Policy: Budgets & Deficits

GOP is right to be skeptical of trading tax hikes for promised spending cuts

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Tax 3d concepts
Politics,Beltway Confidential,Philip Klein,Taxes,Republican Party,Budgets and Deficits,Spending

Over at the Washington Post, Ezra Klein argues that Republican skepticism about trading tax increases for promised spending cuts is unfounded. Essentially, he claims it’s a myth that Congress doesn’t abide by spending limits. As a specific example, he gives the 1990 budget deal in which the first President Bush famously broke his “no new taxes” pledge in exchange for spending restraint. Ezra writes, “In 2004, the Congressional Budget Office looked back on the 1990 budget deal. They found that it stuck perfectly from 1991 to 1997. After 1997, spending rose. But by then, the economy was roaring, and within a few years, we were at surpluses. So why shouldn’t Congress have been a bit looser with the purse?” Unfortunately, Ezra omits a key part of that CBO report that undermines his argument. The short version is that what the CBO actually said was that looking at the overall budget numbers would “mask” the fact that due to the end of the Cold War, there was a huge drop in defense spending, and shift to non-defense programs.

Here’s a more detailed explanation, from page 114 of the report Ezra cites:

Through the mid-1990s, when consensus remained to rein in deficits, the BEA appeared to curb the growth in both discretionary and mandatory spending. In nominal terms, total discretionary budget authority was $35 billion lower in 1997 than in 1991, although total discretionary outlays were $14 billion higher (see Table A␣2). Those figures, however, 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.

Thus, a deeper look at the numbers show that what actually happened after the deal was that taxes went up and military spending was slashed — in other words, we got the preferred liberal approach to deficit reduction. At the same time, non-defense spending still rose. The 1990 deal, therefore, is a good reason for Republicans to be skeptical about trading tax hikes for promised spending cuts.

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