The Federal Budget and the Veto - Part I
Background
One main principle of the U.S. Constitution is the separation of powers. Each branch of Government, Executive, Legislative, and Judicial, can serve as a check on the other, preventing excessive power in any one branch. The Presidential Veto is an example of separation of powers. The President must sign laws passed by Congress. If the President vetoes the bill (does not sign it into law), it takes a two-thirds (67%) vote in the House and Senate to override the President and pass the bill.
In previous articles in this series, we have seen Presidents use the veto to attempt to control the Federal Budget.
For example:
· Eisenhower vetoed a public works bill: "This tremendous expansion in Government expenditures… brings into sharp focus how Congress by action in one-year builds increases into the Federal budget in future years.”
· Kennedy vetoed a postal worker pay increase: "…budgetary needs are too urgent to permit approval of this measure unattended by revenue increases, at this time."
· Johnson vetoed a bill limiting the ability to close military bases: "…the American people are entitled to a dollar's worth of defense for every dollar spent. The base closure program is a vital element in effecting important economies within the military establishment."
· Nixon vetoed a bill on urban development: “I am determined to hold the line against a dangerous budget deficit. I am determined to hold the line against the kind of big-spending that would drive up prices or demand higher taxes.” And referring to election-year spending: “At election time, it is tempting for people in politics to say “yes” to every spending bill.”
· Ford, regarding his veto of education spending: “The real issue is whether we are going to impose fiscal discipline on ourselves or whether we are going to spend ourselves into fiscal insolvency.”
· Carter, vetoed a bill for nurse training subsidies: “the funding authorizations are excessive and unacceptable If we are to reduce the budget deficit to help fight inflation.”
Did these Presidents succeed in controlling the budget using the veto?
Government Receipts, outlays, and deficits from 1945 to 1980 in Constant (Inflation-Adjusted) Dollars:
This chart shows government receipts and spending (adjusted for inflation). After the end of World War II, government spending declined significantly, to under $400 billion (in constant dollars). Since that time, spending has more than tripled. The budget went into surplus for a short time after the war ended and the deficitygenerally increased over the next 35 years. (the red line represents a balanced budget, values above that are a surplus, below represents a deficit)
Federal Receipts and Outlays as a Percentage of Gross Domestic Product (GDP)
I think the most relevant measure of expenditures and the deficit is to compare the budget to the United States annual income, the Gross Domestic Product (GDP). The larger the economy, the more debt the country can handle, just like a higher-income family can safely accrue a higher debt level than a lower-income household.
This chart shows that after the end of World War II, expenditures gradually grew from 17 – 18% of the GDP, to a little over 20% of GDP. And this chart shows that while the immediate post War period yielded surpluses, by 1980, the annual deficits were between 2% to 3% of GDP. (the red line represents a balance budget, values above that are a surplus, below represents a deficit)
Cumulative Debt as a Percentage of GDP
The final chart, the most important one, shows the total indebtedness as a percentage of the total national income (GDP – Gross Domestic Product)
The cost of fighting World War II was high – by the end of the war, total US debt was almost 120% of the GDP. Subsequently it declined to about 35% of GDP by 1980. What this means is that the country was growing faster than its debt. I would consider that a healthy fiscal position for the country.
After 1980
Even though deficits grew overall in the mid-1970’s, total debt relative to the size of the country had been declining or steady since the end of World War II.
As we will see in a future article, that story changed after 1980.