasury's deposit at the Fed is debited. When someone in the private sector writes a check to pay taxes, the taxpayer's bank deposit is debited; at the same time the Fed credits the Treasury's deposit and debits the private bank's reserves. When depositors withdraw cash from banks, the banks' reserves are reduced as the Fed issues currency. The sale of Treasury bonds also reduces bank reserves because bond buyers pay with checks drawn on private banks, which leads the Fed to debit bank reserves and credit the Treasury's deposit. "In this way government deficits result in a net increase to bank reserves and cash held by the public. Most of this increase is then drained as the Treasury sells bonds. In other words, government deficits always add disposable income and wealth to the private sector; the income is received first as a Treasury check and then may be transformed into an interest-earning government debt." [End quote]