I'm an economic and investment analyst with 20 years experience working with Fortune 500 companies, researching complex issues.
If you say something frequently enough, people just start to take it as truth. Republicans so often espouse balanced budgets, cutting spending, and fiscal responsibility that it is nearly universally accepted without question.
But, setting aside campaign promises and cable news soundbites, what can actual budget data over the last 28 years under four different Presidents tell us?
- Democrats have increased spending, but those increases have either been completely or mostly offset by increases in tax revenues. The net result is a budget surplus under Clinton and a comparatively small increase in the deficit under Obama.
- Conversely, under Republicans, spending increased at a faster rate than Democrats and due to tax cuts, tax revenues grew at much lower rates. The net result is a significantly higher rate at which the deficit increased.
While Democrats may be "tax and spend", as it turns out, Republicans are spendthrifts who "tax cut and borrow more."
The Budget Deficit: 2008 - 2020
The Federal Budget for the Last Twelve Years in Two Charts
Looking at the last two administrations, spending outpaced tax revenues in 12 out of 12 years resulting in budget deficits of varying amounts.
For context, the housing bubble and credit crisis that started in 2008 dominated Obama's first term. I work in the capital markets and the severity of the "Great Recession" cannot be understated. It was a quadruple whammy of corporate balance sheets bleeding bad mortgage debt, frozen credit markets stopping the economy dead in its tracks, massive layoffs and unemployment, and millions of homeowners incurring steep losses to their most valuable asset, their homes.
The cost and time it took to remedy this crisis can be evidenced by the large increase in deficit spending in Obama's first term with a gradual narrowing of that deficit by the end of his second term.
Trump's administration, on the other hand, inherited a very healthy economy that was in the midst of the longest period of uninterrupted economic growth through 2019. Contrary to promises of fiscal responsibility, the deficit increased at a rapid rate during this period of economic prosperity, driven by anemic increases in tax revenues coupled with sizable increases in spending. Also, bear in mind, Republicans controlled the Presidency, Senate, and House for 2 of these 3 years.
The increase isn't even related to the 2020 COVID-19 pandemic which further increased spending by astronomical amounts. We can only speculate how the pandemic will eventually play out and what the eventual cost will be for the US to recover.
Comparison of Changes to Federal Budget for Obama (2009 - 2016) and Trump (2017-2019 pre-COVID)
Summary Comparison of Obama and Trump Budgets
For a fair comparison, I'll look at Obama's entire administration (2009-2016) and Trump's first three-years (2017-2019). In this, both administrations have starting and ending points that are reflective of economic growth. To include 2020 would be an unfair comparison as the COVID-19 pandemic has only begun. For example, while the 2019 deficit was -$984 billion, the 2020 deficit is projected to be -$3,311 billion.
The second adjustment converts the total changes in tax revenues, spending, and the deficit to a per annum basis. This is to account for Obama's data covering an eight-year period while Trump's only covers a three-year period. Comparing absolute numbers to one another would be meaningless.
Under Obama from 2009 - 2016, per annum changes were:
- Tax revenues increased at a rate of $93 billion per year
- Spending increased $109 billion/year
- Tax revenue increases offset 85.3% of the increases in spending
- The deficit increased $16 billion/year
- Absolute dollar amounts were $744 billion, $870 billion, and $126 billion, respectively
Under Trump from 2017 - 2019, per annum changes were:
- Tax revenues increased at a rate of $65 billion per year
- Spending increased $198 billion/year
- Tax revenue increases offset 32.8% of the increases in spending
- The deficit increased $133 billion/year
- Absolute dollar amounts were $194 billion, $594 billion, and $400 billion, respectively
So what can be concluded about Obama and Trump?
- Trump increased spending at a greater rate, nearly twice as much
- Due to Trump's tax cuts, tax revenue increases offset a paltry 32.8% of spending increases versus Obama's 85.3%
- The net result of spending and tax revenue changes was Trump increased the deficit at a rate 8.3 times higher than Obama
- Even on an absolute basis, Trump increased the deficit 3.2 times more in three-years than Obama did in all eight years of his Presidency
Trump has been incredibly fiscally irresponsible. The deficit grew at a whopping rate of $133 billion per year, more than 8 times greater than Obama's rate.
The Budget Deficit: 1992 - 2020
What Can A Larger Time Period Tell Us?
Picking the right time period to analyze is a bit of a balancing act. If the time period is too short, you run the risk of making a conclusion on what could just be unusual short-term events. If the time period is too long, you run the risk of including dated and less relevant information.
As such, I will look at the last four Presidents. It has the benefit of including two Democrat and two Republican Presidents and covers 28 years of government budget data.
- As would be expected, Clinton and Obama raised income tax rates. Those tax increases were on the highest incomes or approximately 1.2% of taxpayers. Clinton raised the top marginal rate to 39.6% and Obama returned it to 39.6% after the Bush tax cuts.
- Conversely, Bush and Trump lowered income tax rates. The Bush tax cuts lowered taxes for all brackets. The top rate declined from 39.6% to 35% while the remaining brackets were reduced by approximately 3%.
- Trump cut taxes for all tax brackets though the size of the cuts were terribly disproportional. While the average tax was cut approximately 7%, the top 0.1% of earners (people with incomes over $3.7 million), received a tax cut of nearly 19%. Meanwhile middle-income households received a 4.9% average tax cut and low-income households received even less.
All told, starting in 1992, under Clinton, a tax increase and economic growth resulted in a budget surplus of $236 billion by 2000. The next three administrations ended their Presidencies with deficits of -$459 billion (Bush), -$585 billion (Obama), and -$984 billion and -$3,311 billion (Trump 2019 and 2020 projected).
- Clinton decreased the deficit $527 billion
- Bush increased the deficit -$695 billion
- Obama increased the deficit -$126 billion
- Trump increased the deficit -$399 billion and -$2,726 billion (2019 and 2020 projected)
Since 1992, Clinton is the only President who can claim fiscal responsibility and a budget surplus by the end of his administration. Since then, we've had 20 years of worsening annual deficits with a long-term trajectory of deeper and deeper deficit spending. The best case distinction that can be made between Bush, Obama, and Trump is who was the least bad when it comes to fiscal irresponsibility.
Combined Democrat and Republican Presidencies
What Can All 28 Years Tell Us?
I started this piece saying the GOP's self-proclaimed "fiscal responsibility" is absolutely untrue. Once real budget data is examined, we find that Republicans have contributed to increasing the budget deficit more than Democrats by a tremendous margin.
The two influences are:
- Promises that "economic growth is the only way to balance the budget and that growth will only occur from tax cuts" has been patently false. After Bush's and Trump's tax cuts, tax revenues increased at depressed rates.
- Contrary to self-righteous promises, Republicans have in fact, increased spending at a higher rate than Democrats.
We can look at the combined results of Clinton and Obama and compare them to Bush and Trump. Again, 2020 will be excluded. Both per annum and absolute dollar amounts are shown. The purpose of the per annum calculation is to reflect Clinton and Obama served as President for 16 years while Bush and Trump (through 2019) reflects 11 years.
Under Democrats, per annum changes were:
- Tax revenues increased at a rate of $105 billion per year
- Spending increased $80 billion/year
- Tax revenue increases offset 131.3% of the increases in spending
- The deficit decreased -$25 billion/year
- Absolute dollar amounts were $1.68 trillion, $1.28 trillion, and -$400 billion, respectively
What about the fiscally responsible GOP? Per annum changes were:
- Tax revenues increased at a rate of $63 billion per year
- Spending increased $163 billion/year, twice the rate of Democrats
- Tax revenue increases offset 38.7% of the increases in spending
- The deficit increased $100 billion/year
- Absolute dollar amounts were $693 billion, $1.79 trillion, and $1.10 trillion, respectively
Looking Ahead to the Biden Presidency
The deficit is an incredibly important issue. I expect the GOP will return to "a Democrat is President, we are fiscally conservative again" attacks. Biden and the Democrats will navigate yet another national crisis handed to them from a Republican President while Republicans scream and cry at the cost to dig our way out.
Let the numbers speak for themselves. Democrats have taken this crucial issue seriously. Republicans only think it's important for other people, not them. Their mark is indelible on our country's deficit spending. Let's make sure they finally own up to it and we no longer blindly believe Republicans are fiscally responsible.
Individual Administration Budget Data
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.