The Last Fiscal Republican

Was Eisenhower the last true Republican president?  The evidence supports the claim that no Republican administration since 1960 has followed the principle of “keep tax and spending growth low.”  Each of the four Republican administrations since Eisenhower endeavored to keep taxes low.  But with increasing enthusiasm, Republicans have run up spending, on average faster than Democrats.  Almost the entire accumulation of the national debt since 1960, from $290 billion to more than $10 trillion, is the result of deficits under Republican presidents.  Under Kennedy-Johnson and Carter, revenue growth matched spending growth.  Under Clinton, as under Truman, spending grew much more slowly than revenues, erasing big budget deficits, and, under Clinton, turning them into big surpluses. 

The ascendancy of President Obama, as the economy plunges into a deep depression and his administration struggles to stop the collapse, has revived the conventional wisdom that Democrats spend like sailors on shore leave, while Republicans fight for fiscally responsible policy.   The most common cliché is that Democrats “tax and spend” while Republicans favor “small government.”   As too often is the case when the conventional wisdom confronts historical data, the conventional wisdom has it wrong.

 

The table below shows change in revenues and change in spending (which includes interest) between the first year of each administration and the last year.  For example, federal revenues in 1953, Truman’s last year (which is also Eisenhower’s first year), were $24.4 billion more than revenues when Truman assumed office in 1945.  Total federal spending over the same period fell by $16.6 billion.  In other words, the deficit improved by $41 billion during Truman’s presidency.  In contrast, between 2001, when George W. Bush took office, and 2007, the last year for which the 2009 Economic Report of the President (table B-78) has reliable numbers, Federal revenues rose by $576.6 billion while spending rose by $867 billion, so the deficit deteriorated by $290.2 billion.  These changes in revenues and spending are the result of changes in tax law, spending commitments, and GDP. 

 

 

 

                              Table 1.  Tax, Spending, and Debt Increases

                                     Under 9 Post-War Administrations

                                (billions of dollars)

	Increase in Receipts	Increase in Outlays	Net	Increase in Debt
Truman	24.4	-16.6	41.0	5.9
Eisenhower	24.8	21.6	3.2	26.6
Kennedy-Johnson	92.5	85.9	6.6	73.2
Nixon-Ford	168.7	225.6	-56.9	340.6
Carter	243.7	269.0	-25.3	288.4
Reagan	391.9	465.6	-73.7	1873.0
Bush	163.3	265.7	-102.4	1483.2
Clinton	836.9	453.7	383.2	1418.9
Bush through 2007	576.8	867.0	-290.2	3180.8
Total Republicans	1300.7	1823.9	-523.2	6904.2
Total Democrats	1173.1	808.6	364.5	1786.4

As Table 1 shows, revenues increased more than spending under every Democratic president except Carter, under whom there was a small increase in the deficit.  Under Republican presidents, in strong contrast, spending increased more than revenues for each of the four presidents after Eisenhower. 

Table ! also shows the time pattern of increase in the national debt through 2007.  From 1945 through 2007, four of every five dollars of added national debt were accumulated under Republican presidents, a total of nearly $7 trillion.

 

Fiscal Policy under these presidents can be seen more clearly, perhaps, if we look at the increases in revenue and spending under each administration relative to the increase in GDP.  In other words, we can look at the aggregate “marginal tax rate” and the “marginal government spending rate” under these nine administrations.  Table 2 shows these numbers (the time period for each presidency is the same as in Table 1).  For example, between 2001 and 2007, as GDP increased by $3.6 trillion, Federal spending increased by 24 cents for every dollar of extra GDP, while tax revenues rose by 16 cents for every dollar of extra GDP.  (The increases in raw dollars are those exhibited in Table 1.)

 

Table 2.  Marginal Tax and Spending Rates

                       Under 9 Administations

 

	Marginal Tax Rate	Marginal Spending Rate
Truman	$0.16	-$0.11
Eisenhower	$0.16	$0.14
Kennedy-Johnson	$0.22	$0.21
Nixon-Ford	$0.16	$0.22
Carter	$0.23	$0.25
Reagan	$0.17	$0.20
Bush	$0.14	$0.23
Clinton	$0.24	$0.13
Bush through 2007	$0.16	$0.24
Average since 1961 (Republicans)	$0.16	$0.22
Average since 1961 (Democrats)	$0.23	$0.20

 

 

Table 2 shows that Republican Presidents have been true to their commitment to low taxes.  Under Republicans, there has been little change in the realized marginal tax rate since Eisenhower.  Under the five Republican presidents, about 16 cents of every additional dollar of GDP has gone to Federal taxes.  Democratic presidents since 1961, in contrast, have tended to take an average of about 23 cents of every additional dollar of GDP as new revenue. 

 

But as we have already noted, reality departs from the conventional wisdom when we look at spending patterns.  In fact, Republicans since 1961 have spent 22 cents of every additional dollar of GDP, while Democrats spent 20 cents.  On average, under Democrats, Federal spending rose by 20 cents and Federal revenue by 23 cents for every dollar of economic growth.  Under Republicans, spending grew by 22 cents and revenue by only 16 cents.  Eisenhower was the last Republican president who matched modest spending increases to modest revenue increases.

 

So there we have it.  Republicans faithfully have cut taxes.  They have failed to produce small government, however, because under them, Federal spending grew faster than under Democrats.  Eisenhower was the last true Republican.  Since then, four Republican presidencies have ushered in an era of “tax cut and spend.”  The Republican fiscal legacy has been over 7 trillion dollars of new national debt, accumulated over a period of general prosperity and peace.