President Bush and the Battle Over the FY 1991 Budget: the Death of the No New Taxes Pledge

President Bush and the Battle over the FY 1991 Budget: The Death of the “No New Taxes” Pledge.

Bios suggested for:

Richard Darman, Director, OMB.

John Sununu, White House Chief of Staff.

Nicholas Brady, Secretary of the Treasury.

Roger Porter, Presidential Aide

Michael Boskin, Chairman, Council of Economic Advisers

Marlin Fitzwater, White House Press Secretary.

Rep. Newt Gingrich (R-GA)

Senator George Mitchell (D-ME)

Senator Robert Dole (R-KA)

Senator Lloyd Bentsen (D-TX)

Rep. Thomas Foley (D-WA)

Rep. Robert Michel (D-IL)

Rep. Dan Rostenkowski (D-IL)

Rep. Richard Gephardt (D-MO)

Terms that need definition:

Gramm-Rudman-Hollings Deficit Reduction Law (Balanced Budget and Emergency Deficit Control Act of 1985): GRH, passed in 1985, mandated that the federal budget be balanced by October, 1990, when the budget for fiscal year 1991 was due. It established annual budget deficit targets that declined to zero over a period of 6 years. (In FY 1986, the budget deficit had to be less than $171.9 billion; in FY 1987, $144 billion; in FY 1988, $108 billion; in FY 1989, $72 billion; in FY 1990, $36 billion; and in FY 1991, $0.) If a target was missed in any given year, GRH levied automatic spending reductions that would meet the target. This process was called a sequester and, in effect, it would shut down those parts of the Federal Government denied funds. In 1987, Congress amended GRH so that a balanced budget was not required until 1993. In 1990, GRH underwent drastic revision as part of the negotiations between the Bush Administration and Congress over the FY 1991 Federal Budget. These modifications altered the sequester process.

1989

April 14 President Bush and congressional leaders appeared in the Rose Garden of the White House to announce an agreement concerning the Fiscal Year 1990 Federal Budget. Bush had entered office in January facing a national debt of well over $2 trillion, with a yearly interest of some $200 billion. The federal budget, in addition, was unbalanced year after year, with some of the largest deficits occurring in the 1980s. Bush knew that the nation’s financial affairs needed to be put in order to ensure the long-term health of the American economy. President Bush, though, had also pledged during the 1988 campaign that he would not raise taxes, which Democrats – and even some White House advisers, including Richard Darman, Director of the Office of Management and Budget – insisted had to be part of any deficit reduction package. After sending his FY 1990 Budget to Congress on February 9, Bush and his economic team negotiated a compromise with Congress that reduced the FY 1990 budget deficit under $100 billion, as required by the Gramm-Rudman-Hollings Act of 1981 (GRH), without raising taxes. The President remarked that the agreement was a “first manageable step” in deficit reduction. Other observers argued that the agreement only postponed inevitable and painful decisions about the types of spending cuts and higher taxes needed to balance the budget. (For Bush’s comments at the Rose Garden ceremony, see http://bushlibrary.tamu.edu.)

August 15 President Bush met with Darman, John Sununu, White House Chief of Staff, and Nicholas Brady, Secretary of the Treasury, to discuss the administration’s approach to the FY 1991 budget. Darman warned the others that because of the “no new taxes” pledge, the Gramm-Rudman-Hollings law, a forecast for slow economic growth, and the need to fund both defense and domestic programs (like social security), crafting a budget would be extremely difficult and might involve choices among politically damaging options.

1990

January 29 President Bush submitted his proposed budget for fiscal year 1991. It provided for expenditures totaling $1.23 trillion, and the reduction of the deficit to $64 billion, barely under the mandates provided for in Gramm-Rudman-Hollings. Bush’s proposed budget did not cut Social Security, it reduced defense spending by 2.6%, and it reduced capital gains taxes. The budget included over $20 billion in new revenues, largely collected through ‘user’s fees,” which the administration insisted were not taxes.

March 5 The Congressional Budget Office released its annual re-estimate of the President’s budget and concluded that the FY 1991 budget deficit would be $131 billion.

March 6 Representative Dan Rostenkowski (D-IL), Chairman of the Ways and Means Committee, met at the White House with Darman and Sununu to warn them that he would be putting forward his own budget plan with a serious emphasis on deficit reduction. The three then spoke with President Bush, who agreed not to declare Rostenkowski’s budget dead on arrival.

Later that day, President Bush, Darman, Sununu, and Brady met to discuss budget strategy – and the politics behind it. Bush approved a course in which the Administration would try to negotiate a compromise budget with Congress that included both spending reform and deficit reduction. Left open was the possibility that any deal might have to include new taxes.

March 11 Representative Dan Rostenkowski (D-IL) presented his own budget proposal. He called for an across the board freeze on all cost-of-living increases in all spending categories, as well as a fifteen cent per gallon tax increase on gasoline.

March 14 Darman met with the House Democratic Budget Group and assured them that the Administration was serious about budget negotiations and deficit reduction. They expressed a willingness to work with him and the Bush Administration.

March 20 President Bush met with Vice President Quayle, Darman, Brady, Sununu, Chairman of the Council of Economic Advisers Michael Boskin, and Presidential aide Roger Porter to outline the administration’s goals in any negotiations with Congress over the budget. According to Darman, all in attendance agreed on the need for some sort of revenue-raising measure. (Darman, 246)

March 28 At a meeting with congressional Republican leaders, President Bush received their backing for a budget negotiations with congressional Democrats. (Darman, 247)

April 29 With congressional negotiations between the Bush administration, and Republicans and Democrats in Congress going nowhere, President Bush met with Darman, Sununu, and Brady. They argued that Bush needed to meet with congressional leaders from both parties and express his commitment to a negotiated settlement of the budget. They also argued that future negotiations should be made known to the public, and should be conducted as summits. Bush, with a few modifications, agreed. (Darman, 248)

May 1-2 In separate secret meetings with Speaker of the House Tom Foley (D-WA), Senate Majority Leader George Mitchell (D-ME), House Minority Leader Robert Michel (R-IL), and Senate Minority Leader Robert Dole (R-KS), President Bush successfully made the case for serious budget negotiations.

May 6 At the White House, President Bush, along with key members of his economic team Richard Darman, Treasury Secretary Nicholas Brady, and White House Chief of Staff John Sununu, met with congressional leaders, including Speaker of the House Thomas Foley, House Majority Leader Robert Michel, Senate Majority Leader George Mitchell, and Senate Minority Leader Robert Dole in an effort to end the impasse over the FY 1991 Budget proposals. Darman told the group that a sequester of funds, as ordered by the Gramm-Rudamn-Hollings law if the budget did not meet its target deficit, would be disastrous. Mitchell obtained a pledge from Bush that he was willing to negotiate on taxes.

May 9 President Bush, along with Darman, Sununu, and Brady, met with Foley, Michel, Mitchell, and Dole in the first public negotiating session. Mitchell pressed all to agree that there would be “no preconditions” on negotiations. White House Press Secretary Marlin Fitzwater released a statement to that effect. On May 15, President Bush met with a group of 26 congressional budget negotiators to outline the discussions he had had with Foley, Michel, Mitchell, and Dole.

May 15 Budget negotiations began on Capital Hill among the 26 negotiators. No progress was made.

May 17 - June 20 Budget negotiations continued to stall after unproductive meetings on Capital Hill between White House representatives Darman, Sununu, and Brady, and congressional Democrats and Republicans.

June 22 President Bush met with Brady, Sununu, and Darman in the Oval Office. Brady and Darman reported on a meeting they had held the previous day with Bentsen and Rostenkowski, during which both Democrats indicated they were amenable to negotiating a deal with the White House that they would then sell to the Democratic leadership.

June 25 President Bush met with Republican budget negotiators, all of whom agreed, at least tepidly, that a budget deal that raised taxes was acceptable, but only if the deal met certain conditions.

June 26 At a meeting with Foley, Mitchell, Dole, Michel, Richard Gephardt (D-MO), Sununu, Brady, and Darman, President Bush and Foley agreed that any budget deal would have to include entitlement reform, reduction of defense and discretionary spending, budget process reform, and tax increases. All involved saw this agreement as the starting point for serious budget negotiations. Following the meeting, President Bush issued a written statement that encapsulated the agreement with Foley. The statement also admitted that in order to solve the "deficit problem," "tax revenue increases" may be necessary in the Federal budget for the 1991 fiscal year. It was the first time Bush had publicly reneged on his pledge from the 1988 presidential campaign of “no new taxes.” By 12:30, Press Secretary Fitzwater reported that calls to the White House were running 12 to 1 against the President. (A copy of the statement is available via the Bush Library at: http://bushlibrary.tamu.edu/.)

August 4 After meeting throughout the summer but unable to reach a budget agreement, the twenty-six budget negotiators, including Senators Byrd, Dole, Gramm, Bentsen, Representatives Gephardt, Michel, Foley, and Gingrich, along with representatives from the Bush White House, most prominently Richard Darman, John Sununu, and Nicholas Brady, break for the August congressional recess. They agree to return to serious negotiations in early September. Bush wrote in his diary, “I much prefer foreign affairs. I salute Sununu and Darman for doing it.”

September 7–17 The budget negotiators, fresh from summer recess, return to Washington and began meeting at Andrews Air Force Base, in what they hoped would be a final round of negotiations. The talks, however, quickly stalled over capital gains taxes.

September 10 In a speech to Congress on the Iraqi invasion of Kuwait, Bush exhorted law-makers to “address our budget deficit – not after election day, not next year, but now.”

September 17 With the budget negotiations at Andrews Air Force Base going nowhere, the group of 26 negotiators agree to turn over the talks to Darman, Brady, and Sununu from the Bush Administration, and congressional leaders Foley, Gephardt, Michel, Mitchell, and Dole. “The talks are not collapsed,” Gephardt declared, “We’re just moving them to a different stage.”

September 25 Bush told reporters that he would veto a budget agreement that did not contain “real spending reduction and real process reform.”

September 30 In the waning hours of FY 1990, and right before a sequester would occur under GRH, the Bush Administration and congressional negotiators reached a budget deal for FY 1991. Congress also passed a continuing resolution to keep the federal government funded through October 5.

October 1 In the Rose Garden, Bush, his budget team, and congressional leaders gathered to announce an agreement on the FY 1991 budget. Their budget cut almost $120 billion from entitlement and mandatory programs, $182 billion from discretionary programs, and instituted a “pay as you go” system that mandated any new programs be paid for at the time of their initiation. The plan also called for $134 billion in tax increases, the majority of which came from a phased in gasoline tax. President Bush said, “I do not welcome any such tax measure…However, this one does have the virtue…of contributing to deficit reduction.” Rep. Newt Gingrich, however, announced his opposition to the agreement and refused to join the congressional leadership in the Rose Garden for the announcement. (A copy of the statement is available via the Bush Library at: http://bushlibrary.tamu.edu/ )

President Bush signed a continuing resolution that provided funds to keep the government operating through October 5, pending congressional approval of a budget that reflected the agreement announced on October 1. If Bush had not signed the resolution, the government would have shut down under the Gramm-Rudman-Hollings law. (For Bush’s remarks with reporters on his action, see the Bush Library at: http://bushlibrary.tamu.edu/ )

October 5 The House of Representatives voted 254 to 179 to reject the budget bill, with a coalition of conservative Republicans led by Rep. Newt Gingrich (R-GA) joining Democrats to kill the hard-bargained compromise. The defeat of the budget ensured that the government would shut down, as mandated by the Gramm-Rudman-Hollings law, unless lawmakers passed, and Bush signed, another continuing resolution that provided funds.

October 6 The House passed a continuing resolution that would keep the government running through October 12. President Bush vetoed it that same day, saying “It is time for the Congress to act responsibly on a budget resolution -- not time for business as usual.” (For the veto message and a Bush press conference on the Federal budget crisis, got to http://bushlibrary.tamu.edu.)

October 6 – 9 Portions of the federal government, mainly public attractions such as National Parks, closed. (Most key military operations were exempted from the shut-down, which was important because the American military was gearing up to fight the Gulf War.) Public outcry over the government shut-down grew, however, with much of it directed at President Bush.