How Washington Deals with Recessions
“A recession is not inevitable.” That is the line being spoken loud and clear – and often – from the Biden administration this week. It is a tough argument to make, and not necessarily because of the economics. Because of how people are feeling. According to an Economist/YouGov poll published this week, more than half of Americans, a full 56 percent, already believe the country is in a recession.
Of course, the U.S. isn’t actually in a recession. Or at least not yet. Officially, recessions are defined as two consecutive quarters of decline in real gross domestic product.
But official or not, the public’s sentiment on the economy is problematic for President Biden and the Democrats. The Economist/YouGov survey dropped less than five months before the 2022 midterm congressional elections. Voters are in a negative mood, and President Joe Biden and Democrats in Congress are hoping to reverse that feeling. Just this morning, President Biden asked House and Senate lawmakers to approve legislation to suspend the 18.4 cent-per-gallon federal gas tax and the 24 cent-per-gallon diesel tax for the next three months.
This year is certainly not the first time that lawmakers have faced reelection during difficult economic times. What policy levers have legislative and executive branch officials used to try to soothe voters in past downturns? Our findings might surprise you.
Why? Because there is no overarching theme. Policymakers have not always tried to ease the pain for American families. In fact, sometimes they have done the opposite.
Since The Great Depression, There Have Been Nine Election-Year Recessions
The United States has suffered 14 recessions since the Great Depression. Nine of those either started or were ongoing in May or June of either congressional midterm or presidential election years.
According to Investopedia, inflation played a role in at least six of those nine, including the recessions in the early, mid-, and late 1970s and the “Gulf War Recession” of 1990-91.
Beyond the economic impact, these downturns had political consequences, real or perceived. Then-Vice President Richard Nixon blamed a recession for the fact that he lost to John F. Kennedy in the 1960 presidential election. (In 1961, according to The History Channel, the newly-elected President Kennedy “took credit for ending [the recession] with a round of stimulus spending in 1961 and an expansion of Social Security and unemployment benefits.”) Even though the 1990 “Gulf War Recession” was over well before he was on the ballot in November 1992, President George H.W. Bush’s defeat at the hands of Bill Clinton is largely blamed on economic factors.
The age-old mantra is true: voters vote with their wallets and pocketbooks.
How White House, Congress Have Reacted To Recessions During Election Years
According to academic analysis, facing a recession in the late 1950s, President Dwight D. Eisenhower “refused” to turn to fiscal stimulus measures to save the country from a downturn. Perhaps this is the reason his vice president, Richard Nixon, was so sour after his 1960 presidential election loss.
More than a decade later when he finally was in the White House, President Nixon faced a recession of his own. He acted—but perhaps not with policies Americans today would expect.
President Nixon was in power in 1973 when the country fell into another recession. Unemployment nearly doubled from late 1973 to early 1975 and the 1974 elections happened right in the middle of that increase. According to The History Channel, President Nixon put into place wage and price controls, but that only led to lower growth combined with rising inflation, or stagflation. And, while President Biden is currently reportedly considering ending tariffs in order to ease cost pressures on American families and businesses, President Nixon imposed a 10 percent import tax on U.S. trading partners that raised the price of goods.
Did Republicans pay the price? Interestingly, no. According to The Balance, the popularity of President Nixon’s policies are actually one reason he won a second term in 1972.
The policies became less popular as the recession lingered, however. Republicans were routed in the 1974 midterm elections (due in part to Watergate). After the midterm losses, President Ford proposed a tax cut to fuel consumer consumption. During the middle of a recession in 1981-1982, President Ronald Reagan also proposed widespread tax cuts, although they were part of his presidential platform. He did not try to sell them to Americans as a way to evade a recession.
According to an article in The Washington Post, like President Eisenhower, in 1979 President Jimmy Carter did not try to fight inflation and recession by “giving” things to American families. In fact, he took them away. Specifically, his fiscal year 1980 budget proposal he pledged to “fight inflation by restraining spending.” The Post reported that President Carter had the full support of his administration. “Vice President Mondale, usually a voice for liberal programs within the administration, now argues: ‘I think we have to stay the course. There is really no alternative to getting this inflation rate down,’” The Post noted.
Vice President Mondale also said he did not see any political risk to cutting social programs headed into a presidential election year. According to The American Prospect, President Carter stuck by his austerity plan through the 1980 election — and that is one reason Ronald Reagan was able to defeat him.
In 1990, President George H.W. Bush was criticized for not using Congress and fiscal policy to address the recession. As the Federal Reserve Board of San Francisco wrote ten years later, “During the last U.S. recession, in 1990, then President George H. W. Bush resisted attempts to use fiscal policy to stimulate the economy. In fact, his Council of Economic Advisers, in their February 1992 report, argued that increases in fiscal expenditures or reductions in taxes might hamper the economy’s recovery.”
Rebates Gain Popularity In 2000s
A fact sheet from President George W. Bush’s White House archive outlined the tax relief that his administration provided to American families during his time in office, including at the beginning the Great Recession in 2008.
President Bush himself was not on the ballot, but Republicans were fighting to keep the White House and take back Congress from Democrats. The fact sheet said, “President Bush addressed the weakness in the economy early in 2008 by leading the bipartisan passage of an economic growth package that boosted consumer spending and encouraged businesses to expand, returning more than $96 billion to Americans.” The tax cuts came in the form of “recovery rebates.” Most people who filed tax returns for either 2007 or 2008 were eligible for $600 or $1,200 advance credits, or rebates, on their next year income taxes.
While it was not an election year, President Bush also had signed rebate checks into law in 2001 as a way to address the recession stemming from lingering dot com bust.
Congress also used tax policy to help Americans weather the COVID-19 recession. Starting in March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided Economic Impact Payments of up to $1,200 per adult for eligible individuals and $500 per qualifying child under age 17.
These checks may be partially responsible for the situation the country is in right now.
There is “evidence that the stimulus, especially the last round, likely stoked higher and higher prices for the very people it was intended to help,” FiveThirtyEight researchers wrote this past April. “Though global supply chain issues … have been significant drivers of inflation, the divergence between U.S. and European inflation suggests there’s more to it than that. In fact, a recent analysis from researchers at the Federal Reserve Bank of San Francisco found that the stimulus may have raised U.S. inflation by about 3 percentage points by the end of 2021.”
And what about a gas tax holiday?
During the 2008 election, then-presidential candidate Sen. Barack Obama criticized rivals Sen. John McCain (R-Ariz.) and Sen. Hillary Clinton (D-N.Y.) for proposing the idea of a gas tax holiday as a means to help struggling families, arguing it was a gimmick. Many in Congress are responding similarly to President Biden’s call this morning to suspend the gas tax.
Will A Gas Tax Make Voters Feel Better?
President Biden cannot suspend the federal gas tax himself — it will take an act of Congress, including the support of Republican senators to get to that chamber’s 60-vote threshold.
If lawmakers can get a bill to the president’s desk, will it improve the mood of the electorate? Many economists say it won’t translate into big savings for most families. And, according to the Institute for Taxation and Economic Policy, eliminating fuel taxes, even for a short time, also could have long-term consequences. These levies finance the Federal Highway Trust fund and since gas taxes are not indexed to inflation, and Congress has not raised them since 1993, the dollars do not go as far.
Suspending the gas tax would mean fewer dollars to invest in highway infrastructure. In other words, a gas tax holiday actually could undermine one of President Biden’s chief accomplishments: passage of last year’s historic infrastructure bill.
Still, 70 percent of voters support the idea. Since it’s an election year, and with polls suggesting a difficult November, the White House figures why not try?