Budget Deals and Deficit Reduction
Last week when writing about The Challenge of Federal Budget Deficits, I recalled my initial impressions of dealing with the massive U.S. government budget as a member of the Ways & Means Committee and its representative to the House Budget Committee. By the time George H.W. Bush was elected President in 1988, I had become well versed in Congressional processes and authority governing taxation, spending and budgeting. Having become personally acquainted with then Vice President Bush, I watched with interest as he grappled with these tough economic and budget issues. What I witnessed was impressive.
Recently, Bruce Bartlett covered this era well in a comprehensive article in The Fiscal Times that examines the budget deal in 1990 between President George H.W. Bush and the Congressional Democrats. He sets the record straight from the start:
There is a dogmatic belief that permeates Republican circles which says that budget deals never reduce budget deficits. Republican strategist Grover Norquist recently said that those that do cut the deficit are as real as unicorns. This is factually untrue. The record shows that the 1990 budget deal was extremely effective in reducing deficits; the budget surpluses of the late 1990s owe much to the policies put in place by George H.W. Bush that his son and party later repudiated.
As President, George H.W. Bush was faced with a very difficult economic situation due to the savings and loan crises which is not dissimilar, albeit on a much smaller scale, than what President Obama faced upon taking office. With a worsening economy and the call for government intervention to shore up the savings and loan industry, it looked to all eyes as if the deficit was set to take a significant turn for the worse.
As part of the broad leadership team of the Democratic majority, I knew we were serious about protecting consumers from the impacts of the savings and loan fiasco and that meant spending federal dollars to mitigate damages and new policy to fix the deep underlying issues. But we Democrats on the Budget Committee also had serious concerns about addressing the deficit – a stance that Americans don’t recognize enough as a platform of the Democratic party. Addressing the growing deficit while grappling with these critical extra expenditures left only two real options –raise taxes and cut spending.
President Bush had famously ruled out the imposition of any new taxes at the 1988 Republican Convention, yet he was encountering a situation where fiscal responsibility necessitated finding new revenue. A lesser leader may have avoided the problem or deferred it to a later administration. Instead, President Bush made the tough choice to partner with the Democrats in Congress and put the country on the right track to budgetary responsibility. As Bruce Bartlett notes:
…Bush agreed to negotiate in early May on the Democrats’ terms. Although Republican negotiators were willing to discuss taxes, Democrats were wary of a trap. They feared being hung out to dry unless Bush himself made a public commitment to put taxes on the table. He did so on June 26, 1990, saying, “It is clear to me that both the size of the deficit problem and the need for a package that can be enacted require all of the following: entitlement and mandatory program reform; tax revenue increases; growth incentives; discretionary spending reductions; orderly reductions in defense expenditures; and budget process reform—to assure that any bipartisan agreement is enforceable and that the deficit problem is brought under responsible control.”
Due to the President’s leadership and initiative, the Democrats in Congress were able to work with the administration and arrive at a budget deal that put principles before politics. The plan cut spending and raised revenues. It was the birth of PAYGO which required any new spending to be paid for by offsets somewhere else. There were spending caps in certain areas and we hoped it would pave the way for long-term fiscal responsibility. I was proud to be part of that 1990 budget process.
Sadly, President Bush paid the price for his actions when he lost the White House. But his deal set the stage for President Clinton to build on this foundation and achieve budget surpluses later in the 1990’s. There are lessons to be learned from the bi-partisan deal-making of 1990 that would benefit the American People today.