Set record straight on fiscal responsibility

By Norman Luxenburg

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It is the huge rise in the federal debt in relation to the gross domestic product that is the cause of great concern.

Contrary to the repeated and often vehement denunciations of the Democrats as the party of fiscal irresponsibility, deficit federal government spending and the culprits for this debt crisis, official figures since World War II in no way support such attacks. Until the catastrophic economic situation which President Barack Obama inherited in 2009, every time there was a Democrat as president, the federal debt as related to national income declined, making it easier to handle.

Under Republican presidents since 1945, however, the only improvements took place under Dwight Eisenhower with a very modest improvement in the first Nixon administration.

Let us now look at the numbers.

In the eight years of the Truman administration, the debt relative to GDP declined by a huge 46 percent, from 117.5 percent of GDP to 71.4 percent. In the succeeding eight Eisenhower years, there was a decent decline of

16 percent to 55 percent.

Under the eight years of John Kennedy-Lyndon Johnson, the decline was 16.6 percent to 38.6 percent. During the eight years of Richard Nixon-Gerald Ford it declined 2.8 percent, then dropped 3.3 percent to 32.5 percent during the Jimmy Carter term.

Then came 12 years of Republican administrations and for the first time in a quarter century, the federal debt in relation to GDP spiraled upward, from 32.5 percent to

66.1 percent.

During the following eight years of the Clinton administration, this dangerous trend was turned around, and the ratio of debt to GDP decreased to 56 percent by 2001. And for the first time in almost half a century, there was a budget surplus.

Then came President George W. Bush, convinced that tax reductions would bring about a flourishing economy. His tax cuts and other measures helped bring about an economic catastrophe for the nation and a rise of 27 percent in the ratio of debt to GDP, increasing to more than 83 percent. Unemployment shot up, the U.S. automobile industry was on the ropes, trillions of dollars were lost in home value and millions of American homeowners suddenly found their homes were either “under water” or on the verge of foreclosure. Millions of Americans who had been tax contributors had become tax consumers.

Now the Republican leadership in Congress, pushed by the Tea Party, is insisting that the rise in the national debt - so perilously close to equaling the entire GDP - requires drastic measures involving not only the same tax cuts that helped bring on the deficit crisis but broad slashes in government programs. They maintain that only large-scale tax reductions can induce those with access to capital to invest, unleashing a wave of investment that will bring about creation of new enterprises, increased wealth and a great rise in employment.

Unfortunately, however, the experience of the past 10 years of greatly lowered taxes has not produced this wonderful utopian dream. The nation's economy went into a disastrous tailspin. Lower taxes these past 10 years helped increase the federal debt and lower the government revenues that could make that debt more supportable.

Only two logical steps by the government can fight this debt crisis, and one of these without the other cannot succeed. The government needs increased revenue and a tapering of government spending.

In the short term, a significant increase in government revenue can be obtained only by a non-confiscatory rise in taxes on those whose incomes are very high. A measured careful reduction of federal spending is far more sensible than the potential disaster that could be caused by a huge, across-the-board slash in spending that a number of rash populist speakers demand.

Norman Luxenburg of Iowa City, a columnist specializing in foreign affairs, is a retired professor of European and Russian history at Purdue University and professor of Russian at the University of Iowa. Sources cited for this column: Congressional Budget Office historical data and White House fiscal 2011 budget. Comments: nluxenburg@gmail.com