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Origins of the Reagan Deficits: Hoisted from the Archives

David Weigel writes:

"Not a revenue problem, a spending problem": Tracing the history of a Republican talking point: Republicans love to punch right back and say that Reagan had to wrestle with a Democratic Congress, so his ability to cut spending was limited.

It wasn't that Reagan's ability to cut spending was limited. It was that he did not even try.

From my files:

Some ancient history: a Treasury Department memo from my files.

June 17, 1993

From: J. Bradford DeLong, Deputy Assistant Secretary
Subject: Origin of the Deficit: "Presidential" or "Congressional"?

SUMMARY: The overwhelming proportion of the deficits of the last decade [i.e., the 1980s] were already proposed in President Reagan's and President Bush's original budget submission. There was no explosion of federal spending over and above what the presidents had asked for. More than four-fifths of the 1980s deficits were "presidential." Less than one-fifth were "congressional."

DISCUSSION: For ten years the United States government has run annual budget deficits of more than two-hundred billion dollars a year. These deficits have placed a substantial burden on and slowed the growth of the American economy: had the budget been balanced over the past twelve years, and had the money that the government has borrowed to finance the deficit instead been invested in the United States, average American workers would have seen their incomes grow faster over the past decade, and their incomes would now be higher by an extra $3,000 or so.

If you listen to Republicans, you might think that the Republican administrations of the past twelve years have played little role in the deficit. They claim that high deficits exist because Congressional Democrats have spent the past decade funding new programs and busting agreed-upon spending limitations. A typical version of this claim comes from former Reagan staffer Martin Anderson, who writes:

[W]e don’t [have a balanced budget] because those with the real power to decide… have consciously and deliberately decided to unbalance the federal budget.…[T]he real culprit in federal spending is the Congress.…The president may propose the… budget…but it is the Congress that disposes.…Time and time again [the] president…sent budgets to the U.S. Congress to limit and control federal spending. Time and time again, the Congress has rebuffed those plans, and substituted levels of spending they, and they alone, considered appropriate...

In the world Anderson lives in, sober and realistic executive-branch Republicans who send realistic budgets to Capitol Hill are powerless in the face of a Congress that knows no restraint:

Under current arrangements, the president must submit his budget proposals to the Congress, which can then add or delete as it wishes. What it deletes cannot be put back by the president, but deletions are rare these days. The Congress is much better at adding…

Are Martin Anderson and company telling the truth? No.

To see that Anderson's claims are false, compare the cost of the spending plan first proposed by the president in his annual budget submission to the actual level of spending from the appropriations bills that Congress actually passes. Assign to congress this part of the deficit--this "congressional" deficit. The remainder--the difference between tax revenues and the spending level the president had proposed in his budget submission--is the "presidential" deficit. Figure 1 shows both the actual deficit and this "presidential" deficit. Both are scaled by the total size of the economy: they are measured as percentages of Gross Domestic Product (GDP)--the market value of all goods and services produced within America’s boundaries.

Figure 1: "Presidential" and Total Deficits as Shares of GDP

In figure 1 the "presidential" and actual deficits are almost the same. Had the Congress been a rubber stamp and taken no action to change the president’s budget at all, the 1982–91 years would have seen total budget deficits more than ninety percent as large as actual deficits. Figure 1 shows us that the federal government has not run large budget deficits over the past decade because "Congress…rebuffed" presidential plans to control federal spending. Instead, the large deficits have been there from the beginning in presidential spending plans.

Figure 2: "Presidential," "Congressional," and "S&L" Deficits as Shares of GDP

A different view of the same underlying numbers—a view that leads to the same conclusions—is to graph the "presidential" deficit not against the actual deficit but against the "congressional" and "S & L bailout" deficits. Define the "legislative" deficit to be the difference between the actual level of spending carried out and the level proposed by the president. And define the "S & L bailout" deficit to be the cost of S & L bailout activities. Figure 2 shows that the other two components of the deficit are small relative to the "presidential" component. The "presidential" component varies between two and a half and six percent of GDP. After 1981, the "congressional" deficit never reaches even one percent.

Either way, the conclusion is the same: the U.S. has had large budget deficits over the past decade not because Congress has rejected presidential spending restrictions, but because large budget deficits have been implicit in every single year’s presidential spending plan. Congress has largely played a passive role: delivering by and large the level of spending that the president proposed.

You can fault Congress in the 1980s for many things—for playing this passive role, and playing along with the executive branch. But you cannot fault Congress for creating the deficit: it has not added program after expensive program to fiscally-responsible executive branch proposals, but almost exclusively confined its activities to swapping spending from one category to another.