The Numbers Behind Newt’s Plan to Balance the Budget
by Mike Kimel
The Numbers Behind Newt’s Plan to Balance the Budget
Newt Gingrich’s website provides information on The Gingrich Jobs and Prosperity Plan. It starts with this:
America only works when Americans are working. Newt has a pro-growth strategy similar to the proven policies used when he was Speaker to balance the budget, pay down the debt, and create jobs.
Excellent. That statement should be enough to get an idea of what the program will look like. I want to focus on the first piece: balancing the budget. (You can’t pay down the debt unless you run a surplus, so balancing the budget also deals with that issue.)
Here’s what the surplus / GDP looks like for the years from 1988 to 2004. The gray bar covers the years from 1995 (the Republican Revolution took office, and Newt Gingrich became speaker in 1995) to 1998 (Gingrich resigned as speaker in November 1998.)
(Incidentally – the surplus is simply Total Federal Receipts less Total Federal Expenditures, which come from lines 37 and 40 of the BEA’s National Income and Product Accounts Table 3.2. GDP comes also comes from the BEA.)
As you can see, the deficit did indeed turn into a surplus when Gingrich was in office. However, the chart makes it clear the trend began before Newt took office and continued after Newt left office. In fact, it seems that the deficit started falling in 1993. The surplus, on the other hand, peaked in the year 2000, fell, and the budget returned to a deficit. So what defined the years from 1993-2000? Oh yeah, they were the years Clinton was President. So Newt is basically saying he would support the policies that produced success in the Clinton years.
That is wonderful… those were years of great prosperity. You have to go back to the JFK & LBJ years to find presidents who oversaw faster growth rates in real GDP. But let’s stay focused on the deficit and surplus issue. In fact, let’s deconstruct the number into its constituent parts. Figure 2 shows Total Federal Receipts / GDP and Total Federal Expenditures / GDP.
As is evident from Figure 2, Total Federal Receipts / GDP hit a low point in 1992 and started to rise in 1993, eventually peaking in the year 2000 and then falling. Total Federal Expenditures / GDP hit a high point in 1992, then began falling in 1993, eventually hitting a local nadir in 2000 and then starting to rise again. The trend during the Newt Gingrich years looks like the rest of Clinton years… well, except for a slight slowing in the rate at which expenditures were dropping.
Now, you might be thinking that Newt’s comments about deficit reduction speak more to his views on expenditures than on taxes. After all, few Republicans talk about increasing the tax burden these days and it would take a lot of guts for Newt to break with his party on this one. But looking once more at the numbers its obvious Newt really does want Americans to pay more.
Consider… in 1995, Gingrich’s first year as speaker, federal expenditures were 22% of GDP.In 1998, they were 20% of GDP. But… revenues in 1995 were 19.2% of GDP. That is to say, had revenues remained at the 1995 level, they would have been less than expenditures and the budget would have still been deficit Newt’s last year in office (and in fact, in 1999 as well). But Newt takes credit for balancing the budget.
Thus… by necessity he is taking credit for raising the tax burden on the American people. Granted, there were no hikes in the marginal rate while he was speaker, but the increase in the tax burden came about with increased enforcement and regulation. This is a man with political courage! This is a man who puts doing the right thing above any thoughts of personal gain!
Now, I’d like to put the tax hikes that Newt seems to be advocating in context. For this, I’m going to steal a graph from Presimetrics, the book I coauthored with Michael Kanell. In it, we used a slightly different version of the tax burden: instead of Federal Revenues / GDP, we looked at the percentage of people’s income that went to taxes. We looked at the annualized rate of change of this version of the tax burden for each Congressional administration from 1952 to 2008.
Here’s what we found:
As Figure 3 shows, the Republican Revolution (which granted, extended a few years beyond Newt) oversaw the largest (by far!!!) annualized increase in the tax burden of any Congress in several decades! Because taxes aren’t that popular with Republicans these days, Newt is downplaying the issue, but he seems to be dogwhistling it for those of with some familiarity with the numbers. The only alternatives are that he is ignorant of the numbers, or that he is will to obfuscate the facts, but hopefully we can expect more than that from someone running for the highest office in the land.
the problem is that “paying down the debt” cant be done yet, at least that’s what george w found out…it became clear that if clinton surpluses continued, the financial system would soon experience a dearth of safe assets & would freeze up; so his tax cuts were initiated in order to keep levels of AAA assets high enough for the markets to operate…
short term US government debt has become, at least in part, the worlds money supply; a million dollar Treasury bill is used as money by the international banking system or by a sovereign wealth fund in the same sense that you use a ten dollar bill in your wallet…thus, a contraction of the supply of the reserve currency (our treasury debt) would have a negative impact on the world economy in the same manner that a contraction in the domestic money supply would impact our nation’s economy…
rjs,
Newt (or Perry or Romney or whoever is going to run on cutting taxes, paying down the debt, and increasing spending on the military. (Think GW’s Economic Blueprint from February 2001.) This post is not discussing whether that makes sense. Instead, I’m pointing out that when Newt discusses his record, he is impliciltly taking credit for increasing the tax burden on Americans. Republican voters have forgiven him for all sorts of shennanigans. But I’m not sure they would be quite as forgiving if they were aware of what happened to the tax burden under his watch. And frankly, a mea culpa at this time… well, he hasn’t expressed regret for it yet. It would seem a bit late to start now.
The latest cleverness regarding Newt is that he has two modes of speech – attack and brag. He claims to be a thinker, and he is, but his thoughts are not the thoughts he wants us to think he is thinking. His smarts are all put into attacking and bragging, not coming up with good answers. And certainly not with relating facts.
Newt is bragging about deficit reduction and growth, but the sources of deficit reduction and the sources of growth are of little interest to him. They don’t help him brag and they don’t help him attack, so there aren’t worth mentioning.
The fun will come when (if) Clinton gets involved. He is far more popular than Gringrich. He left office with very high approval ratings, unlike Gringrich. If Gingrich wants to claim credit for balancing the budget and spurring growth, he’ll have to tussle with Clinton for credit. Worth watching, I’d say.
kharris,
I’m sorry to say, I think your last paragraph is wrong. These days Clinton seems to be more interested in cashing in and playing the elder statesman than in calling anything like it is. The other day on the news I heard Clinton was being quite complimentary to Newt.
So, the game is on!
mike
what would your graph look like if you subtracted SS from total revenues and total spending… as they should be.
coberly,
I don’t have the data right now, but…
1. The first graph would look the same, but a bit lower. I’m not sure there would even be a surplus by 2000.
2. Graph 2 would look the same except that total revenues / GDP would be lower
3. The third graph would look about the same. Not quite because SS taxes are part of the taxes people pay. The congress in office while Reagan was President would see a sizable jump in their annualized increase in collections… assuming the goal wasn’t to exclude SS.
Doesn’t matter whether Clinton is engaged in self-aggrandizing. If Newt claims credit for Clinton’s growth, Clinton has a self-aggrandizing reason to fight back. Clinton doesn’t need to be a paragon to take on Newt.
Mike
it’s probably too late now, but it would have been important if people could understand that SS has nothing to do with the Federal budget. including SS revenues and outlays in a graph about government deficits makes as much sense as including food and rent.
RJS:
Love your comment:
“it became clear that if clinton surpluses continued, the financial system would soon experience a dearth of safe assets & would freeze up”. Are those “safe” assets you refer to US T-Bills?
Isn’t it true that the lack of the Clinton surplusses and the unbridled expenditures of the Bush years were what caused the loan markets to freeze up in 2008 since all available funds were being borrowed by the US Government?
yep, the safe assets i refer to are US t-bills…
Isn’t it true that the lack of the Clinton surplusses and the unbridled expenditures of the Bush years were what caused the loan markets to freeze up in 2008 since all available funds were being borrowed by the US Government?
not really…the liquidity crisis post lehman was mostly because the banks had grown suspicious of the solvency of the others, and they basically stopped lending to each other…
just to try to explain this to anybody who still cares:
if we lived in a very rough neighborhood where it was very uncertain that any money you had left after cashing your friday paycheck would not be stolen before time to pay for Sunday dinner, the government might offer a plan whereby a certain amount of your Friday check would be held in it’s Fort Bank and given back to you , with interest, in time for Sunday dinner.
If the government then did its accounts for taxes collected and spent for military affairs and all the other things we pay for “collectively” because there is no reasonable way to pay for “our share” in, say, a battle ship… and decided to count the money it saved for us… in an account with our name on it, and payable only to us, individually, according to what we had put in… as part of its “income and expenditures”…
we should at least be smart enough to note that we are talking about very different things.
Military industry complex take of the economy declined by more than 30% during the drawdown after the Soviet Union evaporated in 1991.
Since 2001 the MICC took 40% more in real terms than in 2001.
The current agitprop about the impending drawdown ius malarky, the sequesting is an 8% decline over the 40% inflation.
The pentagon needs to shed $400B a year in current dollars.
The debt since 2001 is tax cuts and war profiteering on loose fed credit.
The 1% lent what should have been taxed a lot on income from war profiteering and gambling receipts on CDO’s.
coberly,
No one ever speaks of the general fund deficit.
The only deficit reported is the unified budget deficit, where they never say that the excess SS receipts and not paying cash interest hide the immensity of the general fund deficit caused by war prfiteering and tax cuts for the rich who need safe haven T Bills to make money on the taxes they avoided by owning congress.
#OWS
islm, I agree with respect to the long term but I really question most reductions to government programs that employ people, at least in the short term.
http://economix.blogs.nytimes.com/2011/12/06/raising-taxes-on-the-rich-not-whether-but-how
Mike K, As far as Newt goes, I don’t really get it. Why do people speak as though he is some sort of intellectual when he really seems (to me) more like a “street smart” gang leader? In short, a shady character respected by low life. He was government when it suits his purpose and he was not government when it wouldn’t be popular to admit it.
Long ago I quit trying to understand the self destructive nature of this country and it’s people. It seems to have something to do with macho correlations with not standing up to power. Doesn’t make sense until you hear the logic or rather talking points like “personal responsibility”, “right to work” or other such enslaving nonsense thinking.
Anna
partly its because we are all “gang” material. easily led thugs. Gingrich is just another Rush.
what keeps most of us out of gangs is that we have better opportunities, and we’re a little afraid.
but it’s also true that to ordinary people who do work hard, “government” does look like the enemy. they are not knowledgeable enough to understand why the rules and taxes are necessary… when they are.. they are not always. so it’s pretty easy to get them nodding in agreement by making fun of the government.
what gets me is why do people think of Obama… or Scalia… as some sort of intellectual. because they read books?
maybe that’s the definition. back in 1952 calling someone an intellectual was an insult. now i understand why.
and yes, i am watching “progressives” throw themselves on their backs… because “Obama is the best choice we have…” Sorry, but it’s a wired in behavior.
I take pride in having missed out on that gene, but it hasn’t made my life easy.
coberly, True story. In high school there was a guy in my English class that always got the A+ while I settled for my B+ to A-. I couldn’t figure it out because his papers alway sounded like run-on borderline nonsense phrases. I finally got mad and wrote a composition that was comprised of run-on borderline nonsense phrases. I topped it with a bit of dark drama. I got the A+ and was declared an insane genus in the teachers lounge.
So much for intellectual. I’m sure that anywhere other than the MS delta where literature was king, I would have gotten the F that the senseless flowery garble deserved.
Anna
that you had the insight imagination and courage to try that tells me you are an insane genius.
i often thought i went to a school for the insane (of the insane by the insane) and that was far from the delta.
i have reason to believe they are not all that way, but if you think about it you can guess why most are.