— Sen. Barbara Boxer (D-Calif.), June 29, 2011
Each party in Washington seems to have their own narrative. Sen. Boxer’s comment above, from a long floor speech Wednesday lambasting Republicans for pushing a balanced budget amendment to the constitution, is a case in point.
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 Bill 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.
“Lucky for us, a lot of us are still here who made that fateful vote. We didn't have one Republican voting for that budget, and when they came to the floor — I have all the quotes, chapter and verse--they said: This is horrible. It will never balance the budget. This is going to lead to a depression. This is the worst thing,” Boxer recounted.
Boxer added: “But we know what happened. We not only balanced the budget, but we had a surplus. We not only had a surplus, but the debt was going down so fast we thought we would never have to have Treasury bonds again. On top of that, we created 23 million jobs.”
But is that really what happened? Were Republicans — who controlled the House and essentially the Senate when the budget was in surplus in 1998, 1999, 2000 and 2001 — irrelevant to the process?
President Clinton’s deficit plan certainly was a political and economic gamble.
Clinton believed that if he crafted a credible deficit plan, Wall Street traders would bid up the prices of Treasury bonds, leading to a decline in interest rates.
The 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. 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.
Certainly, Republicans predicted gloom and doom if Clinton’s plan was passed into law.
According to statements supplied by Boxer’s office, 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-Texas) 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.”
(Note to lawmakers on both sides of the aisle: such over-the-top predictions are really foolish.)
But here’s the important point: the Clinton 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.”
Indeed, 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 ($770 billion versus $830 billion). Many Republicans also opposed that deal — which Boxer supported — because it included higher taxes.
Fast forward to 1995. The Democrats lost control of the House and the Senate, largely because of bruising budget battle. Clinton’s fiscal year 1996 budget again proposes $200 billion deficits every year for the next five years. So, again, the target in 1998 (when surpluses later emerged) was a deficit of $196 billion.
But Republicans 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.
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.”
Boxer’s staff referred us to an article by Michael Linden of the Center for American Progress to make the case that the GOP had little to do with achieving a balanced budget. Linden wrote the analysis in response to an article by former House speaker Newt Gingrich claiming major responsibility for achieving the surplus. (Like we said, each party has their own narrative.)
In the article, Linden asserted that “virtually the entire fiscal improvement” in the mid-1990s was due to Clinton’s 1993 budget and an improving economy, “and particularly the interaction between them.” He argued that legislation passed by Republicans between 1995 and 1997 “combined to actually worsen the fiscal situation—albeit slightly.”
In an interview, Linden conceded that he was only writing about the 1998 surplus. Legislation passed by Republicans and signed by Clinton — such as the Balanced Budget Act of 1997, welfare reform and other bills — “definitely had an impact after 1998 but we were already at a balanced budget at that point,” he said. (Boxer, incidentally, opposed welfare reform, which was predicted to reduce the deficit by $55 billion over five years.)
But even Linden’s argument about 1998 is one-sided. He ignores the substantial shift in the policy debate in Washington that occurred because of the GOP takeover of Congress. He also glosses over the fact that the government ended up with a gusher of revenue that had little to do with Clinton’s 1993 budget deal: capital-gains taxes from the run-up in the stock market, as well as taxes paid on stock options earned by technology executives.
Clinton, in essence, was lucky to become president just as a revolution in computer and information technologies was unleashed.
From 1992 to 1997, CBO estimated, 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 1 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. (Linden says: “I can’t really answer the question about how much Clinton had to do with the economy. He presided over it.”)
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.
Credit Clinton with this, however: 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 Pinocchio Test
Boxer’s staff suggests her floor statement should be read in the context of Republicans coming to floor this week and lecturing Democrats about the tide of deficits, without acknowledging their own role in promoting tax cuts, higher military spending and other programs that have helped erode the nation’s fiscal standing. Fair enough.
But one alternative history does not give license to invent another one. When we started examining this question, we thought Boxer’s comment might be worth a couple of Pinocchios. But the more we dug, the more we decided that her comments had begun to cross a line, especially since she had been an active member of the Budget Committee during the 1990s.
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.
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