Bush Debt Load Endorsed by Republicans Now Rejected: TaxesJonathan Nicholson
When Republicans and Democrats describe each other’s budgets, a person could be forgiven for thinking the plans are as far apart as possible.
Republicans say putting the budget into balance by 2023 is necessary to help get the economy on track, with spending reductions alone and not raising taxes. Democrats say the cuts would hurt growth and instead want to stabilize the deficit in proportion to the size of the economy.
Not long ago -- and seemingly forgotten in the current debate about spending programs and tax reform -- Republicans said the deficits under George W. Bush were sustainable and in proportion to the size of the economy, while Democrats criticized Republicans and Bush for not reducing the deficit more quickly, Bloomberg BNA reported.
With the deficit-to-GDP ratio in fiscal 2012 at 7.0 percent, the switch in tone begs the question: Have times changed or have only the political winds shifted, reflecting the difference in control of the White House?
In July 2006, the Bush administration released its mid-session review, projecting a deficit of $296 billion, or 2.3 percent of gross domestic product, for fiscal 2006.
That was less than a prior forecast from February of $423 billion, or 3.2 percent of GDP. Officials called the new ratio “significantly lower” and a sign of progress.
“The deficit-to-GDP ratio measures the size of the deficit in relation to the economy as a whole and permits meaningful comparisons of deficits over time. The 2.3 percent deficit-to-GDP ratio would be the lowest ratio since 2002 and in line with the 40-year average of 2.3 percent,” the Bush Office of Management and Budget said.
Then-House Majority Leader John Boehner said in a statement, “Today’s announcement is another clear signal that Republicans are making real progress on behalf of American taxpayers to reduce and eventually eliminate our deficit.” He also noted the deficit-to-GDP measure as being “equal to the historical average.”
Paul Ryan, who had yet to be named as the lead Republican on the House Budget Committee he now chairs, said the data showed “tax relief paired with spending controls can put our fiscal house in order and eliminate the deficit.” He mentioned the ratio as being equal to the 40-year average.
Some Democrats were far more deficit hawkish then than now. The then-incoming chairman of the Senate Budget Committee, Kent Conrad, said Dec. 1, 2006, the description of a deficit-to-GDP ratio of 2.0 percent as sustainable was “irresponsible.” The description originated with the then-acting director of the Congressional Budget Office, Donald Marron, who now serves as the director of the nonpartisan Tax Policy Center.
Seven years later, the positions have reversed.
The centerpiece of the House Republican budget is its claim to balance in 2023. The Democratic plan from the Senate doesn’t balance in the 10-year budget window and sees a deficit of $566 billion, or about 2.2 percent of GDP in 2023.
Democrats talk about another ratio -- debt-to-GDP -- which they want to keep stable at around 70 percent. The Ryan plan would put publicly-held debt on a downward trajectory by 2023, falling to 54.8 percent in the final year.
The debt-to-GDP figure is related to the annual deficit-to-GDP ratio, as it represents the accumulation of past deficits compared with the size of the economy. Annual deficits above the rate of economic growth also increase the debt as a percentage of GDP.
“Both are playing politics,” Mike Moran, chief economist with Daiwa Capital Markets America Inc., told BNA. Both plans leave the debt-to-GDP measure too high, he said. “These are not realistic alternatives.”
Spokesmen for Boehner and Ryan didn’t return messages about the change in stance. “Getting the debt to stabilize in this high-debt era does not fix our problems because the debt’s already too large,” Ryan said March 12.
A more benign view of debt was put forward in 1995, in a paper for by Johns Hopkins University economist Laurence Ball; Douglas Elmendorf, now the director of the CBO; and Greg Mankiw, who headed the White House’s Council of Economic Advisers under George W. Bush.
They argued that a government could perpetually roll over its debt by issuing new debt if the long-run rate of economic growth outpaced the interest rates paid. Essentially, they wrote, it would amount to a “Ponzi gamble.”
“The government can most likely run a successful Ponzi gamble by deficit spending for a while without ever raising taxes to repay the debt and accumulated interest,” they wrote. “It would be wrong to conclude that such a Ponzi gamble is desirable, ex ante, for it is not certain to succeed. Yet it does succeed with a high probability. And when it succeeds, it can raise welfare for all generations.”