Republican Presidents' Impact on the Economy

From Warren Harding to Donald Trump

Republican presidents
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Wally McNamee/CORBIS/Corbis via Getty Images

Since World War I, there have been 10 Republican presidents. If we look back at history, they did not all follow the stereotypical Republican policies regarding tax cuts, debt reduction, spending cuts except for defense, and a balanced budget. Instead, many of these presidents responded with expansionary fiscal policy to pull the country out of recessions. 

The chart below shows the change in real GDP under Republican presidencies, according to the U.S. Bureau of Labor Statistics.

Here's an analysis of the 10 Republican presidents since World War I, their economic policies, and how much they followed Republican tradition.

Warren G. Harding (1921-1923)

Warren G. Harding said, "Less government in business and more business in government." During his term, Republicans cut taxes, especially for corporations and the wealthy. Harding's administration established a federal budget under the Budget and Accounting Act of 1921. The Act required all the federal departments to submit a unified budget under the president. It also established the General Accounting Office. 

Harding's administration made U.S. banking more competitive internationally. It helped rebuild Europe after World War I. Harding established an open-door trading policy in Asia and negotiated trade deals with Malaysia and the Middle East. Also, he supported trade protectionist measures such as tariffs and limits on immigration.

Harding supported policies that are not traditionally Republican. He hosted a global naval disarmament conference that helped cut military spending. Harding's budget cut $1.62 billion from the debt, almost a 7% decrease from the $23.9 billion debt at the end of Woodrow Wilson's final budget from 1921.

Calvin Coolidge (1923-1929)

During Coolidge's term, America transformed from a traditional to mixed economy. The U.S. gross domestic product increased by 42%, new construction doubled, and the unemployment rate remained relatively low during this time. The United States produced half the world's output, since World War I had destroyed most of Europe. 

That prosperity allowed Coolidge to cut government spending. He reduced the national debt by $5.5 billion. That was nearly a 26% decrease from the $22.3 billion debt at the end of Harding's last budget ending in 1923.

Coolidge was a protectionist at a time Americans were afraid of the newly formed Soviet Union. He set high tariffs on imported goods to protect domestic industries. He rejected U.S. membership in the League of Nations. 

Coolidge investigated the scandals from the Harding administration. That restored the American people's faith in their government. That confidence helped spur the Roaring Twenties.

Coolidge helped create the theory of supply-side economics with his Treasury Secretary Andrew Mellon, and he cut the top marginal tax rate from 46% to 25%.

Income was unevenly distributed during this time period. Between 1919 and 1929, the wealthiest 1% saw its income jump from 12% to 19%, while the richest 5% increased from 24% to 34%. The poorest 93% of non-farm workers, however, saw its income decrease over the same period of time.

Herbert Hoover (1929-1933)

Herbert Hoover became president in March 1929 amid a recession that eventually became the Great Depression before the end of the year, marked by the Black Thursday stock market crash on Oct. 24. The depression defined Hoover's four years as president.

Many experts note Hoover was an advocate of laissez-faire economics; he believed an economy based on capitalism would self-correct. As such, he didn't rely on economic assistance for individuals, believing it would make people stop working.

Even when Congress pressured Hoover to take action, he focused on stabilizing businesses. He believed their prosperity would trickle down to the average person. Like any good Republican, Hoover lowered the tax rate to fight the depression. In 1929, he lowered the top rate one point, to 24%. In December 1930, he raised it back to 25%.

In 1930, Hoover signed the Smoot-Hawley Tariff Act, a move that implemented high tariffs on imports. Other countries retaliated with high tariffs of their own. Hoover's protectionism shrank global trade by 65% by the depths of the Depression and the economy had contracted 16.1% the following year.

In the final two years of his administration, Hoover eased his hard line against government intervention. After implementing an economic plan that cut spending and increased taxes, he signed off on the Reconstruction Finance Corporation (RFC), which borrowed more than $50 billion to help boost the economy. The RFC also lent money to states to feed the unemployed and expand public works. Hoover felt strongly that caring for the unemployed was a local and voluntary responsibility, not a federal one.

By the end of his last year in office, Hoover added $5.6 billion to the national debt, a 33% increase from the $16.9 billion debt at the end of Coolidge's last budget in 1929.

Dwight Eisenhower (1953-1961)

In domestic policy, President Eisenhower pursued a middle course. He continued most of FDR's New Deal and Truman's Fair Deal programs. He increased the U.S. minimum wage; created the Department of Health, Education, and Welfare; and expanded social security to include an additional 10.5 million people. He raised both benefits and payroll taxes in the social security system, too. 

The Korean War ended in the spring of 1953 and a recession started in July that lasted until May 1954. The economy contracted 2.2% in the third quarter of 1953, 5.9% in the fourth quarter, and 1.9% in the first quarter of 1954. Unemployment during Eisenhower's presidency reached its peak of 7.5% in July 1958. 

During his two terms, Eisenhower emphasized a balanced budget. He decreased military spending from $526 billion to $383 billion. At the same time, he promoted the "Atoms for Peace" program, which emphasized sharing atomic knowledge for peaceful purposes instead of weapons. He created the U.S. Information Agency and promoted the use of the CIA to achieve military goals through influence, not warfare.

As part of a domestic defense strategy, Eisenhower created the Interstate Highway System (IHS) in 1956. The system's purpose was to provide safe transport in case of a nuclear war or other military attacks. The IHS built 41,000 miles of road that linked 90% of all cities with populations of more than 50,000. The federal government allocated $25 billion to the states to build it for over 13 years. To fund the project, Eisenhower's administration set up the Highway Trust Fund to collect gas taxes that would pay for it.

Another recession occurred from August 1957 to April 1958. As a result, Eisenhower added $22.9 billion to the federal debt by the end of his last budget in 1961. The increase was nearly a 9% jump from the $266 billion debt at the end of Truman's last budget for fiscal year 1953.

In 1958, Dwight Eisenhower created NASA to advance U.S. leadership in rocketry, satellites, and space exploration. 

Richard Nixon (1969-1974)

Richard Nixon veered from traditional Republican policies by reducing U.S. military involvement in the Vietnam War and outsourcing protection of the Middle East oil supply to the Shah of Iran and Saudi Arabia.

Total U.S. military transfers to Iran increased from $103.6 million in 1970 to $552.7 million in 1972, and transfers to Saudi Arabia increased from $15.8 million in 1970 to $312.4 million in 1972.

Nixon only added $121 billion to the $353.7 billion national debt during his term in office, but his Doctrine made the long-term impact much greater. The Doctrine allowed Nixon to decrease defense spending from $523.8 billion to $371.3 billion. 

In 1971, he implemented the "Nixon Shock," a plan that had three main components:

  • Imposed wage-price controls that bypassed America's free-market economy.
  • Closed the gold window. The Fed would no longer redeem dollars with gold. That meant the United States abandoned its commitment to the 1944 Bretton Woods Agreement. In 1973, Nixon ended the gold standard entirely.
  • Imposed a 10% tariff on imports. Nixon wanted to reduce the U.S. balance of payments. In doing so, he increased import prices for consumers and pushed inflation into the double digits. 

The value of oil plummeted during Nixon's term. OPEC embargoed its oil shipments in a desperate attempt to boost its price.

The Nixon Shock created a decade of stagflation, a scenario in which economic contraction combines with double-digit inflation. By December 1974, inflation was at 12.3% and the economy had contracted 1.5%. The following spring, the unemployment rate peaked at 9%.  

Staring at a contracting GDP and an increasing unemployment rate, Nixon countered with the Republican policies intertwined in the Budget Control Act of 1974. The act established the federal budget process and created the Congressional budget committees and the Congressional Budget Office.

The 1974 Watergate scandal eroded the public's faith in government; polls showed that public trust in elected officials fell from 77% in 1964 to 36% in December 1974. This lack of faith led to Ronald Reagan's election in 1980.

Gerald Ford (1974-1977)

Gerald Ford inherited stagflation. He first tried to whip inflation with contractionary fiscal policy and even embraced the idea of a wage-price freeze. After that didn't work, he reversed course and adopted expansionary policies. In 1975, he gave taxpayers a 10% rebate, increased the standard deduction, added a $30 per exemption tax credit. He added a 10% business investment tax credit, too.

Ford also signed a spending package and by March 1975, the recession had ended.

Ford's expansionary policies added $223 billion to the debt. That was a 47% increase from the $475 billion debt at the end of Nixon's last budget in fiscal year 1974.

Ronald Reagan (1981-1989)  

When he entered office, Ronald Reagan faced the worst recession since the Great Depression. The economy was mired in stagflation. Reagan promised to reduce government spending, taxes, and regulation, all of which were traditional Republican policies that earned the name, "Reaganomics."

Instead of reducing spending, he increased the budget and he cut domestic programs by $39 billion. However, Reagan increased defense spending in an effort to achieve "peace through strength" in his opposition to communism and the Soviet Union. Defense spending increased from $153.8 billion in fiscal year 1981 to $294.8 billion in fiscal year 1989. 

Reagan cut the top income tax rate from 69.3% to 28%. He cut the corporate tax rate from 46% to 34%. At the same time, Reagan protected the solvency of the Social Security program by increasing the payroll tax.  

In the wake of his tax cuts, Reagan more than doubled the national debt from $997.8 billion in 1981 to $2.9 trillion at the end of his last budget in 1989. The debt rose even though Reagan passed the 1985 Gramm-Rudman-Hollings Deficit Reduction Act, which triggered automatic spending cuts.

Reagan reduced regulations, but it was at a slower pace than under President Jimmy Carter. He eliminated the Nixon-era price controls. He further removed regulations on oil and gas, cable television, long-distance phone service, interstate bus service, and ocean shipping. He eased bank regulations with the 1982 Garn-St. Germain Depository Institutions Act., which removed restrictions on loan-to-value ratios for savings and loan banks. The act, however, led to the Savings and Loan Crisis of 1989

Reagan increased trade barriers, too. He doubled the number of items that were subject to trade restraint from 12% in 1980 to 23% in 1988. But he also proposed a free-trade agreement with Mexico to compete with Europe's common market.

To combat inflation Reagan appointed Federal Reserve Chairman Paul Volcker to reduce the money supply. He raised the Fed funds rate to 20%. It ended inflation but triggered a recession the resulted in a 10.8% unemployment rate, the highest in any recession. Unemployment remained above 10% for almost a year.  

George H.W. Bush (1989-1993) 

George H.W. Bush campaigned on reducing the debt without raising taxes when he said, "Read my lips. No new taxes." But Bush first had to face the 1990-1991 recession caused by the S&L banking crisis, which experts note was likely due to the deregulation measures Reagan enacted while in office. When Bush took office, the unemployment rate was above 7.8% in 1992. 

As Bush formed a plan to remedy the recession, he was hamstrung by another Reagan-era decision, the Gramm-Rudman-Hollings Balanced Budget Act of 1985. It mandated automatic spending cuts if the budget wasn't balanced. Bush found himself in a difficult position: Cut Social Security or defense, or raise taxes?

He didn't want to cut Social Security or defense, so Bush agreed to tax increases suggested by a Democrat-controlled Congress. The decision to go back on his "no new taxes" promises cost him the support of the Republican party when he ran for reelection in 1992.

Bush sponsored the Americans with Disabilities Act and the Clean Air Act amendment. He followed post-Hoover Republican free-trade policies by negotiating NAFTA and the Uruguay Round agreement, too.

Bush also followed Republican pro-defense policies when he responded to Iraq's invasion of Kuwait in 1990 by launching the first Gulf War. Also, Bush launched a war in Panama to overthrow General Manuel Noriega, who had threatened the security of the Panama Canal and the Americans living there. And even though Bush initiated two conflicts, he also cut military spending from $294.82 million in 1989 to $278.51 million in 1993.

Bush added $1.55 trillion to the national debt, a 54% increase from the $2.86 trillion debt at the end of Reagan's last budget in fiscal year 1989.

George W. Bush (2001-2009)

George W. Bush faced three of the nation's worst challenges during his administration: the 9/11 attacks, Hurricane Katrina, and the 2008 financial crisis.

To buoy the economy during his term, Bush fought the 2001 recession with the tax rebate of the Economic Growth and Tax Relief Reconciliation Act. In 2004, he enacted the business tax cuts of the Jobs and Growth Tax Relief Reconciliation Act to jump-start hiring. The combined Bush tax cuts added an estimated $5.6 trillion to the national debt through 2018.

Bush responded to the al-Qaeda attack on September 11, 2001, with wars in Afghanistan and Iraq. In total, Bush spent roughly $750 billion on the war on terror, while expanding funds for the Department of Defense and Homeland Security. To pay for two wars, military spending rose to record levels of more than $600 billion in 2009.  

Bush went against Republican policy by promoting increased government spending on health care. The Medicare Part D prescription drug program was estimated to add nearly $1 trillion in government spending. He did not try to control higher mandatory spending on Social Security and Medicare.

In 2005, Hurricane Katrina hit New Orleans. It caused around $160 billion in damage and slowed growth to 1.5% in the fourth quarter. Bush provided more than $60 billion to help with immediate needs in the area and clean up.

Bush deregulated with the Bankruptcy Abuse and Consumer Protection Act of 2005, which protected businesses by making it harder for people to default on payments. As a result, homeowners had to take equity out of their homes to pay off debts. That sent mortgage defaults up 14% by the end of 2015. That same year, the subprime mortgage crisis peaked, leading to the Great Recession.

To provide relief for taxpayers, Bush sent out tax rebate checks in 2008 and passed business-friendly bailouts. Bush approved a $700 billion bailout package for banks to prevent the U.S. banking system from collapsing. The Republicans in Congress disagreed at first but eventually went along with that massive government intervention.

Instead of reducing the debt, Bush more than doubled it. He added more than $6 trillion in debt during his eight years in office. 

Donald Trump (2017-2021)

Donald Trump's economic plan followed Republican policies in most areas except for trade and immigration.

Trump pursued deregulation with executive orders. He loosened Dodd-Frank regulations that prevent banks from lending to small businesses. He tried to push forward the construction of the Keystone XL and Dakota Access pipelines.

Trump increased defense spending and promised to finance $1 trillion to rebuild U.S. infrastructure with a public/private partnership.

Trump's health care plan eliminated Obamacare penalties that levied a fine against those who chose not to enroll in a Health Insurance Marketplace plan.

Trump's tax plan reduced income and corporate tax rates. He ended the tax deferral on the $5 trillion in corporate cash held abroad and allowed one-time repatriation taxes of 15.5% and 8%, depending on if the money is held as cash or a cash equivalent. Trump also eliminated the "carried interest" deduction. 

The Trump tax cuts that were implemented ended up benefiting mainly wealthy Americans and corporations, rather than ordinary middle-class families or workers.

Trump's immigration policies were not business-friendly. He promised to build a wall blocking illegal immigrants from Mexico. He adopted a zero-tolerance removal policy that targeted any immigrant staying illegally in the United States. This raised costs for businesses that depend on low-wage immigrants. 

As for trade, Trump broke from the traditionally Republican push for free trade agreements and reverted to the protectionism reminiscent of the Hoover administration. He withdrew from negotiations on the Trans-Pacific Partnership. He renegotiated NAFTA. He imposed tariffs on imports from China, a move that sparked a trade war with China and other trading partners. The impact has been particularly severe in the American agricultural sector. Soybean exports to China fell drastically after the tariffs took effect. Paradoxically, the trade deficit with China has continued to increase amid the trade war Trump launched to strengthen the U.S.'s position.

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