For several years, the holy grail of public policy in Washington has been a so-called grand bargain in which Republicans would agree to raise taxes in exchange for the promise of spending cuts. Though widely discussed, such a deal has proved illusory: President Obama and Democrats haven't put fundamental entitlement reform on the table, and Republicans haven't wanted to raise taxes.
This pas de deux is central to every showdown between Republicans and Obama, including the debate over preventing the nation from going over the "fiscal cliff" at the start of the new year. For their part, Republicans have every reason to be skeptical of such a grand bargain because when they have struck such budget deals in the past, taxes went up as scheduled but the spending cuts didn't materialize.
Nothing did more to poison the well than the 1990 Budget Enforcement Act, or BEA, when President George H.W. Bush violated his "no new taxes" pledge as part of a deficit pact that was supposed to rein in spending. The deal was a huge political loser for Bush, and Bill Clinton successfully used the broken promise against him in the 1992 presidential election. Despite this politically damaging compromise, the deal didn't effectively rein in government.
Recently, a number of pundits have challenged this view of history. The Washington Post's Ezra Klein wrote that spending levels did match the parameters from the deal from 1991 through 1997, after which the economic boom allowed for more spending. This was echoed by Bloomberg columnist Josh Barro, who insisted that the 1990 BEA "really did cut spending as promised." Both writers, and other defenders of the deal, neglect to mention that the spending cuts that did occur came from the post-Cold War drawdown of the military, while nondefense spending continued to soar.
In a 2003 report, the Congressional Budget Office wrote that the overall numbers "mask substantial programmatic shifts (that were aided by the end of the Cold War) from national defense to nondefense programs. In 1997, both defense budget authority and outlays were well below the amounts recorded in 1991; that budget authority had dropped by $66 billion, and outlays had declined by $48 billion. Over the period, nondefense budget authority increased by $31 billion and nondefense outlays jumped by $62 billion."
The reason why this is an important distinction is that Democrats are always willing to cut defense spending, and the fall of communism represented a unique historical opportunity to do so. Bush didn't need to agree to raise taxes to get Democrats to go along with steep military cuts at the end of the Cold War. The resulting package of defense cuts and tax increases was the liberals' dream approach to deficit reduction, and Republicans had nothing to show for it because nondefense spending went up.
Though Obama's re-election and the automatic expiration of current tax rates make some sort of tax increase inevitable, Republicans should be wary of any major agreement that does not include fundamental entitlement reform.