Tax Cuts and Deficits

[carpedm9587]

I think a lot of these comparisons to the past can, to a great degree, be taken with a grain of salt, as there is a whole new divisive / extremely partisan atmosphere that wasn't there in this "history".

I suspect that will have an impact over time - but that partisan divide began to truly blossom with the Nixon presidency, and widened slightly under Reagan, then dramatically under Clinton, and extremely under Bush 2 and Obama and (of course) has reached a new high under Trump. Yet despite that, the pattern outlined int he graph seems to be persisting.

One concern I have is the GDP ratio as a metric. Since the GDP continues to climb - hidden in the ratio is the fact that the debt itself is continuing to climb. In fact, now that I think about it, that may have been my error. The ratio has oscillated - but the debt itself has pretty much continually climbed since 1929.

[Terraceth]

Overall the same trends emerge on average: A democratic congress does better on average with regard to keeping debt down than a republican congress.

But from 1980 onward, Republican congresses consistently do better with the debt (note in this post "debt" means "debt/GDP") than Democrats. There was not a single Democrat-controlled congress that decreased the debt to any appreciable degree, and all of the big spikes occurred under Democratic (or mixed) congresses. Meanwhile, the only time we see a sizable decrease was under a Republican congress. The Democratic congresses at their best kept the debt stable, at their worst they increased it significantly. The Republican congresses at their worst increased the debt a little, and at their best actually decreased the debt by a reasonable amount.

Sure, if we include the pre-1980 stuff, things look a lot better for the Democrats. But we have to go back over 40 years into the past for that to happen. When you go that far back into the past, I feel that anything good or bad about a particular political party has very little relevance to that political party in the modern day due to the various shifts parties undergo over time. I mean, heck, in the 1976 presidential election, every Southern state except Virginia and Oklahoma voted for the Democratic candidate while California voted for the Republican, that's how different things were back then.

[Starlight]

One concern I have is the GDP ratio as a metric. Since the GDP continues to climb - hidden in the ratio is the fact that the debt itself is continuing to climb. In fact, now that I think about it, that may have been my error. The ratio has oscillated - but the debt itself has pretty much continually climbed since 1929.

Percentage of GDP is the internationally used metric. It usefully reflects the difficulty of paying back the debt because it's a ratio of indebtedness to income.

Imagine you had a debt of $100,000. If your yearly income was $40,000, that's quite a serious debt for you. If your yearly income was $40 million, the same debt of $100,000 is peanuts. What's relevant is the ratio of debt to income because that tells you what sort of a burden the debt is for you. If the debt is only 1% of your income then you could pay it off any time you felt like, but if it's 300% of your income it's probably going to be a multi-decade project to repay (because obviously you can't directly 100% of your income to debt repayment).

So any measure that only pays attention to the total amount of the debt itself over time (even if it's in inflation-adjusted dollars) is only half the story, because if the yearly income of the indebted entity is changing then the actual burden of the debt is changing accordingly. e.g. for the small and poor country of Greece their total debt amount is country-bankrupting and completely crushing for them, but for the US that same amount would represent only 10% of the annual federal budget and so the US could pay off the entirety of Greek government debt in a single year without too much effort.

[Starlight]

But from 1980 onward, Republican congresses consistently do better with the debt (note in this post "debt" means "debt/GDP") than Democrats. There was not a single Democrat-controlled congress that decreased the debt to any appreciable degree, and all of the big spikes occurred under Democratic (or mixed) congresses. Meanwhile, the only time we see a sizable decrease was under a Republican congress. The Democratic congresses at their best kept the debt stable, at their worst they increased it significantly. The Republican congresses at their worst increased the debt a little, and at their best actually decreased the debt by a reasonable amount.

Your sample size is getting a bit too small IMO to draw conclusions. By limiting the period to 1980+ there's only two instances of Republican congresses and two of Democratic. To me it looks as if you're just selecting a tiny and arbitrary sample that is the only subset of the data you can find that remotely supports your desired conclusions.

I don't at all agree with you that congress is more relevant to debt than the President. Budgets have been historically been commonly named after the President (e.g. "the first Ford budget") because the strong influence of the President's policies is evident in them. Presidents today control war and peace more than they ever did before which entails massive ability to affect spending. Presidents in recent decades have variously pushed for massive bailout deals or massive tax cuts which also drastically affects the budget.

[carpedm9587]

Percentage of GDP is the internationally used metric. It usefully reflects the difficulty of paying back the debt because it's a ratio of indebtedness to income.

Imagine you had a debt of $100,000. If your yearly income was $40,000, that's quite a serious debt for you. If your yearly income was $40 million, the same debt of $100,000 is peanuts. What's relevant is the ratio of debt to income because that tells you what sort of a burden the debt is for you. If the debt is only 1% of your income then you could pay it off any time you felt like, but if it's 300% of your income it's probably going to be a multi-decade project to repay (because obviously you can't directly 100% of your income to debt repayment).

So any measure that only pays attention to the total amount of the debt itself over time (even if it's in inflation-adjusted dollars) is only half the story, because if the yearly income of the indebted entity is changing then the actual burden of the debt is changing accordingly. e.g. for the small and poor country of Greece their total debt amount is country-bankrupting and completely crushing for them, but for the US that same amount would represent only 10% of the annual federal budget and so the US could pay off the entirety of Greek government debt in a single year without too much effort.

I don't disagree with your analysis - but the problem is that we have allowed that ratio to soar. Using your example, with our ratio at 108% - it will literally take decades to pay off that debt. If we are always in deficit spending, we may see a drop in the ratio while the debt itself is climbing. But that leaves us precious little cushion to weather the next recession when deficit spending is almost inevitable. If the economic pundits are accurate - the next recession is around the corner (late this year or next year). Many of the signs are already present. If we still have a ratio of 108% - the percentage will likely soar into record territory.

I'm not looking forward to being the next "Greece."

[Starlight]

If the economic pundits are accurate - the next recession is around the corner (late this year or next year). Many of the signs are already present. If we still have a ratio of 108% - the percentage will likely soar into record territory.

Perhaps. It's worth bearing in mind that the US's huge debt after WWII wasn't really a problem - the US simply ran fairly balanced budgets for 15 years following it, and that chomped away at ~60% of the debt because with inflation at ~2% per year and GDP growth at ~2% per year effect debt falls at 4% per year if you run a surplus.

I'm not looking forward to being the next "Greece."

The major part of Greece's current problems stem from their membership of the Eurozone and the fact that their government lacks key powers relating to banking and currency. As a result, all policy in Greece currently is being dictated to them by foreign entities who are not putting the well-being of the Greek people at the forefront of their concerns. Greece's debt is only an indirect cause of their woes - the debt itself is not hurting them all that much, it's nasty policies that are being forced on their government, banks, and people by others in the EU that are crippling them. Sadly it's a worst case scenario of everything conservatives fear about a nation signing its own sovereignty away to foreign bureaucrats.

Since the US runs its own currency and isn't controlled by foreign entities, it can't be "Greece" in the same sense. Even if the debt was a million times the current debt, the US government would retain full policy control and the Fed would still have power over the currency. That means it retains quite an arsenal of superuser-overrides for dealing with extreme debt situations that aren't available to Greece (e.g. defaulting, printing money, currency inflation etc). US debt is, at worst, just like a normal mortgage that requires repayment and hence, is, as you said earlier a burden on future generations to an extent.

However something else that it's important to consider is that in world financial and investment markets, US treasury bonds are a core option in investment portfolios. When people are looking around for somewhere to stick their spare money their core options tend to be stocks, housing, and treasury bonds. The Great Depression and Great Recession show us what can go horribly wrong when too much money is thrown at one of those things. But what is often not realized is that the US once paid off its entire national debt (1835), thus removing treasury bonds as an investment option, and that also triggered a major depression. People with spare money need somewhere safe to stick it, and in our modern financial systems that is treasury bonds - so changing the amount of treasury bonds that exist by too great a percentage will have very significant financial consequences just as changing the amount of available housing would do.

A fair number of economists think it's important for economic stability that the amount of treasury bonds should increase annually by a small percentage. (Thus to lower the effective debt, one should run balanced budgets and let the GDP and inflation eat into the effective debt, as was done in the 1945-1980 period, but not decrease the nominal total debt - i.e. don't actually "pay off" the debt as was done in 1835) Any decision to "pay off" the national debt in significant amounts is in danger of causing economic havoc because the people who had had their money stored in treasury bonds will have to find somewhere else to put it - mainly in housing or stocks and that is in turn going to cause bubbles in one or both those markets and a subsequent crash. So I suggest you don't be too eager to pay off all the debt, and try to see it as a somewhat safe outlet valve for the people with too much money to put that money where it won't wreck markets - because there are much more dangerous places they could stick that excess money. To safely pay down the national debt, you would probably have to take steps to defuse that bomb of excess money - presumably through taxation on the rich - if you drained the dangerously excessive money at the same rate you were paying off the debt that it was stored in you wouldn't cause too many destructive ripples in the wider economy. But if you left the rich with dangerously excessive money and simply removed one of the places they could park it, then they'd throw their money bomb at some other part of the economy and suddenly you'd have too much money chasing too few real-world goods which equals bubble+crash. The extreme income and wealth inequality that currently exists in the US makes it an extremely dangerous situation as the excess money of the rich is particularly large at the moment and they can wreck whatever markets they throw their money at - letting them store it safely in treasury bonds is probably all that's actually holding together the US economy, otherwise they would be throwing their excessive amounts of money at too few real world goods which would be causing bubbles and crashes across the board.

[Terraceth]

Your sample size is getting a bit too small IMO to draw conclusions. By limiting the period to 1980+ there's only two instances of Republican congresses and two of Democratic.

40 years is not too small to draw conclusions. Further, to say there's only "two instances" of Republican and Democratic congress is misleading. It's true there's only two stretches of Republican and Democratic congresses, but there were multiple different congresses within those, as congress changes every 2 years. If we count it by terms, there's a lot more Democratic and Republican congresses than just two.

To me it looks as if you're just selecting a tiny and arbitrary sample that is the only subset of the data you can find that remotely supports your desired conclusions.

I actually don't have any desired outcome here. But even so, I think it's a valid point that things a political party did 40+ years ago should have no real bearing on analysis of that party in the present. It's why I get bored when people try to either attack or defend a political party based on things they did that long ago; after that long of a time period, the party's composed of mostly different people (or after a long enough time period, completely different people), and political stances switch over time within a party. I don't care if something good or bad happened due to the Republican Party of 1970 or the Democratic Party of 1972, that was so long ago those parties effectively don't exist anymore.

But let's suppose we go all the way back and do it by "stretches" of control as you apparently wanted to do. As far as I can tell, in the years prior to 1980, each Republican congress "stretch" left the debt about the same place as it was at the beginning of the stretch or brought it down compared to that. In contrast, there were some dramatic increases under Democratic congresses (the only notable increase under a Republican congress, towards the end of Wilson's presidency, was not only undone by the end of that stretch of Republican control, but it ended up lower than it was at the start). And while there were some large decreases in the debt under Democratic congresses prior to 1980, especially the time period shortly before 1950 (right after World War II), that was essentially just reversing the debt increase that was done under an earlier Democratic congress. To be fair, some of those increases were due to elements not exactly in their control (World War I, Great Depression, World War II). But if we excuse that, then I feel we simultaneously can't really credit to the Democrats the dramatic decrease noted before. After all, the dramatic decrease after World War II was aided considerably by the external consideration that the United States emerged unscathed from World War II, at least when compared to Europe, giving it a great economic advantage, so if we won't count those external influences that increased the debt, I don't think we can count this external influence either.

The only thing I feel the Democrats really "gain" on is the time period of roughly 1950-1980 where they had perpetual control of the congress and we see a decline for most of it, though it sort of stabilized towards the end. But that's counterbalanced by the lack of any real increases in the debt under the Republican congress stretches before that. So if we evaluate by stretches, I don't think looking before 1980 really shifts the analysis.

I don't at all agree with you that congress is more relevant to debt than the President. Budgets have been historically been commonly named after the President (e.g. "the first Ford budget") because the strong influence of the President's policies is evident in them. Presidents today control war and peace more than they ever did before which entails massive ability to affect spending. Presidents in recent decades have variously pushed for massive bailout deals or massive tax cuts which also drastically affects the budget.

I feel a budget being named after a president comes more from presidents being recognizable and it being a good way to define times. "Obama's first budget" is much easier to keep track of than "The 111th Congress's budget." At any rate, congress may take input from the president, but they're ultimately still the ones that make the thing. The only formal power the president has in this area is the ability to veto it unless enough of the congress can agree to override their veto.

But even if someone wants to argue that the president is as important as or more important than the congress when it comes to the budget and debt, that doesn't change the fact that congress and who controls it is hugely important to the budget as well. And the pattern is fairly clear that when it comes to running up the budget, Democratic congresses have a much poorer record, particularly in recent decades, whereas the one time in the last several decades there was a real decrease in the debt, it was under a Republican congress. I feel that concentrating solely on the presidents ignores this critical fact.