Boxer rewrites budget history yet again
“In the last 50 years only one party balanced the budget, and that party is the Democratic party. Bill Clinton and the Democratic Congress, the only party that ever balanced the budget. So spare me the lectures from my friends on the other side of the aisle about how they are the ones that know how to do it. No, they don’t.”
— Sen. Barbara Boxer (D-Calif.), Senate floor, March 4, 2013
“I think we ought to go back to the people and the party that was the only party and the only people to balance the budget in 40 years. I hate to break it to my Republican friends, but that is the Democratic Party. We are the ones who did it. We did it when Bill Clinton came into office. We did it after hard work. We did it after painful cuts. We did it with smart investments.”
—Boxer, Senate floor, June 29, 2011
The Fact Checker frowns on recidivism.
Nearly two years ago, we awarded Boxer Three Pinocchios for her statement in 2011. Yet, almost word for word, she repeated it again this week.
Both parties in Washington appear to have their own historical narratives, which is one reason why compromises are so difficult. If people can’t even agree on what happened in the past, why should we expect them to agree in the present?
The complete history of how a balanced budget emerged in the late 1990s is still relevant. Rep. Paul Ryan (R-Wis.) is set to unveil a budget plan that he claims will balance the budget in 10 years. Matt Miller, a former Bill Clinton aide who writes an opinion column for The Washington Post, argues that the introduction of Ryan’s budget, which he thinks will be riddled with gimmicks, nonetheless will be a political “game-changer” and a moment of peril for Democrats.
In Boxer’s telling, the budget surplus that emerged in 1998 and continued for four years sprang forth from a critical moment — the passage of Clinton’s 1993 deficit-reduction bill. For those who don’t remember, it was a cliffhanger vote in both houses of Congress, with not a single Republican lawmaker supporting it.
But this narrative makes the Republicans — who controlled the House and essentially the Senate when the budget was in surplus in 1998, 1999, 2000 and 2001 — completely irrelevant to the eventual outcome. But that is a willful misunderstanding of what happened. (A Boxer spokesman did not respond to a request for comment.)
The Fact Checker had a front-row seat during the budget wars of the 1990s, covering Congress and the Clinton White House. So, here, again, is an explanation of how the federal budget was really balanced.
President Clinton’s 1993 deficit plan certainly was a political and economic gamble. Clinton believed that if he crafted a credible deficit-reduction package, Wall Street traders would bid up the prices of Treasury bonds, leading to a decline in interest rates.
Lower interest rates, the theory went, would reduce mortgage costs for homeowners and make it cheaper for businesses to obtain loans for investment and expansion. Lower overall interest rates would also give the Fed more maneuvering room to fine-tune the economy.
Clinton set a target of cutting the deficit by $496 billion over five years. Hefty tax increases on the top two percent of taxpayers were an important element, but Clinton also had to include enough changes in social policy to win over the party’s progressive wing, such as a boost in Head Start funding and a major expansion of a tax credit for the working poor.
Republicans predicted gloom and doom if Clinton’s plan was passed into law. Sen. Orrin Hatch (R-Utah) said, “Make no mistake, these higher rates will cost jobs.” Sen. Charles Grassley (R-Iowa) chimed in, “I really do not think it takes a rocket scientist to know this bill will cost jobs.” And then–Sen. Phil Gramm (R-Tex.) declared: “I want to predict here tonight that if we adopt this bill, the American economy is going to get weaker and not stronger, the deficit four years from today will be higher than it is today and not lower.”
Such predictions turned out to be wrong, and those comments certainly seem foolish two decades later. Then-Vice President Al Gore joked to White House aides that the resulting boom “was the first time that they had seen a law of intended consequences.”
But here’s the important point: Clinton’s plan was never intended to achieve a balanced budget. After the bill’s passage, the Congressional Budget Office estimated that the deficit would decline modestly — from $290 billion in 1992 to $200 billion in 1998. In the phrase of the era, there were still “deficits as far as the eye could see.”
The Clinton budget plan was actually slightly smaller, on an inflation-adjusted basis, than the deficit-reduction package signed into law in 1990 by President George H.W. Bush ($789 billion in today’s dollars versus $849 billion). Many Republicans also opposed that deal — which Boxer supported — because it included higher taxes.
Fast forward to 1995. The Democrats had lost control of the House and the Senate, largely because of bruising budget battle. Clinton’s fiscal year 1996 budget proposed $200 billion deficits every year for the next five years. (See Table S-1.) So, again, the target in 1998 (when surpluses later emerged) was a deficit of $196 billion.
But Republicans, who were now in charge of Congress, immediately set the goal of achieving a balanced budget within seven years. After resisting for a few months, Clinton shocked many fellow Democrats by announcing that he, too, would embrace the idea of a balanced budget. (He picked a 10-year target.)
As The Washington Post editorial page put it at the time, Republicans had forced Clinton’s hand: “Mr. Clinton’s new position on the budget is much better than the old one. He should have taken it six months ago. The Republicans have driven him to say that he too wants, if not to balance the budget, at least to get the deficit into the neutral zone.”
In other words, the policy debate in Washington substantially shifted because of the GOP takeover of Congress and its embrace of a balanced-budget goal. (Miller, in his article, warns that the same thing may happen if Ryan succeeds with crafting a balanced-budget plan.)
Meanwhile, there were economic forces that had little to do with either Democrats or Republicans: A gusher of tax revenue emerged, primarily from capital-gains taxes, because of the run-up in the stock market, as well as taxes paid on stock options earned by technology executives.
Clinton was lucky to have become president just as a revolution in computer and information technologies was unleashed.
From 1992 to 1997, CBO estimated, tax revenue increased at an annual average of 7.7 percent in nominal terms, or about 2.4 percentage points faster than the growth of the gross domestic product, the broadest measure of the economy. CBO Deputy Director James L. Blum in 1998 attributed only one percentage point of that extra tax revenue to the 1993 budget deal. The rest, he said, came from capital gains.
Between 1994 and 1999, realized capital gains nearly quadrupled, the CBO concluded, with taxes on those gains accounting for about 30 percent of the increased growth of individual income tax liabilities relative to the growth of GDP.
There were other factors as well, such as lower-than-expected health costs that reduced an expected drain on the budget. Clinton’s predecessor also had kicked in motion a huge decline in defense spending (which Clinton accelerated) and also had overseen a painful restructuring of the banking industry. Even a potential shock, such as the Asian financial crisis in 1997, brought the silver lining of lower oil prices that bolstered the U.S. economy.
Clinton, however, took important steps to preserve this success. When the prospect of budget surpluses emerged in 1998, he adroitly blocked GOP demands for a tax cut by forcing a bidding war on how much to reserve for Social Security — a political maneuver that likely prevented the surpluses from disappearing as quickly as they appeared.
We all know what happened after Clinton left office — the (largely illusionary) projections of vast budget surpluses were used by George W. Bush to justify a massive tax cut.
The Pinocchio Test
As we said in 2011: “Boxer literally wipes away any Republican contribution to the process — and also claims credit for creating 23 million jobs while ignoring broad historical changes in the U.S. economy that had little to do with inside-the-Beltway sausage-making. This is more than just spin; it is a rewriting of history that borders on the absurd.”
Maybe next time she will be more careful to give at least a bit of credit where credit is due.
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