Democrats vs. Republicans: Which Is Better for the Economy?

Living presidents
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Democrats and Republicans have widely different views on the economy. But once in power, candidates' actions don't always coincide with their party's views. That makes it difficult to determine whether Democratic presidents or Republican presidents are better for the economy.

Here's an analysis of the two parties' views, the actions of the presidents once they've been in power, and the results.

Overview

Democrats gear their economic policies to benefit low-income and middle-income families, holding the belief that reducing income inequality is the best way to foster economic growth. This is based on the idea that low-income families tend to spend extra money on necessities, which directly increases demand. Democrats also support a Keynesian economic theory, which says that the government should spend its way out of a recession.

President Franklin D. Roosevelt first outlined the Economic Bill of Rights in his 1944 State of the Union address, which included a realistic tax law, a cost of food law, and a continuation of the law for the renegotiation of war contracts. President Harry Truman's 1949 Fair Deal proposed specific legislation to support this expanded vision of the American Dream. In 2010, the Democrats expanded the dream to include health care with the Affordable Care Act.

Republicans support economic policies that benefit businesses and investors, following supply-side economics, which states that tax cuts on businesses allow them to hire more workers, in turn increasing demand and growth. It's similar to trickle-down economics, which says that the expansion generated by tax cuts is enough to broaden the tax base. In theory, the increased revenue from a stronger economy offsets the initial revenue loss over time.

One aspect of the Republican American Dream is the right to pursue prosperity without government interference, which—they argue—is achieved by self-discipline, enterprise, saving, and investing. This business-friendly approach leads most people to believe Republicans are better for the economy. However, a closer look reveals that Democrats are, in many respects, much better.

Job Creation

Republicans say that tax cuts are the best way to create jobs, where Democrats advocate for government spending, but the economic stimulus act, sponsored by President Barack Obama, used both. President Bill Clinton created more jobs than any other president. The most, percentage-wise, was Roosevelt who increased jobs by 21.5%. But that was during three terms. If you only count two terms, President Ronald Reagan was the largest percentage-wise; He increased jobs by 16.5%.

Minimum Wage

Democrats argue that the minimum wage should allow a living wage. FDR created the minimum wage to protect workers during the Great Depression. During that time, it was $0.25 an hour, which translates to just under $5.00 in today's economy. The Democratic Congress raised it in 2007 and set a schedule to raise it to $7.25 an hour in 2009, where it is today. Democrats support raising the minimum wage to $15 an hour and then indexing it to inflation.

Republicans argue that raising the minimum wage could force small businesses to lay off workers; this is partially true. A 2014 Congressional Budget Office report said that raising the minimum wage would take 900,000 families out of poverty, but cost 500,000 workers their jobs.

Taxes

Republicans favor regressive taxation that assesses a lower rate on businesses, investments, and high-income earners. The following includes several tax initiatives taken by the republican party:

  • In 2018, the Tax Cuts and Jobs Act cut the top income tax rate to 37% and lowered the corporate tax rate to 21%
  • The Bush tax cuts fought the 2001 recession
  • The Economic Growth and Tax Relief Reconciliation Act mailed rebate checks to households in August 2001
  • In 2004, the Jobs and Growth Tax Relief Reconciliation Act cut taxes for businesses
  • In 2010, the Tea Party in Congress extended the cuts to fight the Great Recession

Democrats believe in progressive taxation, demanding higher taxes on investments, big businesses, and high-income families.

  • Clinton's Omnibus Budget Reconciliation Act raised the top income and corporate tax rates to 36%
  • In 2009, the Obama economic stimulus plan cut taxes to fight the Great Recession
  • In 2010, Obamacare raised taxes on high incomes and investments

Immigration

Immigrants have driven two-thirds of U.S. economic growth since 2011. They founded 30% of U.S. firms, including more than 50% of startups valued at over $1 billion. But many believe that immigrants take jobs from workers who lack college degrees, especially in agriculture and construction. For example, in 2014, immigrants held 43% of agricultural jobs, but only 20% were documented.

Democrats perceive America to be comprised of immigrants and demonstrate that they want to welcome asylum seekers and refugees. Obama created the Deferred Action for Childhood Arrivals program, also known as DACA, which the Trump administration has since fought to take down. It protected from deportation people who were brought to the United States as children. But Obama also deported more immigrants than any other president. Total deportations under Obama hit a high in 2012 with 409,849 removals, then dropped below 250,000. Trump has deported between 220,000 and 285,000 a year since 2017.

Republican immigration policies seek to protect American workers and industries, and Trump's immigration policies follow economic nationalism. For example, he wants to complete the border wall with Mexico. He has threatened to deport immigrants protected under DACA. He separated immigrant children from their parents before ending the policy due to popular outcry. He recently came under fire for housing them in unsafe and unsanitary migrant camps.

Health Care

Republicans argue against universal health care, calling it socialism. They prefer the current system based on private health insurance. Instead of Medicaid, they would give the states block grants to use as they need. Many of these policies are reflected in Trump's plans to change health care.

Democrats believe the federal government should make health care affordable. Clinton's Hillarycare program would have controlled medical costs, but she couldn't get it passed by a Republican Congress. However, the Clintons achieved two other health care reform measures. The Health Insurance Portability and Accountability Act of 1996 allows employees to keep their company-sponsored health insurance plan for 18 months after they've lost their jobs. The Children's Health Insurance Program provides subsidized health insurance for children in families that earn too much to qualify for Medicaid. Obama’s 2010 Patient Protection & Affordable Care Act sought to lower the cost of health care. It covers preventive care to prevent patients from using the emergency room as their primary care physician.

Climate Change

Global warming affects every other economic issue. For example, the World Bank estimates that climate change could send 1.4 million immigrants north by 2050. Drought, shifting rain patterns, and extreme weather destroys crops and leads to food insecurity.

Democrats support conservation and are taking measures to stop global warming. In 2009, Democrats in Congress proposed a cap-and-trade policy and the American Clean Energy and Security Act. Both measures were defeated by Republicans. In 2011, Obama's Environmental Protection Agency used its powers under the Clean Air Act to limit carbon as a pollutant. In December 2018, a Green New Deal was launched by Congressional Democrats.

Republicans support the development of oil and gas production with federal government subsidies and tax cuts. They opposed the Kyoto agreement and carbon emissions controls, and many Republican leaders deny that climate change is occurring or that it's caused by burning fossil fuels. Trump is withdrawing the United States from the Paris Climate Agreement. Congressional Republicans support research into renewable energy as a job creator, not as a fight against global warming.

Role of Government

Republicans don't want government interference with a free-market economy, and they advocate for deregulation, which often leads to monopolies. They argue that economic assistance makes people stop working. President Herbert Hoover supported laissez-faire economic policies, and he wrongly believed the free market would self-correct during the Great Depression.

Democrats advocate a strong federal government to support welfare and other social programs which help sustain many low-income families. During the Great Depression, FDR rallied Americans to support massive government spending. In his first 100 days in office, he increased the debt by $4 billion to create 16 new agencies and laws. For example, the Works Progress Administration employed 8.5 million people to build bridges, roads, public buildings, parks, and airports. FDR was also responsible for the creation of Social Security. President Lyndon B. Johnson created Medicare, Medicaid, and urban renewal initiatives.

Democrats also have shown their support for regulations to protect consumers. For instance, President Woodrow Wilson pushed for the Clayton Antitrust Act in an effort to curb the power of trusts and monopolies in the U.S. market. FDR signed the Glass-Steagall Act which banned banks from using deposits to buy risky investments. But Clinton, working with Congressional Republicans, repealed Glass-Steagall, and bank reliance on derivatives later caused the 2008 financial crisis.

The Debt

Republicans advocate fiscal responsibility, but they are almost as guilty as Democrats in increasing the debt. Obama increased the debt the most dollar-wise, adding $8.6 trillion. President George W. Bush was second, adding $5.8 trillion.

FDR increased the debt the most, percentage-wise, by 1,048%, while deploying efforts to fight the Great Depression and World War II. President Wilson incurred the second-largest, percentage-wise, thanks to World War I.

On the other hand, Clinton created a $63 billion budget surplus with the Omnibus Budget Reconciliation Act of 1993. Every Republican president since Calvin Coolidge has added to the debt.

National Security

Republicans accuse Democrats of being soft on defense, but both parties spend a large portion of the budget on defense; Wilson started World War I and FDR began World War II. Truman dropped two nuclear bombs on Japanese civilians and started the Korean War. He also shifted U.S. foreign policy from isolationism to global policeman with help from the Truman Doctrine.

Obama received the Nobel Peace Prize, but his military spending totaled between $700 billion and $800 billion a year. That's much more than Bush, who spent between $400 billion and $650 billion. But Bush started the wars in Afghanistan and Iraq.

Trade

Democrats want trade agreements to protect American workers but traditionally have supported fair trade more than protectionism. However, that attitude has shifted in reaction to outsourcing jobs. President Wilson signed the Underwood-Simmons Act to lower tariffs. Clinton signed the North American Free Trade Agreement, the world's largest trade agreement, but it was negotiated by Reagan and President George H.W. Bush. Obama signed four agreements, Colombia, Korea, Panama, and Peru, but they were negotiated by George W. Bush.

Republicans supported trade protectionism until the devastating impact of the Smoot-Hawley Tariff Act. Hoover signed the act to help U.S. industry during the Great Depression, but other countries imposed their own tariffs, sending global trade down 66%. Republicans supported free trade agreements until Trump returned to protectionism by starting trade wars.

The Party That's Best for the Economy

There are many analyses that look at which party is best for the economy. LPL Financial Research found that, since 1950, the stock market did better under a Democratic president with a Republican Congress. The next best is a Democrat president with a split Congress, and then a Republican president with a split Congress. When the same party controls the executive and legislative branches, the stock market still fares better under Democrats.

A study from the National Bureau of Economic Research found that Democratic presidents since World War II have performed much better than Republicans. On average, Democratic presidents grew the economy 4.4% each year versus 2.5% for Republicans. A Hudson Institute study found that the six years with the best growth were evenly split between Republican and Democrat presidents.

Most of these evaluations measure growth during the president's term in office. But no president has control over the growth added during his first year. The budget for that fiscal year was already set by the previous president, so you should compare the gross domestic product at the end of the president's last budget to the end of his predecessor's last budget.

For Obama, that would be the fiscal year from October 1, 2009, to September 30, 2018. That's FY 2010 through FY 2017. During that time, GDP increased from $15.6 trillion to $17.7 trillion or by 13%. That's 1.6% a year.

The chart below ranks the presidents since 1929 on the average annual increase in GDP.

President

FY Budget

GDP (in Billions)

Added to GDP

% Increase

Ave Annual

Roosevelt 1945 $2,352 $1,524 184% 15.3%
LBJ 1969 $4,792 $1,089 29% 5.9%
JFK 1964 $3,703 $443 14% 4.5%
Clinton 2001 $13,131 $3,446 36% 4.4%
Reagan 1989 $8,867 $2,107 31% 3.9%
Nixon 1974 $5,687 $895 19% 3.7%
Carter 1981 $6,759 $810 14% 3.4%
Eisenhower 1961 $3,260 $685 27% 3.3%
GW Bush 2009 $15,605 $2,474 19% 2.4%
GHW Bush 1993 $9,685 $818 9% 2.3%
Trump 2018 $18,051 $392 2% 2.2%
Obama 2017 $17,659 $2,055 13% 1.6%
Ford 1977 $5,949 $262 5% 1.5%
Truman 1953 $2,575 $223 9% 1.2%
Hoover 1933 $828 $(282) -25% -8.5%

The next table calculates the average annual growth for Democrats versus Republicans. Because of the Depression, Democrats grew the economy 5.2% annually, while Republicans only grew it 1.4%.

President

Democrats

Republicans

Roosevelt

15.3%

 

LBJ

5.9%

 

JFK

4.5%

 

Clinton

4.4%

 

Reagan

 

3.9%

Nixon

 

3.7%

Carter

3.4%

 

Eisenhower

 

3.3%

GW Bush

 

2.4%

GHW Bush

 

2.3%

Trump

 

2.2%

Obama

1.6%

 

Ford

 

1.5%

Truman

1.2%

 

Hoover

 

-8.5%

Total

36.4%

10.9%

Ave. Annual

5.2%

1.4%

Since the Depression was an outlier to this dataset, it makes sense to remove both FDR's and Hoover's results. In that event, it's almost a wash. Democrats gained 3.5% on average while Republicans gained 3.2%.

Another way to look at it is by considering what the president had to deal with during his term. A president will have better growth if he had no recession. That's one reason why the Democrats did slightly better. Presidents Johnson, Jimmy Carter, and Clinton didn't have recessions. The only Republican president who can say that is Trump. All other presidents had to contend with the worst recessions in U.S. history.

Wars and post-war periods also disrupt the economy. They can sometimes spur growth if they occur during an economic contraction, but they also distract a president from the economy and can sap needed resources. Presidents Carter and Clinton were Democrats that avoided war, and Republican Presidents Ford and Reagan can make the same claim.

The chart below indicates economic turmoil during the presidents' terms.

President

Term Event

Hoover

1929-1933

Crash, Depression

Roosevelt

1933-1945

Depression, WWII

Truman

1945-1953

WWII, Recession

Eisenhower

1953-1961

Korean War, Recession

JFK

1961-1963

Vietnam War, Recession

LBJ

1963-1969

Vietnam War

Nixon

1969-1974

Vietnam War, Stagflation, Recessions

Ford

1974-1977

Recession

Carter

1977-1981

Recession

Reagan

1981-1989

Recession, Black Monday

GHW Bush

1989-1993 Recession, Gulf War, S&L Crisis

Clinton

1993-2001

Growth, LTCM Crisis

GW Bush

2001-2009

9/11, Recessions, Wars

Obama

2009-2017

Recession, Wars

Trump

2017-Present War 

Bottom Line

The data reveals that economic growth performs better, overall, under Democratic presidents. But there are many factors that make it difficult to determine whether Republican or Democratic presidents responsible for that performance. Both have to deal with recessions, wars, and prior presidents' policies.

That doesn't mean it doesn't matter. The two parties have very different economic philosophies. Vote for the party that best reflects your values. An involved and educated electorate is the only way a democracy can survive.

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