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1990 Budget Enforcement Act

SUMMARY:

The Budget Enforcement Act (1990) created caps for discretionary spending and created "pay-as-you-go" (PAYGO) rules for taxes and certain entitlement programs. This legislation raised taxes and was signed by President George H.W. Bush despite a campaign pledge that he would not raise taxes.

DESCRIPTION:

The Budget Enforcement Act of 1990 (BEA) was a part of the Omnibus Budget Reconciliation Act of 1990, a budget agreement reached through a conference between congressional moderates and the administration of President George H.W. Bush (Bush 41). The BEA departed from fixed-deficit reduction targets of the Graham-Rudman-Hollings era by attempting to limit voluntary congressional action that may increase the deficit. For most annual appropriations, discretionary spending caps had set yearly targets (originally set for five years). For entitlements and taxes, PAYGO rules were implemented, which mandated that any change be deficit-neutral or deficit-reducing (for example raising Medicare benefits or cutting taxes). For example, additional spending or tax cuts would have to be offset by increased revenue or decreased spending.

The beginning of budget negotiations in 1990 (for FY 1991) was marked by intense disagreement between the Democrat-controlled Congress and the Bush 41 administration. Bush’s proposed budget relied on figures that many consider unrealistic, especially given that a recession was on the immediate horizon. Although the Gramm-Rudman-Hollings legislation threatened unpopular across the board spending cuts if revenues were not raised, President Bush threatened a veto of any increased taxes, pushing instead for cuts in capitals gains taxes. However, with looming economic troubles, in the summer of 1990 Bush agreed to a no-precondition summit in order to avoid an automatic GRH cut of $100 billion. During the summit, which excluded both liberal Democrats and conservative Republicans, Bush agreed that tax increases were necessary. The shift in policy split the Republican Party and gave Democrats cover to raise taxes. A deal was reached just before Oct 1 but defeated by conservative Republicans and liberal Democrats, 179-254. Congress passed an extension measure but Bush vetoed it, putting pressure on the Congress to pass a bill, which shut down the government. Within three weeks, Congress passed through the reconciliation process the Omnibus Budget Reconciliation Act of 1990 by a vote of 228-200. The bill projected a deficit reduction of $496 billion over 5 years, set 5-year discretionary spending caps, and created PAYGO rules.

The Act expired in 2002. If the Act had been extended, the Bush tax cuts would have been subject to a point-of-order objection and would have required a 60-person majority in the Senate despite the use of the reconciliation process.

Many credit this legislation with helping to set the stage for the budget surpluses of the late 1990s. Some also note that the legislation both hampered President Bush’s chances of reelection in 1992 as well as emboldening the right wing of the Republican Party of the leadership of politicians like Representative Newt Gingrich (GA).

FURTHER INFORMATION:

The Budget Enforcement Act of 1990 (Pub. Law No.: 101-508). http://www.gpo.gov/congress/house/hd106-320/pdf/hrm89.pdf

"Reconciliation, Fiscal Year 1991." In Congress and the Nation, 1989-1992, vol. 8, 55. Washington, DC: CQ Press, 1993. http://library.cqpress.com/catn/catn89-0000013477.

"Deficit-Reduction Bill, 1990." In Congress and the Nation, 1989-1992, vol. 8, 92. Washington, DC: CQ Press, 1993. http://library.cqpress.com/catn/catn89-0000013514.

"The Federal Budget, 1989-1992 Legislative Overview." In Congress and the Nation, 1989-1992, vol. 8, 37. Washington, DC: CQ Press, 1993. http://library.cqpress.com/catn/catn89-0000013470.

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