Last year’s budget deficits exceed any in modern history.
During the Great Recession in 2009, Democratic leaders were forced to prepare their rank-and-file lawmakers for the sticker shock of proposing a $787 billion stimulus bill. During the current recession, Republicans are mocked as cheapskates for supporting a mere $4 trillion in relief.
Over the past 15 years, federal-budget numbers have escalated to the point of numbing most Americans with their incomprehensible magnitude. The laws of economics have not changed — economic growth has not been high enough to make these budget-busting promises affordable — but Washington’s spending appetite has swelled to a level unseen during any peacetime period in American history.
Look at the legislative responses to economic collapses. Between 1930 and 1940, Presidents Herbert Hoover and Franklin Roosevelt increased spending by 6 percent of GDP. During subsequent recessions, stimulus legislation typically approximated one percent of GDP. The dam weakened during the Great Recession, when a staggering $1.7 trillion in cumulative (and often bipartisan) stimulus legislation enacted between 2008 and 2013 amounted to approximately three percent of the larger multi-year GDP (and brought a recovery even weaker than the Obama White House’s “zero-stimulus” projection).
Compare those figures to the current recession, during which Washington has enacted $3.4 trillion in relief — and Democrats are pushing for $1.9 trillion more. That would total an unprecedented 26 percent of GDP in relief over 12 months. At that point, one-fifth of the current national debt will have come from 12 months of pandemic legislation. This 26 percent of GDP allocated to pandemic relief will by itself exceed the entire size of the federal government at any time in American history outside of the peak of World War II. It would also far exceed the pandemic relief of nearly every country in the developed world.
The cost of individual relief provisions has soared since the last recession. The Democrats’ 2009 stimulus added a $25 federal bonus to weekly unemployment checks. Democrats raised it to $600 in the current recession, and Republicans were excoriated for dropping the bonus to “only” $300 per week. During the last recession, broad-based tax rebates totaled $1,800 in 2008, and $800 in 2009 for the typical family of four. If the latest round of proposed checks is enacted, a typical family of four will have received $11,400 in 12 months. State and local governments in the past could expect perhaps $100 billion to $200 billion in federal relief during a deep recession (adjusted for inflation). This time around, they have already received $360 billion, plus an additional $350 billion that has been proposed, even as revenues rebound and states like California report budget surpluses.
Like trillion-dollar deficits, trillion-dollar legislation is a relatively new phenomenon. From the mid-1980s through the 1990s, many of the largest bills were crafted as short-term deficit-reduction packages, typically saving around 1.2 percent of GDP annually (the equivalent of $250 billion in today’s economy). The budget moved into surplus in 1998, and by January 2001 the Congressional Budget Office had (quite questionably) forecast a $5.6 trillion budget surplus over the decade. At that point, President George W. Bush broke the trillion-dollar barrier by signing into law a tax cut estimated to reduce that projected surplus by $1.3 trillion over the decade. But even in that era, figures remained smaller. State-budget shortfalls in 2003 led to a Congressional fight over an eventual $20 billion in additional state Medicaid aid, and the following year Congress seemingly broke the bank by creating a Medicare drug entitlement with a then-stratospheric cost of $400 billion over the decade. During this period, the response to the 9/11 attacks and the subsequent wars in Iraq and Afghanistan were funded typically (but not always) in increments between $40 billion and $120 billion. President Bush vetoed the 2008 farm bill over its unjustified $20 billion spending increase.
Inflationary growth does not negate these comparisons. With the exception of the 2001 tax cuts, adjusting these figures for the 38 percent cumulative inflation (or even 75 percent increase in GDP) since the early 2000s does not make them comparable to today’s proposals that begin in the trillions of dollars.
During policy debates, figures like millions, billions, and trillions are used interchangeably. So here is a useful distinction: A $1 million program costs just under a penny per household. A $1 billion program costs $8 per household, while a $1 trillion program costs $8,000 per household. And yet social media is filled with Mathematical illiteracy is expensive.
The left’s consistent embrace of ever-bigger budgets has also shifted the goalposts for Republicans, whose acceptance of rising spending is never enough for critics. The GOP’s embrace of $4 trillion in pandemic-response legislation (the already-enacted $3.4 trillion plus $600 billion of the latest proposal) — which by itself far exceeds the responses of most developed countries and any economic response in American history — did not spare them from attacks as tight-fisted libertarian zealots who are unworthy being allowed in relief negotiations. This is nothing new. Between 2001 and 2004, Republicans responded to aggressive Democratic attacks of “underfunding” education by enacting No Child Left Behind and nearly doubling total federal education spending from $33 billion to $63 billion. Democrats responded by again attacking them as “underfunding” education in 2004. The bar never stops moving.
The budgetary goalpost-shifting is also evident in Democratic spending promises, where the common argument is that if Republicans can pass a $2 trillion tax cut, then Democrats are entitled to enact Medicare-For-All ($30 trillion), a government jobs guarantee ($30 trillion), a Green New Deal (as much as $16 trillion), and free public-college tuition and loan forgiveness ($3.5 trillion). The tax cuts may not have been wise or affordable, but there is a difference between cutting federal tax revenues by three percent versus increasing federal spending by 60 or even 100 percent. Perhaps the Democrats should get $2 trillion for any new spending they wish, and then the parties can call it even and end the red-ink arms race.
Democratic presidential campaigns also reflect mounting and fantastical budget promises. The party’s three previous nominees — John Kerry, Barack Obama, and Hillary Clinton — each campaigned on increasing federal spending by between $1- and $2 trillion over the decade. Then Joe Biden promised $11 trillion in new spending — and was perceived as a centrist because Elizabeth Warren, Kamala Harris, and others had proposed closer to $40 trillion. Bernie Sanders demanded a $97 trillion spending spree that would leave European governments in the dust. For context, the entire federal budget (outside pandemic relief) is projected to total around $60 trillion over the next decade. Even a Republican pledging to abolish all federal income and payroll taxes ($42 trillion over the decade) would not be much more fiscally irresponsible than many of the Democratic party’s leaders.
And that is why much of the debate over federal spending and taxes is so detached from reality. The enormous new spending programs — and even larger spending proposals — are not accompanied by comparable taxes. Taxing the rich is not nearly sufficient to finance this spending, and the middle class has not suddenly endorsed a doubling of its own taxes. Which means Washington politicians are betting that the national debt — which has soared from 40 to 100 percent of GDP since 2007 — can leap to 200 or 300 percent of GDP with no significant harm. But the laws of math and economics have not been repealed, and even in the unlikely scenario that interest rates remain below their typical levels, interest on the national debt is projected to consume nearly half of all federal tax revenues within three decades. If we want bold spending expansions, then get ready for bold new taxes (or Federal Reserve inflation) when the borrowing party inevitably ends.