About That 'Reagan Debt'

If you listened closely to president Obama’s April 13 budget speech, you may have heard him say this: “…as far back as the 1980s, America started amassing debt at more alarming levels, and our leaders began to realize that a larger challenge was on the horizon.”


Notice that he started talking about debt in “the 1980s”. That was to pin the old canard on Ronald Reagan that the lower Reagan tax rates on wealthy Americans produced big deficits. Meanwhile Obama himself has produced the biggest deficits in history. So his statement about the 1980s was a classic Democrat tactic to shift the subject.


The Reagan debt was not at all what Obama wants you to think. But to understand it and how liberals manipulate the facts about the Reagan years, it is important to think about how debt is calculated. Because you always have to consider debt in terms of how much money you have overall.


Think of it this way: Imagine you have $50,000 in debt. If you earn $50,000 a year, that is a 100% debt rate. If you earn $1 million a year, that is a 5% rate. So you always have to look at the rate of debt in relation to total wealth, not the raw amount, to better understand the debt burden.


So here are the actual debt figures starting at the end of World War II, based on data from usgovernmentspending.com with the percentage rate of debt:


In 1945 and the end of World War II, GDP (Gross Domestic Product, our annual national wealth) was $223 billion while the national debt was 116% of GDP ($259 billion). The high debt was a result of the huge government costs of World War II.


In 1960, at the height of the Cold War with a very strong economy and still-heavy military expenditures – roughly three times the rate of military spending today – GDP was $526 billion and the national debt was only 54.4% of that GDP. The strong economy was producing lots of revenue to the government, cutting the debt level  from 15 years before, and the military budget was cut substantially from 1945.


In 1980, when Ronald Reagan was elected, the GDP was $2.79 trillion, and the debt was 32.6% of GDP. This low debt figure came after Jimmy Carter cut military expenditures steeply during his tenure (1977-1981). And this was at a time of maximum danger. The Soviet Union still had a huge military. Reagan promised, if elected, to turn the US military around.


In the last full year of Ronald Regan’s tenure in 1988, GDP was $5.1 trillion, and the debt was 51% of GDP.


In 1995 under Clinton, GDP was $7.4 trillion and debt was 67.1% In 2001, GDP was $10.2 trillion and debt was 56.5%.  By 2005, under George Bush, GDP was $12.64 trillion and debt had grown to 62.8%.


The numbers since 2007 have been: 2007 ($14.08 trillion, 64%), 2008 ($14.44 trillion, 69.15%) 2009 ($14.26 trillion, 83.3%) and 2010 $14.62 trillion, 94.3%). Today in April 2011, it has reached 100% of GDP.


Notice how little GDP growth there has been over the last four years – only about 4% – but how much the debt has increased by 45% as a percentage of GDP since 2008 (69% to 100% under Obama). Yet the media savage Ronald Reagan for a 59% increase in eight years that included a huge victory over the Soviets.


OK, so Obama said … “as far back as the 1980s, America started amassing debt at more alarming levels…” And if you ever have heard about the 1980s, the liberal mantra always has been that “Reagan reduced tax rates on the rich and that caused the national debt to triple”.


That is nonsense. Here are the numbers again:


In 1980, when Ronald Reagan was elected, the GDP was $2.79 trillion, and the debt was 32.6% of GDP. In the last full year of Ronald Regan’s tenure in 1988, GDP was $5.1 trillion, and the debt was 51% of GDP.


So notice that the GDP increased by a whopping 82% over just 8 years under Reagan. That is a huge leap. Under Obama between 2008 and 2010, it increased only about 3%.


Reagan did cut taxes on “the rich” from 70% to 28%, a drop of 60%. By liberal accounting, that should have caused revenues to the government to fall by 60%. But revenues to the federal treasury went from $517 billion in 1980 to $991 billion in 1989, increasing by 91%. Wow! So indeed, tax cuts on the wealthy did what they always do – they produced economic growth. In 1921, cuts in the top rate from 63% to 25% produced The Roaring 1920s.


The liberals never, ever want you to know about the huge surge in the economy in the 1980s, and huge gains in employment, more than 20 million jobs. They only like to point out that during Reagan’s presidency the debt increased from $909 billion in 1980 when Reagan was elected to $2.857 trillion by 1989 when Reagan left office.  So they always say, “Reagan tripled the national debt because he lowered tax rates”.


Technically, they can say that that is true, that he tripled the debt. But if you consider the debt increase as a percentage of the whole national wealth (GDP) went from 32.6% to 51%, that is a 59% increase relative to the whole economy, not a 300% increase (tripling) like liberals say. And still, after defeating the Soviet Union with a huge military buildup, the final debt of the Reagan years was only about half (51% of GDP) of what it is today (100% of GDP).


Yet even this 59% increase in the debt was caused mostly by the Democrats in Congress. Here is how:


Reagan cut top tax rates which set off an economic boom, causing huge inflows to the treasury. He then spent some of that money on the military to defeat the Soviet Union – certainly some of the best-spent dollars in American history.


But at the same time, the heavily-Democrat Congress went on a wild spending spree after promising not to, like typical Democrats (the agreement was called TEFRA. You can search it on the internet to read about it). So it was not tax cuts that caused the debt – they caused the boom. And while military spending did cause the debt to rise somewhat, it was the Democrats’ massive spending that really caused the spike.


Yet Reagan policies have historically been blamed by Democrats like Obama only for the bad things but never for the really big accomplishments which were a booming economy and, most significantly, the defeat of Soviet communism.


Please visit my website at www.nikitas3.com for more. You can read excerpts from my book, Right Is Right, which explains why only conservatism can maintain our freedom and prosperity.