Jul 1, 2025 By Kent James 6 min read

Republicans claim to be fiscal conservatives. That may have been true at one time, but that hasn’t been so for decades.

The change began in the 1970s, when Jude Wanniski came up with the “two Santas” analysis of budgetary politics. Wanniski argued that the Democrats win voters by spending money on them (through government programs), acting like Santa Claus, while Republicans have traditionally been Scrooge, cutting the programs to avoid budget deficits. Another way to play Santa is to cut taxes, and Wanniski feared that Democrats were learning to play the tax-cutting Santa as well (John F. Kenned and Lyndon Johnson both cut taxes), which he thought would make the GOP lose elections for the foreseeable future. Wanniski wanted the GOP to worry less about the deficit and focus on cutting taxes. Starting with Ronald Reagan, they certainly followed that philosophy.

Reagan cut both social programs and taxes (but increased military spending), using the supply-side argument (promoted by Arthur Laffer) that cutting taxes would spur so much economic growth that it would actually increase tax revenues. Cutting taxes can spur economic growth (as does increased government spending), but never enough to make up lost tax revenue. The deficit first grew dramatically under Reagan.

Republicans profess to care a lot about the deficit, but only when the Democrats are in charge. Democrats, who talk less about the deficit (though most pay fealty to the idea that deficits are bad), have done a lot more about it. The last time the government did not run a deficit was under Bill Clinton, who ran a surplus from 1998-2001. When G.W. Bush took office in 2001, he wanted to cut taxes because he argued that since there was a surplus, it was unfair for the government to collect more tax revenue than was needed. Of course, when the government returned to deficit spending on his watch, he argued for tax cuts to spur the economy. Cutting taxes is the Republican lodestar.

Historically, when the nation has gone to war it has raised taxes to pay for the increased government expenditures driven by war. Bush cut taxes even as we invaded Iraq, which drove up the deficit significantly.

The financial crisis of 2007-08 also happened on Bush’s watch, and Bush had to spend a lot of money to bail out the banks or risk the economy completely collapsing. Barack Obama inherited that mess and ran up large deficits as he tried to jumpstart the economy, which the crisis had decimated. His economic advisers wanted him to spend a lot more than he did, but Obama feared a larger bill would not pass Congress (in the end, no Republicans voted for it). While it is impossible to tell if Obama was right on the politics, his economists were right that the spending was not enough to reinvigorate the economy, so the rest of Obama’s terms were defined by a slow recovery.

Donald Trump inherited the recovered economy, and passed a large tax cut that dramatically increased the deficit (even before COVID). When COVID hit, tax revenues plummeted but Trump (rightfully) increased spending to help the economy, which added to the growing deficit. When Biden took over, he passed an even larger stimulus bill (trying to learn the lessons of Obama’s inadequate stimulus), which contributed to the inflation that damaged his presidency (though to be fair, a lot of the inflation was due to supply chain interruptions). The U.S. economic recovery under Biden was faster than any other developed nation in the G10.

In the 55 years since 1970, the U.S. has run a deficit for all but four years (under Clinton). That would suggest that Vice President Dick Cheney was right: deficits don’t really matter. During the Obama administration, Paul Krugman complained about the “bond vigilantes” and the “confidence fairy” who inspired conservative opposition to Keynesian deficit spending to boost the economy. Krugman argued that as long as investors were willing to buy U.S. debt at a reasonable price, that debt was not a problem, so running a deficit to stimulate the economy was warranted. The bond market is a free market measure of investor confidence in the financial status of the U.S. government.

Modern Monetary Theorists, led by Stephanie Kelton, argue that government deficits are generally not a problem; since money is no longer backed by gold, any government that borrows in its own currency will never fail to pay its debts, because it can always create more money (the Fed minting a trillion dollar coin, e.g.). That’s not to say deficits never matter, just that deficits are not inherently bad. If the government is running a deficit, non-government actors have a surplus, but what’s important is the amount of money in the economy compared to the amount of goods and services for sale. If there’s too much money, that causes inflation. Not enough causes unemployment and economic stagnation.

Trump’s “Big Beautiful Bill” cuts taxes (primarily for the wealthy), while savagely cutting spending on social programs (food stamps, Medicaid), and increasing military spending. The Congressional Budget Office (CBO) estimates that it will add $3 trillion to the national debt (which is currently $37 trillion) over the next 10 years.

The federal government is not a household, so it does not need to balance its budget every year (as state and local governments do). But that doesn’t mean it can ignore budgetary constraints. Deficit spending to invest in the future makes sense, as does running a deficit to counteract a sluggish economy. An expanding economy can also allow a government to have larger deficits.

But running a deficit to reduce taxes on the wealthiest Americans makes no sense; it will exacerbate economic inequality, drive up interest costs (which are currently about the size of the entire defense budget) and make it harder to use deficit spending when we need it to stimulate a sluggish economy. The “Big Beautiful Bill” has many flaws, but its impact on the deficit alone is enough to oppose it.

Kent James, of East Washington, has a doctorate in history and policy from Carnegie Mellon University.