Lessons Not Learned? "Grand Bargains" Lead to Fake Spending Cuts but Real Tax Increases

Tuesday, June 12, 2012 9:30 AM

This post originally appeared on www.atr.org.

Faced with the coming threat of the largest tax hike in history, commentators are salivating at the idea of another "grand bargain" that gets Republicans to agree to raise taxes on American families and employers. Any lawmaker willing to consider such a deal is poised to become another fool of history.

The 1990 Budget Deal:  Starting May of 1990, President George H.W. Bush huddled with Democrat House and Senate members at Andrews Air Force Base.

  • What was Promised:  Congressional Democrats convinced a number of Republicans to join them in a bipartisan deal promising $2 in spending cuts for every $1 in tax increases. President Bush signed the deal on November 5, 1990.
  • What Actually Happened:  Every penny of the tax increases ($137 billion from 1991-1995) went through. Not only did the Democrats break their promise to cut spending below the CBO baseline by $274 billion—they actually spent $23 billion above CBO’s pre-budget deal spending baseline. 34 House Republicans broke their own Taxpayer Protection Pledges and went along with this one-sided “deal.”  As a result, Republicans lost 8 seats in the 1990 Congressional midterms, and President Bush only received 38% of the vote in the 1992 Presidential election.

The 1982 Tax Equity and Fiscal Responsibility Act: Rather than bring spending in line with declining revenues, overspending and the resulting deficit caused widespread hysteria regarding the country’s fiscal health in 1982.

  • What was Promised:  President Reagan signed the deal on September 3, 1982, agreeing to a budget deal with Congressional Democrats that promised $3 in spending cuts for every $1 in tax hikes.
  • What Actually Happened:  The spending restraint never materialized – instead, the resulting tax hike made up almost 1 percent of GDP ($37.5 billion) and amounted to the largest peacetime tax increase in American history.

Moral of the story: When bipartisan deals are struck promising to cut spending and raise taxes, the spending cuts don’t materialize but the tax hikes do.

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TAGS: Spending, Regulation

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