Drawing Lessons from the 1990 Federal Budget Deal

Back in the late 1980s and early 1990s, lawmakers faced a serious challenge with large budget deficits.  Throughout the 1980s, many measures were put in place to combat deficits. Chief among them was the Gramm-Rudman-Hollings Balanced Budget Act of 1985 that laid out a path for balancing the budget by 1990. If the enacted criterion was not met, a large spending sequester loomed.

As it turned out, the budget was actually further away from balance in 1990 than it was when the Act was passed. As a result, President George H.W. Bush and leaders in the House and Senate (both controlled by Democrats at the time) met at Andrews Air Force Base to hammer out a budget plan. While there were some initial setbacks, a deal came to fruition that included both revenue increases and spending cuts. The package reduced deficits by nearly $500 billion over 5 years, with 64 percent of the savings coming from spending cuts and 36 percent from raising revenue. Savings came from instituting discretionary spending caps, creating a new top tax rate of 31 percent (up from 28 percent), increasing the gas tax, increasing the Medicare payroll tax cap, reducing Medicare provider payments, and reducing farm price support payments, among other things.

^{Source: Congressional Budget Office}

Drawing on the 1990 budget deal's lessons, George Mason University in conjunction with the Bipartisan Policy Center and Deloitte held a panel discussion yesterday to discuss how they could be applied in the current political discourse. The program was divided into two discussions with the first panel comprised of former members of the H.W. Bush administration, former Senate and House Leaders, and other budget experts. Panelists included former Senate Budget Committee Chairman Sen. Pete Domenici (R-NM), former Speaker of the House Tom Foley (D-WA), former White House Chief of Staff and Governor John Sununu (R-NH), Rep. David Obey (D-WI), and CRFB co-chair and former Rep. Bill Frenzel (R-MN).

One point a few panelists made was that the cliff in the 1990s was worse than the sequester we face today; the Gramm-Rudman-Hollings sequester would have cut non-exempt spending by about one-third, compared to the roughly 9 percent sequester this time. On the other hand, our budget problems this time around are more difficult since projected deficits and debt are larger, and we also face a demographic shift that will put additional pressure on the budget in the coming decades. Additionally, many panelists thought the political hurdles are higher today because partisanship may be a bigger issue now than it was two decades ago.

Sununu attributed the success of the 1990 budget deal to a President who was willing to sacrifice political capital to make a deal. Others on the panel called on President Obama to do same, which could be easier now after his re-election. CRFB co-chair Bill Frenzel advised lawmakers not to turn down a responsible deal since they would often get a worse one later. He also said that one should not make the perfect the enemy of the good since ultimately no deal will be perfect.

The second panel was composed of distinguished journalists and budget experts--including Jackie Calmes of The New York Times, Ron Elving of NPR, Michael Graetz of Columbia University, and Joe Minarik of the Committee for Economic Development--and focused on lessons for the current negotiations. The panelists generally were in agreement in calling on national leaders to set aside partisan divides to get a deal. Calmes said that national leaders must be able to stand up to their caucuses and put the nation first. She also said that both parties should want a deal and not just look to score cheap political points or make the other party look bad. Minarik advised leaders to make fundamental changes to put our debt on a sustainable path and not just constantly be in crisis avoidance mode.

The 1990's featured other budget compromises that eventually led to a balanced budget by the end of the decade. Hopefully lawmakers will take a lesson from the history books and put fiscal responsibility above partisan goals. The full event is worth watching for its perspective on both the politics and technical aspects of the 1990 budget agreement.

Click here for a full video of the event.