The 1997 Bipartisan Budget Agreement cut spending and cut taxes

The 1997 Bipartisan Budget Agreement cut spending and cut taxes

In 1993 President Bill Clinton worked with Speaker Tom Foley (D) and Senate Majority Leader George Mitchell (D) to enact a law that reduced the deficit by cutting entitlement spending and raising taxes. At the time Democrats labeled this a “deficit reduction law,” while Republicans labeled it a “tax increase law.” The law passed Congress with only Democratic votes – all Republicans voted no.

A little more than a year later, Republicans won the 1994 elections and took the majorities in the House and Senate. In 1995 Republicans passed a spending cut bill that would have balanced the budget, and another bill that cut taxes. President Clinton vetoed both.

On May 15, 1997, after months of intense negotiations, President Clinton reached a bipartisan budget agreement with Speaker Newt Gingrich (R), Senate Majority Leader Trent Lott (R), and Senate Minority Leader Tom Daschle (D). House Minority Leader Dick Gephardt (D) did not sign on.

I was Senator Lott’s budget staffer at the time. In addition to aiding him in those negotiations, I assembled the 1997 agreement document. While it was widely circulated then, that was 14 years ago, and I haven’t seen the 24-page document or that agreement discussed anywhere recently.

Here it is: Bipartisan Budget Agreement (May 15, 1997).

Of particular relevance to the current negotiation is the table on page 4, titled “SUMMARY OF DEFICIT REDUCTION IN BUDGET RESOLUTION MARK.” From this table you can see that President Clinton (and Senator Daschle) agreed with Leader Lott and Speaker Gingrich to a deal that cut spending, reduced the deficit enough to balance the budget, and cut taxes.

That’s right. The 1997 Clinton-Gingrich-Lott bipartisan budget agreement cut spending enough to balance the budget and cut taxes.

You can see from this table that over a five year period (1998-2002) the agreement:

  • cut defense discretionary spending by $77 billion and cut nondefense discretionary spending by $61 billion;
  • “cut” (reduced the growth rate of) Medicare spending by $115 billion;
  • “cut” Medicaid spending by $14 billion;
  • cut other mandatory spending by $40 billion;
  • contained new “Presidential [spending] initiatives” that increased spending by $31 billion; and
  • cut taxes by a net $85 billion (and a gross $135 billion, $50 billion of which was offset by other tax increases).

The net result of this agreement was $204 billion of net deficit reduction over five years, and a projected balanced budget in 2002. That $204 billion accounts for the deficit-increasing effects of both the President’s new spending and the Republicans’ net tax cuts. The gross deficit reduction was about $320 billion over five years.

Not mentioned in this document is that the deal also included an agreed-upon downward adjustment, made by the Clinton Administration administratively, to the Consumer Price Index.

At the time:

  • President Clinton’s negotiators were his budget director, Leon Panetta, and his White House Chief of Staff, Erskine Bowles.
  • Jack Lew was #3 in President Clinton’s OMB and ran OMB legislative affairs.
  • Gene Sperling was Deputy Director of President Clinton’s National Economic Council.
  • Tim Geithner was a Deputy Assistant Secretary in President Clinton’s Treasury Department.

A “grand bargain” between President Obama and Republican Leaders has now broken down, apparently both because the President wouldn’t agree to deep enough long-term entitlement spending cuts, and because Speaker Boehner and Leader McConnell wouldn’t agree to net tax increases.

For the past week the Obama White House and their allies have been setting up the argument that a Republican refusal to raise net taxes as part of a deficit reduction deal is “extreme.” But if we compare President Obama’s position to both the 1993 Democrat-only reconciliation law and to the 1997 bipartisan budget agreement, we should not be surprised.

President Obama is insisting Republicans sign onto a deal like that which Democrats passed by themselves in 1993, and which Republicans unanimously opposed.

As you try to understand why a grand bargain is not happening in 2011, please consider the successful bipartisan grand bargain of 1997. Republican Leaders are now insisting only that taxes not go up, while President Obama is to the left of where President Clinton was when he successfully negotiated a bipartisan agreement.

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