The GOP’s Big Decision: Government Shutdown or a Bipartisan Budget Deal by Gregory Hilton

The Republican Party faces a major decision in the coming weeks. Should they shutdown the government in an attempt to achieve budget reductions from the Obama administration, or should they attempt to strike a deal with renegade Democrats? Even if a bipartisan budget is vetoed by the President, it would outline the GOP’s deficit reduction vision for the 2012 campaign.

The Final Days of Speaker Pelosi and the Obamacrats of Capitol Hill by Gregory Hilton

With one month to go before the election, prospects for Republican control of the House of Representatives are excellent. Media attention is focused on House Speaker Nancy Pelosi and her ouster will result in many additional benefits for the conservative movement. When the GOP gains control a top target for the new Speaker will be the Congressional Budget Office (CBO).

There Will be No Budget This Year by Gregory Hilton

It is now official and there will be no budget this year, and the Democrats are also abandoning their promised middle class tax cut. We always knew this was going to happen, but it sure is fun to read their old statements about the importance of producing a budget.
Democrats will not produce a five year spending plan because they would have to outline spending cuts to meet their targets, and they would have to admit tax increases are coming. The Republicans have already proposed a balanced budget which restores the Bush tax cuts and eliminates Obamacare.
House Majority Leader Steny Hoyer (D-MD) has admitted Congress will not approve a budget. This will be the first time since passage of the 1974 Budget Act that the House has failed to pass a budget resolution. In 2002, then Democratic Leader Nancy Pelosi (D-CA) chided Congress for failing to pass a budget on the grounds that it “hurts America’s children.”
In 2006, then Democratic Whip Hoyer said, “Republicans are now on the cusp of failing to meet the most basic responsibility of governing.” In September 2006, Rep. John Spratt (D-SC), now the chairman of the Budget Committee, declared “If you can’t budget, you can’t govern.” House Republican Leader John Boehner (OH) noted today, “Democrats had righteous indignation when the Republicans were in control of Congress – but unfortunately for them, they also had their facts wrong. In reality, the House has never failed to pass a budget resolution.
“However, there have been four times when the House and Senate failed to agree on a final budget resolution. It’s understandable that Democrats are seeking to hide from their own reckless, job-killing agenda. After all, the gap between federal revenues and spending has never been as large as it is now in peacetime. This chart shows what the Democrats are running away from.”

TRIVIA QUESTION: Why was President Bill Clinton’s speech in the Spring of 1995 so controversial? by Gregory Hilton

President Bill Clinton signs the Balanced Budget legislation in 1997.

TRIVIA QUESTION: Why was President Bill Clinton’s speech in the Spring of 1995 so controversial? by Gregory Hilton —
Vice President Al Gore called the heads of all three networks on the morning of June 13th 1995 to obtain a prime time slot for an address by the President that evening. Clinton’s speech was highly controversial within the White House and Chief of Staff Leon Panetta, Erskine Bowles, George Stephanopoulos and Laura Tyson all said they considered resigning because of his message. The Chairman of the Congressional Black Caucus, Rep. Donald Payne (D-NJ), said after the speech ‘This is not leadership. It is BS.’
Several memoirs of the Clinton years have now been written and in hindsight we know about the drama surrounding this speech. The President made a few revisions in the speech to please the First Lady, but he did not change the substance. After the speech he had remorse and thought he might have made the wrong decision. What had Clinton done?”
ANSWER: On June 13, 1995, President Clinton revealed his plan to balance the budget, and while he had previously said this, his staff was dismayed because this time he appeared to mean it. In 1994 he said a balanced budget could be achieved in 10 years, but now he was agreeing to the Republican timetable and was submitting a plan to achieve this goal in 7 years. The Clinton plan delayed many of the hard cuts until he would have been out of office, and it would have balanced the budget in 2002. The liberals were angry because it meant the end of some of their cherished future plans.
The Clinton plan did not reflect the immediate cuts advocated by Republicans but it was still considered a devastating blow to Clinton supporters. The shape of debate was fundamentally changed. The dismay was especially apparent among member of his 1992 “War Room.” James Carville, Mandy Grunwald and Paul Begala had consistently defended Clinton’s liberal campaign promises.
Labor Secretary Robert Reich had written the party’s 1992 campaign manifesto which was called “Putting People First.” George Stephanopoulos told Clinton that if he went ahead with a balanced budget plan their new platform would be known as “Putting People Last.”

The Decisive Day: Bill Clinton Supports a Balanced Budget by Gregory Hilton

After the failure of the effort to adopt a Balanced Budget Amendment to the U.S. Constitution in the Spring of 1995, Republicans proceeded to developing a balanced budget for fiscal year 1996. They had not presented a specific plan by the time of President Clinton’s surprise speech on June 13th.
Clinton knew Congress would soon adopt a budget which would be balanced in the out years. Faced with this inevitability he decided to beat them to the punch by submitting his own balanced budget.
This was ironic because the Clinton Administration had worked diligently to stop balanced budget efforts in the past. For example, the President was involved in the effort to defeat the September 1993 bipartisan Penny-Kasich Deficit Reduction Act. It would have eliminated hundred of useless and obsolete agencies, and outlined a specific cuts. A year later Clinton personally made calls to defeat the Balanced Budget Constitutional Amendment. Labor Secretary Robert Reich said “The President is against simply balancing the budget,” and Clinton said “balancing the budget is not one of our top priorities.”
Congressional Democrats, the Clinton cabinet and the White House staff all resented the anti-deficit strategy and Clinton’s new emphasis on a balanced budget.. We now know that this decision and the capital gains tax cut were both key to all of Clinton’s later successes — it turned around the economy and laid the basis for the country’s continuing prosperity.
According to several memoirs the most powerful aide in 1995 was the only person who had correctly predicted the outcome of the 1994 election, Dick Morris. Democrats lost 54 seats in the House of Representatives that year, and 8 seats in the Senate (followed by two defections after the election), giving the Republicans a majority in both houses of Congress for the first time since 1954. The Republicans also had a net gain of 12 governors’ seats in that election.
Clinton had good reason to pay less attention to the people who had given him such bad advice, and he accepted Morris’ advocacy of a balanced budget plan. Morris also said, “We need to tell the liberal Democratic congressional wing to shut up. Their agenda is no longer relevant.”
Clinton’s popularity had declined significantly and many thought he could not be re-elected in 1996. He was no longer the center of attention and said “The President is still relevant” during an April 1995 press conference. His Chief of Staff, Leon Panetta, described this time to NPR: “The statement reflected the president’s concern about the November 1994 election. Republicans won both the House and Senate and not one GOP incumbent lost. There was so much attention focused on Speaker Gingrich, the “Contract With America,” and the efforts on Capitol Hill.
“It concerned him because for two years it was his agenda that he was pushing, and he felt was important to the country. And now suddenly he’s confronting a situation where there’s another agenda that’s being pushed by the Republicans that is consuming most of the attention. And so the real question was where is the relevance of the president in this process?”
The decisive day for the balanced budget would be June 13, 1995, which is the subject of my next article.

The One Vote Failure: The Effort to Enact a Balanced Budget Amendment to the U.S. Constitution By Gregory Hilton

This was a major issue throughout the 1980’s and 1990’s, when it frequently came close to passage. The amendment responded to concerns that federal spending was spiraling out of control, and it would have imposed debt limits on the government. They definitely were needed and the current public debt is $11.7 trillion, or about $37,900 per person. It is increasing at the rate of about $3.92 billion dollars per day.
The Balanced Budget Amendment was clearly in the spotlight with the election of a Republican Congress in 1994. This was the first time in 30 years the GOP was in power in both Houses and item number one in their 1994 Contract With America was the Fiscal Responsibility Act.
It called for an amendment to the Constitution which would require a balanced budget, unless sanctioned by a three-fifths vote in both houses of Congress. This was passed by the House of Representatives as Joint Resolution 1 on January 26, 1995 by a vote of 300 to 132. It then became Senate Joint Resolution 1 and was co-sponsored by all of the Republican lawmakers, except one.
They were joined by 7 Democrats (Bryan (NV), Kohl (WI), Graham (FL), Baucus (MT), Breaux (LA), Moseley-Braun (IL) and Robb of Virginia). A Constitutional Amendment requires a two thirds vote for passage. On March 2, 1995, the Senate failed to adopt it by a vote of 66-to-35. This was one vote shy of the necessary two-thirds. Six Democratic Senators who voted for the resolution in 1994 voted against it in 1995. All of them had been lobbied by President Clinton.
The group included Majority Leader Tom Daschle (SD), Wendell Ford (KY), the Senate Whip, Harry Reid (NV), the present Majority Leader, and Byron Dorgan (ND). Senator Mark Hatfield (R-OR) was the only Republican who broke with his colleagues by failing to support the amendment, and he refused to abstain. Hatfield said it was the most important vote in thirty years on Capitol Hill, but he saw it as “a political ploy to erroneously make Americans think we are actually doing something about the deficit.” An unsuccessful effort was later made to strip Hatfield of his Chairmanship of the Appropriations Committee in retaliation.
Had the amendment passed, the federal government’s power to use deficit spending would have ended. The Amendment was brought up again in June of 1996 when it failed by two votes. The Democratic Party platform opposed the Constitutional Amendment. In addition, Senator Bill Nighthorse Campbell cited the Balanced Budget Amendment as the reason he switched from the Democratic to the Republican Party.

How the Budget Battle of the 1990s Was Won by Gregory Hilton

President Bill Clinton began 1994 by promising to produce a balanced federal budget in a decade. The GOP captured Congress that November with a pledge to balance it in just 7 years. It was the most popular part and the first item in their Contract With America. Clinton opposed the GOP 7 year plan plan and said it was far better to do this in ten years because of “the pain we would inflict on our elderly, our students, and our economy just isn’t worth it.”
The President did not know it then, but America would have balanced budget in just four years. President Clinton began 1995 but advocating numerous new spending programs, but he does deserve credit for abruptly changing course that Spring. The changing is best signified by the most memorable line from his 1996 State of the Union Address: “The era of big government is over.” He would also apologize for raising taxes too much but solid economic growth was setting in by the time of his 1996 re-election campaign. It had nothing to do with Clinton but Americans gave him much of the credit. Clinton’s approval rating increased significantly and so did the job market. Unlike 1993 and 1994, Clinton stayed in the middle and won re-election handily.
Despite his conciliatory rhetoric, Clinton aggressively fought Republicans on budget issues from 1995 through 1997. He never would have agreed to drop many of his spending programs without the GOP Congress. There was a ferocious budget battle and the federal government was shut down for 24 days during the 1995 budget negotiations when President Clinton refused to agree to spending reductions in the GOP budget. He submitted five different budgets in 1995 but none of them was balanced.
Joe Klein described this time in his book, “The Natural:”
“In the summer of 1996, Clinton’s grand first-term dreams had shriveled into a set of proposals. He would spend all of 1997 working on a balanced-budget agreement with the Republicans. The 1997 Balanced Budget Agreement–the first nominally balanced budget in 30 years–received insufficient attention. . . . The 1997 BBA was an achievement ignored by Clinton’s critics on the left (who wanted bigger social programs), on the right (who wanted less spending), in the press (who mostly didn’t notice), and in academia. “These aren’t big pieces of legislation. These are scraps off the table,” said one critic.”
In 1997, the Republican Congress passed a tax-relief and deficit-reduction bill that was resisted but ultimately signed by President Clinton. It lowered the top capital gains tax rate from 28 percent to 20 percent; created a new $500 child tax credit, and increased the estate tax exemption from $600,000 to $1 million. The result was almost immediate. Capital gains tax payments skyrocketed at the lower rate. This was helped by the use of stock options that were exercised during the internet boom. The result was nearly $90 billion in extra income in the late 1990’s.
This allowed Clinton to propose a balanced budget for 1999 in his 1998 State of the Union message. The proposal came three years ahead of the forecast from1997’s balanced budget pact with the Congress. The compromise that was achieved laid the foundation for the economic boom of 1997, 1998, 1999 and the first half of 2000.
The tax cuts and the capital gains tax reduction caused a burst of tax revenue and this also helped to swell the stock market expansion. Prosperity led to an unprecedented 60% increase in tax income in the final Clinton years. By cutting the rate of taxation, the revenues collected from capital gains were increased by nearly $90 billion, and this outpaced the expectations of even the most optimistic forecasters. This proved that tax rate cuts do work to stimulate economic growth and tax revenue growth as well. There was also an explosion in venture capital activity in the late 1990’s.
In 1995, before the tax cut, just over $8 billion of venture capital was invested into the economy. By 1998, the first full year in which the capital gains tax cuts were in effect, venture capital pumped almost $28 billion into the economy. From 1997 to 2000 the economy grew 4.2% and it was bolstered by technological advances which led to the Internet-based “New Economy.” The so-called Tech or Dot com Bubble lasted from 1998 to 2001.
The downside to all of this is that the crash of the dot-com bubble wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. The dot-com bubble burst on March 10, 2000, when the technology heavy NASDAQ composite index peaked at 5,048.62, more than double its value just a year before.

A Decade Ago: Six Steps to The First Balanced Budget in 30 Years by Gregory Hilton

“When I took the office the deficit for 1998 was projected to be $357 billion, and heading higher. This year our deficit is projected to be $10 billion, and heading lower. For three decades, six presidents have come before you to warn of the damage deficits pose to our nation. Tonight, I come before you to announce that the federal deficit–once so incomprehensibly large that it had eleven zeroes–will be, simply, zero. I will submit to Congress for 1999 the first balanced budget in 30 years. ” – President Bill Clinton, 1998 State of the Union Address

America’s economic outlook was significantly different a decade ago. There was a large trade deficit in 1999, but the other economic indicators were sound. Was this due to policies advocated by the Clinton Administration? Was it the Clinton Administration which achieved a balanced budget, a surplus, 22 million new jobs, as well as solid economic growth in the late 1990’s?
Supporters of the former President obviously think so, but an examination of that era reveals a different story. Many Republicans believe the economic success of the 1990’s happened despite the Clinton Administration, not because of it. They emphasize that President Clinton battled Republicans on taxes, the balanced budget amendment, deficit reduction and welfare reform.
All of these things initiatives were eventually forced on Clinton by a GOP Congress. Clinton does deserved credit for NAFTA, GATT and for not interfering with monetary policy. He also realized that a favorable business climate fostering economic growth trumped any government jobs program.
This is a good time to look back on the Clinton Administration. All of the major memoirs have been written. Historians are also able to place the Clinton Administration in perspective, and away from the political passions of that era. There were many factors which led to the booming economy and ultimately the balanced budget. This was achieved without making substantial cuts in the budget and we also did not receive a windfall of new cash from tax hikes.
Clinton was successful in passing a major tax hike in 1993, and its failure to raise revenue from the upper brackets is described in my August 22nd article. It took years of bitter debate, but in 19977 President Clinton signed the Balanced Budget Amendment, and in two years a balanced budget was obtained. The six major factors in achieving this milestone were as follows:
1) The election of a Republican Congress in 1994 which wiped out what was left of the Clinton economic agenda. This was the first time in 30 years the Republicans had control of both the House and Senate. The new Congress was able to stop 90% of Clinton’s spending initiatives, and they held down the overall rate of spending to below 2% annually. These actions were a powerful message for the stock market. The market increased by 2% during 1993 and 1994, but it soared over 20% from 1995 through 2000.
2) Passage of the capital gains tax reduction and the balanced budget amendment. The cap-gains tax dropped from 28 percent to 20 percent in 1997 – and revenues from that tax alone accounted for 12 percent of all individual income-tax payments from 1997 to 2000 – up from just 7.9 percent from 1993 to 1996. The result was nearly $90 billion in additional income.
3) The end of the Cold War which allowed for $150 billion in Pentagon reductions. This accounted for one-third of the deficit reduction. Military modernization programs were delayed throughout the 1990’s, and they proved to be necessary in the next decade.
4) The PAYGO or pay-as-you-go statutory budget controls were obtained for President George H.W. Bush in exchange for increasing taxes as part of the 1990 budget agreement. The budget situation would have been worse without them, but PAYGO was not the panacea portrayed by its advocates in 1990.
5) Welfare reform which resulted in $38 billion in savings. The number of families receiving AFDC payments declined from 14.3 million to 6 million. Nationally, cash-assistance rolls were cut by 60%, and former welfare recipients were required to work. . In 1992 Clinton had vowed to “change welfare as we know it,” and pollster Dick Morris told him that if he vetoed welfare reform a third time he would not be re-elected. Clinton caved and signed the bill one week before the 1996 Democratic Convention.
6) The golden age of venture capitalism. The dot com bubble burst and the economy was slipping into recession when Clinton left office, but the late 1990’s were years of solid of economic growth. Silicon Valley did transform the world, and the funding from venture capitalists was possible in part because the Reagan Administration had lowered the top tax rate from 70% to 35%, cut marginal rates and helped free up the money that started the Tech Boom.

New Budget Raises Serious Concerns: Look For an 80% Jump in Electrical Rates by Gregory Hilton

President Obama, accompanied by Budget Director Peter Orszag, right, and Treasury Secretary Tim Geithner, speaks about his fiscal 2010 federal budget, in the Eisenhower Executive Office Building.

The new federal Budget submitted by the Obama Administration raises a number of significant concerns. Based on the funding priorities, the administration appears to be backing away from nuclear power (which generates 80% of France’s energy), school vouchers for poor children in Washington, DC, and earmark reform. The most significant concern is obviously the massive increase in federal spending.
The new Administration is not even two months old but we have already appropriated more money than the combined cost of what our military has spent in Iraq, Afghanistan and on Hurricane Katrina. This is the largest increase in discretionary spending since the Carter Administration. Despite all of the promises made during the 2008 campaign, the new omnibus spending bill has over 9000 earmarks.
The President focused on health care today, and is planning to pay for his new program with $646 billion which will be raised over a decade from pollution permits from industries that produce greenhouse gases. Many experts believe this could lead to an 80% jump in electrical rates and an EPA study says the result could be an additional $1.60 for every gallon of gas.
The primary architect of the new budget is Treasury Secretary Tim Geithner. A surprising Geithner critic is former Australian Prime Minister Paul Keating. Yesterday he spoke to the Lowy Institute in Sydney about Geithner’s record in handling the 1998 Asian crisis. Geithner fundamentally misdiagnosed the problem, and this led to the wrong prescription, Keating said.: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”
Geithner thought Asia’s problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts. The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.
Malcolm Turnbull in the “Australian” said “But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans – Thailand, South Korea and Indonesia – all had sound public finances. The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind. But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.”
Keating continued: “Soeharto’s government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.”