By Matthew E. Milliken
Nov. 12, 2015
Earlier this week, I wrote about an analysis from the Tax Foundation that indicated that the tax-reform plans of seven Republican candidates each might increase the deficit by more than a trillion of dollars over a 10-year period. I want to explore the details a little further.
Allow me to set the stage with a brief history of federal budget deficits. The first time the U.S. budget was in the red for more than $75 billion was in fiscal year 1981, when it hit $79 billion under a plan enacted in what turned out to be the last year of Jimmy Carter’s presidency. The first time the federal deficit exceeded $100 billion was the very next year, under Ronald Reagan, when it reached $128 billion. Between 1983 and 1995, the budgetary gap ranged from a low of roughly $150 billion to a high of $290 billion.
The deficit for the 1996 budget dropped to $107 billion; the following year, it was a shade under $22 billion. And over the next four years, the deficit vanished entirely, for the first time since 1969, when the government was $3.2 billion in the green.
The 1998 budget ran a $69 billion surplus. The following year, the surplus nearly doubled, to $126 billion, and the year after that, in 2000, the surplus nearly doubled again, to $236 billion. In 2001, the budget — which was approved in the final months of Bill Clinton’s administration — was still in the green, but the surplus dropped back down to $128 billion.
The following 14 years featured deficits as far as the eye can see: nearly $158 billion in 2002 followed by record-setting deficits of $377 billion and nearly $413 billion over the following years. The red ink declined for the next three years before surging to a new high-water mark of almost $459 billion in 2008.
That was nothing compared to what was coming. The 2009 budget — the last one approved during the George W. Bush administration — suffered from the largest deficit in history, more than $1.4 trillion. The following three budgets also had deficits that broke the $1 trillion mark, although none were quite as high as the 2009 shortfall.
The deficit has shrunk significantly in Barack Obama’s second term. It was nearly $680 billion in 2013, $485 billion in 2014 and $439 billion in the fiscal year that ended on Sept. 30 of this year.
Let’s break it down this way: In the 115 years that the Federal Reserve Bank of St. Louis has been tracking federal budget surpluses and deficits, there have been 31 years with surpluses and 82 with deficits. (The budget balanced precisely in 1913 and the following year.) The annual deficit has exceeded $1 billion on 73 occasions, $150 billion on 26 occasions, $300 billion on 11 occasions and $1 trillion only on four occasions.
OK — consider the stage set.
Since I’m used to thinking about deficits (when I do at all) in one-year increments, not 10-year intervals, I did some calculations. (Specifically, I typed the data from the Tax Foundation analysis
aforementioned table into a spreadsheet and divided certain numbers by 10.) Here’s what the Tax Foundation estimates would be the annual deficit produced by the tax reforms proposed by seven of the top Republican presidential candidates:
• New York real estate mogul and reality-television star Donald Trump: $1.2 trillion.
• Louisiana Gov. Bobby Jindal: $1.1 trillion.
• U.S. Sen. Marco Rubio (Florida): $606 billion.
• Former Florida Gov. Jeb Bush: $366.5 billion.
• U.S. Sen. Ted Cruz (Texas): $366.6 billion.
• Former U.S. Sen. Rick Santorum (Pennsylvania): $322 billion.
• U.S. Sen. Rand Paul (Kentucky): $180 billion.
The unavoidable conclusion is that all of these tax proposals would be budget busters, creating some of the largest annual deficits in U.S. history. If enacted, and if they worked as projected, either government services would have to be cut dramatically or tax rates would have to be increased in order to prevent the national debt from ballooning. And given the political scene, the former option would be far more likely to be enacted.
Oh — but there’s just one catch. I’ll have more on that in a few hours.
Author’s note: On March 2, 2016, I edited one paragraph in this post in order to clarify its meaning. Deleted words are indicated by strikethrough text,
like so; added words are indicated by boldface text, like so. MEM