By some measures, the 1990 budget deal was a success: It helped shrink the deficit, then at 5 percent of gross domestic product, by $492 billion — $850 billion in today’s dollars — over just five years. And it passed with support from both parties.
But in other ways, the 1990 budget deal set the stage for today’s fiscal deadlock. At the center of it all was the Dirty Harry-style pledge that President George H.W. Bush had issued during his 1988 presidential campaign — “Read my lips: No new taxes.” Although an agreement was eventually reached that raised taxes and cut spending, many Republican lawmakers thought the deal and its aftermath proved the folly of compromise.
“The 1990 budget agreement was real bloodshed. It was a civil war within the party,” says John Feehery, who worked for Republican former congressmen Tom DeLay (Tex.),J. Dennis Hastert (Ill.) and Robert H. Michel (Ill.), who was at the center of the 1990 dealmaking.“We’re still living in the world of that agreement. That’s when it became really radioactive to vote for tax increases.”
The budget saga became a tale of how to get Bush to gracefully break his pledge — except there was no graceful way to do it. When he realized he might need to back away from his vow, Bush searched for some new lines. In mid-1990, he sent, as a memento, a copy of one of his radio addresses to Rep. Fred Upton (R-Mich.), whom he was promoting for reelection. In the text, which still hangs in Upton’s office, Bush had crossed out the phrase “no new taxes” and scribbled in the words “limiting taxes.”
All summer in 1990, as the Oct. 1 deadline for a budget neared, negotiators tried to avoid bold steps and looked for what some called an “immaculate conception” — a package that would raise taxes yet help them escape blame for new taxes.
Bush’s budget director, Richard G. Darman, told Senate Majority Leader George Mitchell (D-Maine)that a tax increase would somehow “just emerge” from a meeting of Republican and Democratic leaders. Mitchell later said he was “very suspicious” because White House Chief of Staff John Sununu said he would seek to blame the Democrats for making a pitch for higher taxes.
Many of the same games being played today were played back then, too. Certain taxes were labeled “fees” or “revenue enhancers.” The administration talked about higher tax “revenues” rather than higher tax rates.
Ultimately, the government shut down for three days before a deal passed in a 21-hour, all-night House session. Higher tax rates and revenue accounted for 28 percent of the total deficit reductions. Democrats accepted trims in Medicare and constraints on the growth of domestic discretionary spending. The top income tax rate was raised from 28 percent to 31 percent, though a proposed increase in the gasoline tax was rejected.