Home | Business News | Browse by Publication | T | The Review of Policy Research

The success of the 1993 budget reconciliation bill at reducing the federal budget deficit.

Article Excerpt
PRESIDENT CLINTON AND THE 1993 BUDGET RECONCILIATION BILL

Bill Clinton, unlike most other recent presidents, demonstrated that he would immerse himself in the details of the budget. Despite the fact that it was not an issue that he emphasized while running for the presidency in 1992, Clinton demonstrated willingness early in his presidency to reduce the deficit. It was widely held that if Clinton was to get a handle on the deficit as he promised, he must do so in the first year of his presidency, when his political capital was at its peak (Hager and Cloud, 1993a).

In a joint session of Congress on February 17, 1993, President Clinton unveiled his budget proposal that included deep spending cuts, but which relied overwhelmingly on tax increases to bring the deficit downward. At the same time, Clinton proposed to quickly boost short-term job creation by pumping billions of dollars into new spending programs. Clinton's deficit-cutting plan was the largest in history, proposing to save nearly $500 billion over four years. Of that amount, roughly two-thirds would go to reduce the deficit, while another third would be used to pay for increased job creation and long-term investment spending, making net deficit reduction at the end of the four years of the plan about $325 billion (Hager, 1993).

The deficit-reduction package proposed a cut of $493 billion over four years, $247 of it coming from spending cuts and $246 billion from tax increases, almost exactly a 1-to-1 ratio. The ratio of tax increases to spending cuts quickly emerged as the major conflict point in congressional reaction to the plan. Republicans and conservative Democrats were upset that the ratio of cuts to taxes was much less than the 2-to-1 ratio that Panetta had advocated during his confirmation hearings. Though the deficit-reduction plan made notable spending cuts, its heavy reliance on tax increases displays the difficulties the Clinton economic team had coming up with acceptable spending cuts.

Clinton's call for a tax increase was a direct repudiation of the economic philosophies of his two Republican predecessors. By aiming the taxes primarily at corporations and the well-off, Clinton was suggesting that the programs of Ronald Reagan and George Bush, which were designed to stimulate economic growth through tax cuts, came at the price of high deficits. Clinton believed that he could convince the American public--and a majority in Congress--that the economic expansion of the 1980s held negative consequences in the long run. Clinton proposed to raise most of the new revenue with an array of higher taxes on upper-income Americans and corporations, including $126.3 billion over six years mainly through a new top income tax bracket of 36 percent and a surtax on income over $250,000. Overall, more than half of the new taxes were projected to fall on families making more than $200,000 a year (Cloud, 1993). Table 1 shows the distribution of tax burden by income group.

President Clinton's proposed budget faced its biggest obstacle in Congress with the vote on the budget reconciliation bill. The budget resolution only locked in the broad deficit-reduction numbers, but left virtually all of the specifics to the reconciliation process. The reconciliation bill was designed to reconcile tax and spending policy with deficit-reduction goals outlined in the budget resolution. The measure was the heart of Clinton's plan to reshape the nation's economic policy.

In the end, Clinton's economic plan emerged victorious, though just barely. The Omnibus Budget Reconciliation Act was approved in August 1993 without a single vote to spare in either chamber: it passed 218-217 in the House and 51-50 in the Senate (with Vice-President Al Gore making the tie-breaking vote). The measure passed without any Republican votes, the first time in postwar congressional history and possibly the first time ever that the majority...