Jeffrey: Reagan's Farewell Regret Was Deficit He'd Put Nation on Track to Eliminate

February 10, 2011 - 6:04 AM

When Ronald Reagan delivered his farewell address more than two decades ago, he cited one regret: a continuing deficit he had put the nation on track to eliminate.

"I've been asked if I have any regrets. Well, I do," said Reagan. "The deficit is one. I've been talking a great deal about that lately, but tonight isn't for arguments, and I'm going to hold my tongue."

In the days leading up to that speech, Reagan indeed had spoken repeatedly about the deficit, explaining its sources and how it could be eliminated with characteristic passion and analytical accuracy.

On Dec. 13, 1988, Reagan gave a speech to a group of his political appointees. He told them he believed that in the "Washington colony," as he called it, there was an "iron triangle" working to expand government beyond its constitutional limits and, in the process, drive up deficit spending.

"It sometimes seems to many Americans that what might be called a 'triangle of institutions' -- parts of Congress, the media and special interest groups -- is transforming and placing out of focus our constitutional balance, particularly in the areas of spending and foreign policy," Reagan said. "Some have used the term 'iron triangle' to describe something like what I'm talking about. And with apologies to them, I'll borrow that term."

Reagan predicted Americans would rise up against this "iron triangle" and take their government back.

"Fundamentally, the American people know what's up, and they don't like it," Reagan said. "They may re-elect their congressmen, but they trust Congress itself less and less. They may watch or read the media, but they stop believing it, and they show more and more dislike for special interest influence. The only question is: When will they say once and for all that they've had enough? The strength of our nation has never been with the Washington colony, but with the American people. The budget deficit is the colony's last stand."

About a month after this speech, Reagan introduced his final budget. He said it would put the nation "on track to a balanced budget and a modest surplus by fiscal year 1993."

How could this be -- given the fiscal crisis we face today?

As Reagan explained to his political appointees, economic growth spurred by the industry of the American people as well as by his tax cuts was causing federal tax revenues to increase. If growth in the federal government could be held to a slower rate than growth in federal tax revenues, the deficit could be eliminated.

"And why do we have deficits? It's not because of a lack of revenues," Reagan told his appointees in December 1988. "Federal revenues have grown by $375 billion since 1981, but spending has grown by $450 billion."

"So, the challenge before us is setting spending priorities, deciding where to spend some of the additional revenue, but not spending it all so we can reduce the deficit," he said.

Was Reagan right? Indisputable proof can be found in the historical budget numbers published by the Obama White House.

When Reagan took office in 1981, according to President Obama's Office of Management and Budget, federal revenues were $599.3 billion. When Reagan left office in 1989, federal revenues were $991.1 billion, a nominal increase of $391.8 billion. Even when adjusted for inflation, this represents a real increase in revenue of $173.6 billion (from $817.5 billion in 1989 dollars in 1981 to $991.1 billion in 1989 dollars in 1989). During Reagan's eight years, real federal revenue increased 21 percent.

But spending increased more, equaling $1.143 trillion in 1989, leaving an annual deficit that year of $152.6 billion.

After Reagan left, as he predicted, federal revenues continued climbing. By 1993, they reached $1.154 trillion. Had federal spending been held at 1989 levels for four years, the government would have run an $11 billion surplus in 1993. But federal spending grew $266 billion, and the government ran a $255.1 billion deficit.

For the "iron triangle," it was a triple play: Federal revenues grew, federal spending grew, and the federal deficit grew.

What has happened since then? More of the same.

According to Obama's OMB, federal revenues will be $2.57 trillion this year. In nominal terms that is about $1.58 trillion more than the $991.1 billion in federal revenue for 1989. Even adjusted for inflation, it is $830 billion more.

But, again, federal spending has grown faster. According to Obama's OMB, the federal government will spend $3.83 trillion this year, running a deficit of $1.27 trillion.

Adjusted for inflation, the $152.6 billion deficit of 1989 equals $268.4 billion in current dollars. That means the $1.27 trillion deficit Obama plans to run this year is almost five times larger in real terms than the deficit Reagan ran the year he left office naming the deficit as the only regret in his farewell address.

When Reagan left office in 1989, federal spending was 21.2 percent of gross domestic product. This year, the Obama administration plans to spend 25.1 percent of GDP.

Perhaps the America Ronald Reagan saw ready to stand up against the iron triangle of entrenched congressmen, special interests and the liberal press finally has fully awakened in the tea party movement.

We are reaching the point where either America breaks the iron triangle, or the iron triangle breaks America.