America is now in the eighth year of what might be called the Bush‐Clinton era of governance. To Bill Clinton, this era has been a stunning success story. He boasts in his new budget that the United States now enjoys “a growing economy with the lowest combined rates of unemployment and inflation in 30 years.” Clinton also trumpets “cutting the deficit in half in the last 3 years” and producing the “smallest federal government since the 1960s.”
Here is the unpleasant reality. In the 1990s the economic and fiscal record has been substantially worse on every economic measure than it was in the 1980s and previous post‐World War II decades.
In assessing the policies of the 1990s, it is useful to investigate the Bush and Clinton presidential terms together, because both administrations have enacted similar domestic initiatives: higher income tax rates, substantial increases in domestic spending, dramatic declines in the military budget and reregulation. In the 1980s Reagan pursued precisely the opposite agenda. Moreover, the major economic policy event during the Bush administration, the 1990 budget deal, was reaffirmed by Clinton’s defining “achievement”: the 1993 “$500 billion deficit reduction plan.”
After seven years of the Bush‐Clinton era, virtually every objective budgetary and economic measurement shows deterioration, not improvement (see table). Here are some of the striking fiscal results:
1) Tax hikes have failed to produce revenues. The top marginal income tax rate has risen by 50 percent – from 28 percent in 1989 to 42 percent (including the Medicare tax) this year. Income tax receipts have risen at an 18 percent slower rate with tax increases in the 1990s than they did with tax cuts in the 1980s. If overall tax collections had simply grown in the 1990s at the rate they did in the seven years following Reagan’s 1981 tax cut, the budget deficit would be almost $70 billion lower this year.
2) A 30 percent build‐up in real federal nondefense spending. It is a widespread myth that federal outlays on civilian programs have been constrained as a result of the 1990 and 1993 budget deals. Nondefense spending now consumes 18 percent of national output. Federal spending on civilian programs now accounts for a larger share of national output than at any previous time in American history. In 1995 dollars federal nondefense spending has surged by $250 billion since the end of the Reagan presidency.
3) Runaway spending on Medicare, Medicaid and welfare. In constant 1995 dollars, since 1989 real Medicare spending has grown by $75 billion or 73 percent, Medicaid spending has grown by $47 billion or 112 percent, and welfare spending has climbed by $93 billion or 72 percent.
4) A one‐third decline in the military budget in the post‐Cold War era. Defense spending now constitutes a smaller share of the federal budget than at any time in American history. Defense cutbacks of roughly $100 billion since 1989 have helped camouflage the large nondefense spending increases in the 1990s.
5) Record high budget deficits in the 1990s. The annual average budget deficit (in 1995 dollars) under George Bush and Bill Clinton ($248 billion) has been slightly higher than even under Ronald Reagan ($242 billion) and much higher than under any previous president. Deficits as a share of gross domestic product have been lower in the 1990s than in the 1980s. The difference between the high deficits of the 1980s and the high deficits of the 1990s is that the Reagan deficits were accumulated during a period of military build‐up, whereas deficits in the 1990s have corresponded with a drawdown of the military. This is the first time in American history that a postwar period has produced giant deficits. In most postwar periods, the budget is balanced, and in some cases a surplus is achieved.
Although the budget deficit improved to $162 billion in 1995, the long‐term deficit forecast, assuming a continuation of the Bush‐Clinton policies, remains bleak. A December 1995 Congressional Budget Office report predicts that the budget deficit will rise every year, climbing back to above $250 billion by 2000 and up to $350 billion by 2005, unless the Bush‐Clinton policies are abandoned.
The nation’s economy has also underperformed in the 1990s under Bush and Clinton relative to the results of the 1980s. The good news is that inflation has been low, 3.6 percent, and unemployment has been held in check, averaging 6.4 percent. But other measures of economic health are far more discouraging:
· Sluggish economic growth. Using the new “chain‐weighted” GDP numbers, the economic growth rate from 1989 to 1995 has averaged a meager 1.8 percent. That compares with a 3.2 percent growth rate in the 1980s and a 4.9 percent growth rate in the 1960s. Even during the cyclical recovery since the end of the 1990 – 91 recession, economic growth has averaged below 3 percent per year. If economic growth in the 1990s had kept pace with growth in the 1980s, national output would be $400 billion higher today. The slow‐growth policies of the 1990s are the equivalent of a $3,500 permanent annual loss of income for every American household.
· Slow job creation. Low unemployment today is a result of very slow growth in the labor force, not a robust job market. In January, in fact, the nation lost 200,000 jobs. From 1989 to 1995 civilian employment in the United States crept upward by just 1.1 percent per year. In the 1980s job creation was twice as rapid. If the first half of the 1990s had produced jobs at the rate of the 1980s, 5.2 million more Americans would be working today.
· Declining family income. Americans are doing worse in the pocketbook. Census Bureau data reveal that since 1989 median family income has fallen by 5 percent, or $2,100. This reverses a 11 percent gain in real median income from 1981 to 1989.
Both Presidents Bush and Clinton came to office promising to outperform Reagan on the economy and the budget. Both made deficit reduction a top priority of their administrations, even promising to balance the budget in four years.
The result of the repudiation of Reaganomics has been perhaps the poorest seven‐year economic record since the Depression. Overall economic and job growth has been half the 1980s level. Average real deficits have been higher under Bush‐Clinton than under Reagan, though as a share of GDP they have been lower. The message for Republicans as they pursue their agenda for the 105th Congress: reclaim the Reagan message and repudiate Bush‐Clinton economics.
|REAGANOMICS VS.BUSH CLINTON ECONOMICS|
|Fiscal Variables||Reagan 1981 – 89||Bush Clinton 1989 – 95|
|Real Annual Increase||1%||4%|
|Annual Increase (1995 $)||$17 billion||$42 billion|
|Tax Revenue Growth (% Increase)||24%||16%|
|Income Tax Revenues||16%||13%|
|Avg. Annual (1995 $)||$242 billion||$248 billion|
|% of GDP||4.4%||3.9%|
|Debt (% of GDP)||42%||51%|
|GDP Growth (Chain Weighted)||3.2%||1.8%|
|Annual Job Growth||2.1%||1.0%|
|Annual Jobs Created (thousands)||2,120||1,260|
|Inflation (end of period)||4.0%||3.5%|
|Unemployment (end of period)||5.8%||5.6%|
|Real Median Household Income|