Wednesday, January 18, 2012

Balancing The Budget With Newt

In the December 15 Fox News debate, it was "as Speaker, one of the reasons some people aren’t happy with some of my leadership is, I actually worked things out with Bill Clinton to get welfare reform, a tax cut, and four balanced budgets signed.”      A month later, in the January 16 debate, another sponsored by Fox News (and the Wall Street Journal), it was "having helped balance the budget for four consecutive years, for the only time in your lifetime, I’m reasonably confident I can find ways to balance the budget."   On his website, the former House Speaker has credited "Gingrich-led Republicans" with " 4 consecutive balanced budgets"  and in a December campaign ad boasted "When I was speaker, our budget was balanced and 11 million jobs were created."    (You can never go wrong placing the words "Gingrich" and "boasted" in close proximity.)

Prior to the first debate, Politico reports, an incredulous Paul Begala quipped "What’s next? Is Newt going to claim credit for President Clinton’s weight loss?”     But the former Democratic operative gives too much credit to Gingrich, who had nothing to do, favorably or unfavorably. with Bill Clinton's weight loss but obstructed (ultimately in vain) the President's effort to balance the federal budget.

After the earlier debate, noted "As we've said several times, Gingrich was in office for only two of those budget years (fiscal 1998 and 1999). But he continues to claim credit for two balanced budgets that were passed after he left office (fiscal 2000 and 2001)." Robert S. McIntyre of Citizens for Tax Justice explains  

Gingrich’s argument comes down to this: In August 1997, Congress passed a bill called the “Balanced Budget Act,” which promised to balance the federal budget five years later, in fiscal 2002. Soon after the bill was signed, the budget was balanced. Therefore, the balanced budget act balanced the budget. But that’s demonstrably false.

The budget surpluses from 1998 to 2001 had nothing to do with the balanced budget act. Instead, the surpluses stemmed from a dramatic surge in federal revenues, mainly personal income taxes. Here’s what really happened:

In 1993, Bill Clinton undid some of the Reagan tax cuts for the wealthy, in a bill that every Republican in Congress opposed. In the years that followed, federal revenues shot up. By 1996, the deficit had fallen by more than half from its 1993 level. But cautious official congressional prognosticators thought that this trend was unlikely to continue.

So, in January of 1997, the Congressional Budget Office predicted a budget deficit of $124 billion in the fiscal year that ran from October 1996 to September 1997, with little relief thereafter. That was the deficit situation that Congress thought it faced when it enacted the Balanced Budget Act in August 1997.

But CBO’s crystal ball was faulty. Because the economy and tax revenues continued to grow rapidly, the actual fiscal 1997 deficit turned out to be a mere $22 billion. Of course, that virtually balanced 1997 budget had no connection to the budget act, which wasn’t enacted until the fiscal year was almost over.

In 1998 tax revenues continued to soar, coming in at $162 billion more than CBO had projected back at the start of 1997. That was enough to produce a $64 billion budget surplus. Again, this had nothing to do with the ’97 budget act, which, because of its tax cuts, actually reduced the 1998 surplus slightly. 

(Yes, odd as it may sound, the “balanced budget” act started off by digging an even deeper budget hole, with a capital gains tax cut for the rich and other expensive tax cuts that overall were expected to cost $292 billion over 10 years!)

Revenue bonus

In 1999 and 2000, tax revenues and surpluses continued to grow at a rapid pace. That was due not just to a still vibrant economy, but also to an extra revenue bonus: Clinton’s 1993 increase in tax rates on high earners applied to a new wave of taxable income from corporate executives cashing in their 
lucrative stock options (which are taxed as wages). In fiscal 2000, the surplus peaked at $237 billion, and it remained a robust $128 billion in fiscal 2001 (Clinton’s last budget year).

All of these surpluses would have occurred if the Balanced Budget Act had never been enacted. But did the act at least play a role in making the 1998-2001 surpluses bigger? Not really. Starting in 1999, the act’s tax cuts made the surpluses noticeably smaller, while the plan’s biggest program cuts weren’t scheduled to take effect until fiscal 2002, and in any event largely failed to materialize at all).

Sadly, after 2001, the Bush tax cuts and a sagging economy soon sent us back deeply in the red. Ironically, that abrupt turnaround from fiscal responsibility began in fiscal 2002, the precise year that Gingrich and his allies had promised to finally balance the budget.

But Newt Gingrich's claim is stunning less because it runs contrary to fact than because it is deeply disingenuous.        The man who claims to have "worked things out with President Clinton" put up as many roadblocks as possible to the Chief Executive, even twice forcing a government shutdown.        And when the President had proposed in his first budget a massive tax increase, Gingrich delivered zero (0) Republican votes for a measure which ultimately played a major role in setting the nation on the path to economic recovery and a dominant role in balancing the books.     And according to the Congressional record, in 1993 Representative Gingrich gravely had predicted

We have all too many people in the Democratic administration who are talking about bigger government, bigger bureaucracy, more programs and higher taxes. I believe that that will in fact kill the current recovery and put us back in a recession. It might take 1½ or 2 years, but it will happen.

It is comforting, in a way, to hear Newt Gingrich suggest disastrous consequences for the nation if Barack Obama is re-elected, given the man's visions of apocalypse under the previous Democratic president.

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