Washington: Still a Raw Deal


Reporters covering the budget are naively adopting the White House party line that last year's budget agreement was a good deal for the administration after all. Even some conservative pundits, including Fred Barnes and Irving Kristol, have written positively about the agreement. In addition, a few Republican lawmakers who opposed the deal, particularly Minority Whip Newt Gingrich, have swallowed administration propaganda that restrictions on Democratic spending initiatives are the silver lining to last year's dark  tax cloud.

Indeed, Democrats are publicly complaining that spending caps prevent them from increasing domestic discretionary spending as fast as they would like to. This, however, is more an indictment of Democrats than it is an endorsement of the budget agreement. Under the spending caps, domestic discretionary spending will climb by 7 percent annually between 1990 and 1993, nearly three and a half percentage points above the amounts needed to keep pace with inflation. It is true that the budget agreement makes it difficult to increase spending even more, but this is hardly an argument in favor of the budget deal since domestic discretionary spending growth was nearly held to the rate of inflation when the old Gramm-Rudman law was in force.

If the current campaign to reinterpret the effect of the budget agreement succeeds, the unfortunate consequence inside the White House will be to strengthen the power of those advisers, including Budget Director Richard Darman, who led President Bush down the primrose path. As a result, the already-slim chances of getting the administration behind a pro-growth proposal such as the tax-reform legislation offered by Sen. Malcolm Wallop (R–Wyo.) and Rep. Tom DeLay (R–Tex.) will be effectively destroyed.

There is an even grimmer consequence should Darman's campaign to manipulate official Washington opinion succeed. Once it becomes apparent that last year's budget deal increased rather than reduced long-term deficit spending, pressure will build for a new budget summit, probably to occur after the 1992 election. Even though these higher deficits will prove how flawed the 1990 agreement was, Darman's continued presence and the prestige garnered from current favorable press coverage mean the president will likely fall into the same tax-increase trap.

Because of the threat of future tax increases, a favorable reinterpretation of the 1990 agreement will have catastrophic consequences. Fortunately, for every clever quote Darman can provide in defense of the agreement, there are dozens of facts demonstrating last year's deal continues to be a monumental mistake. By every criterion important to economic growth and budgetary responsibility, Darman's budget moved fiscal policy in the wrong direction.

The agreement stuck the American people with the largest tax increase in history. Largely due to this huge surge in the tax burden, Tax Freedom Day, the day the average taxpayer has earned enough to satisfy annual federal, state, and local tax obligations, fell on May 8 this year, three days later than last year and the latest it has ever occurred.

While defenders of the agreement pontificate about the theoretical value of trading higher taxes for real controls on federal spending, the reality is that last year's deal resulted in the largest spending increase in history—a record jump of more than $250 billion between 1990 and 1992. Indeed, under Dick Darman's stewardship, federal spending will have climbed from 22.3 percent of gross national product in 1989 to a projected peacetime record of 24.9 percent of GNP by 1992.

The alleged purpose of the budget summit, or so we were told, was to reduce the budget deficit. Unfortunately, like spending and taxes, the deficit rose—to nearly $300 billion, an all-time record. The 1992 deficit will be even larger, climbing to nearly $350 billion. Oddly enough, even though the deficit today is approximately twice the size it was when Ronald Reagan left office, the "deficit crisis" seems to have disappeared, at least if press coverage is a reliable indicator.

Defenders of the budget deal claim these figures on taxes, spending, and the deficit aren't meaningful because of factors theoretically outside policy makers' control, notably the recession and the deposit-insurance bailout. Legislators can hardly blame the recession, however, since their tax and regulatory policies caused the downturn. Nor should lawmakers avoid responsibility for the deposit-insurance bailout, which will account for less than one-fourth of the $250-billion 1990–92 spending increases anyway.

Finally, those tempted to believe last year's "compromise" is really a good deal after all should recall the origins of the agreement. In May 1990, Washington politicians faced the specter of automatic budget cuts that would have reduced projected 1991 federal spending by as much as $100 billion to comply with the Gramm-Rudman law. Notwithstanding pious pronouncements about deficit reduction and the need to make "tough choices," the real purpose of the budget summit was to prevent this $100-billion sequester from happening and to emasculate the Gramm-Rudman law that had imposed real fiscal discipline by slashing the inflation-adjusted growth of federal spending by more than half.

Daniel J. Mitchell is the John M. Olin Senior Fellow in Political Economy at the Heritage Foundation.