The Reagan Years and Our National Debt

The national debt has grown by about 6 Trillion dollars under this administration. In fact, we have run up more debt in just 4 years than in all of the years of the country up until and including the years of Bill Clinton. One of the ways in which the left is trying to deflect from this unfortunate fact is to blame President Reagan for running up our debt, when they aren’t blaming George W. Bush.

The left likes to attack Reagan because he is the most pro-capitalist President that we have had in our lifetime, if you are of a certain age. But younger people may not know much about Reagan other than the cartoon image that they get from their government controlled schools and the state run media. So it might be useful to take a moment to look at the Reagan administration and the economic performance of those years. The CATO institute produced this study some years ago that takes an in depth look at the numbers and concludes that the performance of the economy was pretty good during that time, although we did spend some money to get the military back in shape after the disaster of the Carter years.

All in all we had strong economic growth while the tax burden for Americans remained at a moderate level. And while debt did increase, the total remained far lower than it is today when considered as a percentage of the Gross Domestic Product. If we were to return to the spending and tax levels of the Reagan years, or even the levels we had under Bill Clinton, we would be far better off in the long run than we are likely to be under the current administration.

National Debt. The national debt (public debt) in real 1987 dollars doubled from $1,004 billion in 1981 to $2,028 billion in 1989. As a share of GDP, the debt increased from 27 percent to 42 percent, as shown in Figure 7. In the 1990s the debt has risen to 52 percent of GDP. The rise in the national debt in the 1980s was large and has imposed significant repayment costs on future generations.

Total Revenue Growth. Nominal federal revenues doubled in the 1980s from $517 billion to $1.031 trillion. From 1981 to 1989 real federal revenues climbed by 20 percent. As a share of GDP, however, federal tax revenues fell by 1.0 percentage point during that period.

Income Tax Receipts. Even income tax revenues grew substantially in the 1980s. In 1981 income tax receipts totaled $347 billion; in 1989 they totaled $549 billion, a 58 percent increase. In fact, income tax collections grew only slightly slower in the 1980s than in the 1990s despite income tax rate reductions in the Reagan years and increases in the Bush-Clinton years. Real income tax revenues rose by 16.3 percent from 1982 to 1989 after the top income tax rate had been reduced from 70 percent to 50 percent in 1983, and then to 28 percent in 1986. According to the latest (August 1996) Congressional Budget Office (CBO) forecast, real income tax revenues will have grown by 17.9 percent from 1990 to 1997, following the raising of the top income tax rate from 28 percent to 31 percent in 1990 and then to 39.6 percent in 1993. [19] On a purely static basis, the 1990 tax increase raised $380 billion less in income tax revenues from 1991 to 1995 than had been predicted. [20]

Federal Spending. The federal budget was not cut under Reagan. In fact, it was 69 percent larger when Reagan left office than when he entered it–22 percent larger in real terms. As a share of GDP, federal outlays declined by less than 1 percentage point. [21]