The Federal Debt to GDP Ratio: 1992 to 2008

Dean Baker is not happy with this Administration’s economic policies for a number of reasons. I’ll just cite one:

As has been widely publicized, the Bush era deficits reversed the effects of the deficit reduction from the Clinton years. We will almost certainly end the Bush years with a higher debt to GDP ratio than we had at the start of the Clinton presidency. That is not a disaster, but the next administration will not have the luxury of allowing the debt to increase in the same way.

Some mind find the claim that the debt to GDP ratio projected for the end of this fiscal year will be higher than it as of October 31, 1992 but even the tables in the Economic Report of the President confirms this. Specifically, table B-79 reports total Federal as a percent of GDP, which we have graphed from 1992 to 2008 (projected).

Even with the moves towards fiscal restraint during the first Clinton term and other movements toward reversing the fiscal folly from the 1981 tax cut that predated Clinton’s election, the reversal of this rising debt to GDP ratio did not come up the ratio peaked at 67.3 percent in 1996. But for the next five years, we saw the ratio decline to 57.4 percent. Of course, George W. Bush wanted to change all that so he pushed for the 2001 and 2003 tax cuts and signed the Prescription Drug Benefit and has engaged our nation in a costly war that has had the unfortunate side effects of reviving Al Qaeda and making Iran the dominant player in the Middle East. Not only is the debt to GDP ratio projected to pass where it was as of 1992, it is projected to pass where it was in 1996.

If Bush’s tax cuts are made permanent and if this Iraq War continues, what is to change this upward trajectory for the debt to GDP ratio? If John McCain thinks ending earmarks will be sufficient fiscal restraint, let me suggest that he does not even understand arithmetic.