“Washington’s traditional approach to balancing the budget,” former Reagan White House official Peter Ferrara writes in today’s Wall Street Journal, “is to negotiate an agreement on a package of benefit cuts and tax increases. President Obama’s deficit commission seems likely to recommend just this strategy in December. The problem is that it never works.”
Wow, that’s a mouthful – and not a particularly accurate one at that.
Simply put, the history of the 1980s and 1990s shows conclusively that budget deals of the kind Ferrara disparages not only work, they are the only proven way through which a White House and Congress can reduce deficits. The deals of 1990 and 1993 in particular, along with deficit-cutting legislation in 1982, 1984, 1997, and other years, played a huge role in converting then-record deficits to a budget surplus in 1998.
That’s not to say, of course, that deficit-cutting legislation explains it all. Supportive monetary policy and a booming economy for much of that period played a huge role as well – though, as I note below, the deficit-cutting deal of 1993 helped create the conditions for the growth that followed.
As for Ferrara, let’s take a closer look at how his claims stack up against the actual historical record.
First, he writes of deficit-reduction deals: “What happens is the tax increases get permanently adopted into law. But the spending cuts are almost never fully adopted and, even if they are, they are soon swept away in the next spendthrift budget.”
Nonsense. As his prime example of fiscal perfidy, Ferrara states, “In 1982, congressional Democrats promised President Ronald Reagan $3 in spending cuts for every dollar in tax increases. Reagan went to his grave waiting for those spending cuts.”
Democrats made no such promise. It was Republican Bob Dole, the Senate Finance Committee chairman in 1982 and later the Senate Majority Leader, who dismissed this age-old legend about $3 in spending cuts for every $1 in tax increases as “an agreement between the President and his speechwriters.”
Besides, Ferrara himself seems to acknowledge that his general point – spending cuts never stick – isn’t quite accurate. He writes that after Republicans took over in 1995, Congress “cut federal discretionary spending by 5.4%, measured in constant dollars” and that as a percent of gross domestic product (GDP), it “dropped 17.5% between 1995 and 1999.”
If Ferrara really means that Democrat-imposed spending cuts don’t stick, well, that’s not right either. Total federal spending fell every year as a percentage of GDP under President Clinton (including the first two, when Democrats ran Congress), as the Historical Tables book from the Office of Management and Budget make clear. So, too, did discretionary spending, except for a tiny rise from 6.2% to 6.3% of GDP from 1999 to 2000.