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Yes, the 1990 Budget Deal Spending Cuts Were Real

By Josh Barro

When you talk with conservatives about why they resist deficit-cutting deals, a response you often hear is that these deals produce real tax increases and illusory spending cuts. As my Bloomberg View colleague Ezra Klein discussed earlier this week, conservatives who won't cut a deal say they simply won't be fooled again.

But the deal conservatives hate most, the Budget Enforcement Act of 1990 (the one where President George H.W. Bush broke his "no new taxes" pledge) really did cut spending as promised. The claims that it didn't are based on bad math.

Ryan Ellis of Americans for Tax Reform made the usual "fake spending cuts" case against the 1990 deal last year:

"The Congressional Budget Office (CBO) projected before the deal that 1991–1995 spending would total $7.07 trillion. In fact, total spending for this period was $7.09 trillion. In other words, in return for agreeing to tax hikes, Republicans got $22 billion in extra spending rather than the promised $274 billion in cuts."

This is false! The CBO's five-year projection for spending prior to the 1990 budget deal was not $7.07 trillion. As of July 1990, the CBO was projecting $7.28 billion in federal spending from 1991 through 1995, as you can see if you add the totals on page x of this report.

The CBO had forecast $7.07 trillion in spending over this period in January 1990; this is the figure Ellis cites. The Budget Enforcement Act wasn't enacted until November. In the intervening period, two things happened. First, tax collections were weak, leading the CBO to cut its revenue projections over the following five years.

Second, the apparent cost of the ongoing savings and loan bailout through the Resolution Trust Corporation greatly increased. As a result, the CBO's revenue baseline fell and its spending baseline rose, increasing projected deficits and making a budget deal more urgent.

The Budget Enforcement Act was drafted off a baseline very close to the July baseline and promised a cut in five-year spending from $7.26 trillion to $7.09 trillion. Actual spending over that five year period was also $7.09 trillion; in other words, the promised spending cuts materialized in full.

When the CBO looked back at the Budget Enforcement Act in 2003, it found that Congress had actually adhered closely to its discretionary spending caps all the way through 1998, never exceeding the caps by more than $10 billion. (See the table on page 115.)

Congress lost discipline after that, probably because the budget moved into surplus and spending restraint no longer seemed necessary. Of course, that heady desire to spend (and cut taxes) persisted much longer than the surpluses did.

You don't have to like the outcome of the Budget Enforcement Act of 1990, particularly if your primary concern is keeping taxes low. But you can't argue that its promised spending cuts didn't materialize, unless you think $7.09 trillion is more than $7.09 trillion.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

Read more breaking commentary from Bloomberg View at the Ticker.

-0- Dec/27/2012 22:46 GMT

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