The Era of Small Government Is Over

It was a full quarter-century ago when President Bill Clinton delivered one of the few quotable State of the Union addresses in American history.

"The era of big government is over," he proclaimed on January 23, 1996. It was more of a political statement than a policy goal—indeed, Clinton proceeded to spend the next hour outlining a long list of things the federal government ought to do. But it wasn't just a bumper sticker catchphrase. "We know big government does not have all the answers. We know there's not a program for every problem," he explained. "And we have to give the American people [a government] that lives within its means."

That succinct conception of limited government likely would, if expressed today, make any Democrat effectively unelectable—at least on the national stage. For that matter, the idea that Americans would be able to help themselves best if government got out of the way would place Clinton, circa 1996, outside the emerging mainstream consensus of today's Republican Party. Acknowledging the limits of government power to improve people's lives and worrying about the cost of a large and growing government is, it seems, so last century.

In 1996, the federal government spent a grand total of $1.56 trillion—about $2.4 trillion in today's dollars—and ran a deficit of about $106 billion. While tiny by today's standards, both parties saw that shortfall as unacceptably high. Republicans had won control of Congress for the first time in 40 years in 1994 by promising fiscal restraint and with talk of a balanced budget amendment. Heading into his own reelection in the fall, Clinton was meeting his opponents head-on with his 1996 speech. Both parties could play the deficit-hawk game.

This was not an out-of-the-mainstream position among Democrats at the time. Just two months earlier, during an impassioned speech on the Senate floor, a high-ranking Democratic senator also insisted that his party was not about to cede deficit politics to the other side.

"I am one of those Democrats who voted for the constitutional amendment to balance the budget. I have introduced, on four occasions—four occasions—entire plans to balance the budget," he recalled. Referring to the Republican takeover of Congress in 1994, the senator made a bold prediction. "I know it did one thing," he said. "It made sure that there was nobody left in the left of my party who said, 'In fact, we don't care about moving the budget toward balance.'"

Twenty-five years later, that senator is now president of the United States. Just weeks after taking office, Joe Biden's first major legislative achievement was the passage of a $1.9 trillion COVID-19 relief bill, the entire cost of which will be added to a budget deficit that was estimated to be $2.3 trillion before the new spending was approved. Although ostensibly a package meant to combat the COVID-19 pandemic, the bill contains a large number of government-expanding measures unrelated to fighting the disease, including an expensive new child subsidy entitlement that is likely to become permanent.

Clearly, the prevailing view in Washington of deficit spending and the role of government has changed over the past quarter-century. In fact, there has been a near-complete reversal. Where talk of reducing budgets and ensuring the government lives within its means used to be a bipartisan affair, now the opposite is largely true. Republicans still make occasional noises about the deficit—as they did during the passage of Biden's stimulus bill, which received no GOP votes—but they effectively traded away any serious claim to being fiscal conservatives after overseeing deficit-hiking spending increases and tax cuts that were supposed to pay for themselves but didn't under President Donald Trump.

Now, the new right wing is agitating for more government subsidies for families and workers, deficits be damned. Democrats, meanwhile, view low interest rates as an invitation to turn the printing press up to 11. Beyond the budget ledger, the ballooning deficit has coincided with a massive expansion of government programs.

Being a deficit hawk can be a thankless task, one that requires the fortitude to say "no" while others promise free goodies. Increasingly, it is a lonely job too. Those who worry about record-high deficits and an unsustainable mountain of debt may not have many friends in Washington, but hawks used to be able to count on a political failsafe: Both major parties thought they could gain an electoral edge by highlighting the other party's profligate ways. Now, however, deficit politics have all but vanished on both the right and the left.

Politics are antecedent to policy. In 1996, Biden and other Democrats talked a big game about fiscal responsibility because they feared retribution from voters if they did not. That threat from the ballot box seems to have vanished, and with it any sense of modesty about spending. Until voters demand otherwise, the debt will continue to grow.

Biden's Evolution

As with the party that he now leads, Joe Biden's evolution from deficit hawk to spendthrift didn't happen overnight. But if you had to pick one day that illustrates the transformation, it might be April 9, 2020.

That was the day after Sen. Bernie Sanders (I–Vt.) suspended his bid for the Democratic presidential nomination, effectively anointing Biden as the party's standard-bearer. Biden's campaign posted a long statement committing to support a number of Sanders' policy proposals, including student loan forgiveness and lowering the Medicare eligibility age to 60. "Senator Sanders and his supporters can take pride in their work in laying the groundwork for these ideas, and I'm proud to adopt them as part of my campaign," Biden said.

It was a significant and even startling shift. Biden had won the Democratic nomination by stubbornly sticking to the center even as most of the other top candidates chased one another toward the party's left flank. Often, that had left him as the only candidate willing to ask practical questions about his opponents' plans to spend huge amounts of money on single-payer health care and other progressive priorities. "How are we going to pay for it?" Biden asked during a memorable September 2019 debate in which he took both Sanders and Sen. Elizabeth Warren (D–Mass.) to task for their pie-in-the-sky promises. "I want to hear that tonight."

That strategy didn't always look certain to succeed. Although he consistently led in the polls, the former vice president never looked unbeatable. During 2019, his campaign sometimes struggled to raise money. Ugly losses in the first two nominating contests, in Iowa and New Hampshire, threw the race wide open. But then Biden rallied to win South Carolina at the end of February 2020 and a majority of the Super Tuesday states in early March. A month later, as the country was shutting down in the face of the COVID-19 pandemic, the competition came to an end. The stubborn moderate had prevailed.

Traditionally, the end of a contested presidential primary sees the winning candidate tack away from the extreme edges of his or her political coalition and toward the center. What happened between Biden and Sanders was more of a meeting in the middle. "Joe, he's not going to adopt my platform. I got that," Sanders told CBS late night host Stephen Colbert a few days after dropping out of the race. "But if he can move in that direction, I think people will say this is a guy we should support."

It's true that Biden didn't embrace Sanders' full platform, but he went into the general election with the most progressive and expensive presidential agenda in decades. The nonpartisan Committee for a Responsible Federal Budget estimated that Biden's budget plans, if enacted, would add more than $5.6 trillion to the deficit over 10 years. And that didn't include emergency pandemic spending, like the $1.9 trillion bill he signed in March.

Biden has long been an avatar of the Democratic Party's center of gravity. When the party was getting "tough on crime" and fretting about the deficit in the 1990s, he was part of those efforts. He was there, literally standing behind President Barack Obama, for the signing of the Affordable Care Act in 2010. By the end of the 2020 primaries, it was clear that the median view among Democrats had moved to the left, and Biden was adjusting his views to keep in step.

The change had happened gradually. While campaigning for the presidency in 2008, then–Sen. Barack Obama (D–Ill.) routinely called out then–President George W. Bush for adding to the national debt. "We now have over $9 trillion of debt that we are going to have to pay back," Obama said during a July 2008 campaign stop in Fargo, North Dakota. "That's $30,000 for every man, woman, and child. That's irresponsible. That's unpatriotic."

Obama's tenure in the White House began in much the same way as Biden's now has: with a major crisis leading to an expensive federal response. But even after inking an $830 billion stimulus package in response to the financial crash, Obama continued to describe the deficit as a serious problem. "As our interest payments rise [and] our obligations come due, confidence in our economy erodes and our children and grandchildren are unable to pursue their dreams because they are saddled with our debts," Obama warned in a 2009 speech. He pledged to cut the deficit in half by 2012.

Despite launching a bipartisan commission to tackle that problem, Obama failed to meet his goal—a fact that received fairly heavy rotation during Republican Mitt Romney's presidential bid that year. But Democrats were still fighting the good fight. "We have got to deal with this big, long-term debt problem," former president Clinton warned in a speech at his party's 2012 convention, "or it will deal with us."

The deficit did decline from a then–record high of $1.4 trillion in 2009 to just over $1 trillion in 2012, and it continued that downward trajectory throughout Obama's second term. By 2015, the government spent only $440 billion more than it raised in tax revenue—about even with where the deficit had been at its pre–Great Recession high.

But those years of falling deficits coincided with a fundamental political shift. Democrats and Republicans had sparred for decades about who could make government live within its means, but both coalitions now chafed over the reality of living under spending caps and sequestrations. Meanwhile, the absence of any major negative consequences after the country had temporarily exceeded the symbolically important $1 trillion deficit threshold taught politicians on both sides of the aisle that they could downplay fears about excessive debt.

On the right, Republicans nuked the caps they'd imposed during the Obama era to clear the way for huge spending hikes and deficit-inflating tax cuts under Trump. On the left, the notion that deficits don't matter at all began to gain traction.

Larry Summers, Clinton's treasury secretary, co-authored an influential paper, published last year, with former Obama economic adviser Jason Furman arguing that deficit concerns had hamstrung the federal government's ability to accomplish big things using boatloads of government spending. They posit that cutting spending or raising taxes—the two basic options for balancing the budget—pose a greater threat to future economic growth than do large deficits built upon low interest rates. As long as the cost of serving the federal debt remains below 2 percent, they argue, policy makers should not be restrained by the "traditional idea of a cyclically balanced budget."

Summers and Furman do not go as far as proponents of some more extreme ideas now emerging on the left—particularly Modern Monetary Theory (MMT), formulated by economist and former Sanders staffer Stephanie Kelton, which recognizes inflation as the only meaningful reason to constrain deficit spending. But while MMT has received more attention, the new middle-of-the-road position within the Democratic Party hews closer to what Summers and Furman have outlined. So naturally, that's where Biden has ended up.

In this view, deficit concerns are merely politically motivated and should not be taken seriously. "We must ignore the phony caterwauling of the deficit chicken hawks," argued Jared Bernstein, a senior fellow at the progressive Center on Budget and Policy Priorities, in an October op-ed for The Washington Post. Bernstein, now a member of Biden's White House Council of Economic Advisers, argued that the "new dynamics" of debt opened not only economic opportunities but political ones. "If conservatives ignore austerity when they're in power but Democrats embrace it when they take control," he wrote, then Democrats will "consistently fail to meet the needs of their constituents."

For decades, Democrats have wrestled with Republicans over the right way to balance the budget. By pushing plans that require trillions in additional borrowing even when the deficit is at or near record highs, the Biden administration is signaling that it will no longer play a game that Democrats increasingly claim was rigged against them all along.

Republican Lip Service

Republicans have arrived at roughly the same conclusion—that deficits shouldn't constrain policy making—in a way that seems, somehow, to be both more coldly cynical and more haphazard.

As with most of the current dysfunction within Republican politics, Trump plays an outsized role, though the roots of the mess emerged from the George W. Bush administration. Bush entered the White House with the country running a surplus for the first time in a generation—a surplus that the Congressional Budget Office (CBO) in 2000 estimated would grow to nearly $500 billion within a few years. (Those projections obviously did not account for the post-9/11 recession.) Given the information available to him at the time, Bush made a prudent decision: Send the extra money back to people before Congress could get its grubby hands on it.

After the 2001 tax cuts, however, things got out of control. The 2001 recession, the war on terror, and a major expansion of Medicare to cover prescription drug costs quickly hiked the deficit to a then-record $413 billion by 2004. And that was before the housing crisis.

When a mortgage meltdown metastasized into a national economic crisis in summer 2008, Bush signed a $300 billion emergency spending bill to prop up lenders. When that failed to halt the spiraling fiscal disaster, he approved the $700 billion Troubled Asset Relief Program (TARP). "I've abandoned free market principles to save the free market system," Bush told CNN in December 2008—as if his record to that point had been animated by fidelity to the free market.

Enter Rep. Paul Ryan (R–Wisc.) and the Tea Party movement. The boy-faced legislator from Wisconsin initially made a name for himself as a sort of congressional Cassandra, becoming the face of the right's deficit hawkery during the Obama years. "We are driving our country and our economy off of a cliff," he said on the House floor in 2011. "The reason is that we are spending so much more money than we have. We can't keep spending money we don't have."

Ryan's most lasting contribution to the debate over budget deficits was to champion the 2011 spending caps. Unfortunately, that accomplishment was undone in 2018 by none other than Speaker of the House Paul Ryan, who guided the passage of a new federal budget bill that obliterated those spending limits and added an estimated $1.7 trillion to the long-term deficit. He retired the following year.

Clearly, it is not fair to blame Trump alone for the Republican Party's abandonment of deficit politics. But it's impossible to ignore the role he played.

As a presidential candidate, Trump paid occasional lip service to traditional Republican talking points on fiscal policy. Most significantly, he pledged during an April 2016 interview with The Washington Post to pay down the entirety of the U.S. national debt in eight years—something he said could be accomplished by "renegotiating all of our deals." It was widely speculated at the time that Trump had confused the budget deficit (which contributes to the national debt) with the trade deficit (which measures the gap between the total value of a country's exports and imports). In any case, he never provided any serious plan to accomplish this supposed goal. When Trump did speak about fiscal issues, it was usually in the form of a promise not to touch Social Security, which elicited a level of enthusiasm that may have surprised and scared traditional fiscal conservatives.

"Donald Trump got elected by showing that the conservative voter base was much more comfortable with big spending and deficits than conservative leaders in Washington thought they were," says Brian Riedl, a former Senate GOP staffer and senior fellow at the Manhattan Institute, a conservative think tank. He points to polls showing that, even prior to Trump's rise, only a slim percentage of Republican voters said they wanted Social Security reforms. In retrospect, Riedl thinks the Tea Party era looks more like a populist revolt against the bailouts and Obamacare than like anything grounded in a broader desire for lower deficits or smaller government.

After Trump's election, Republicans gave up on the pretense of fiscal restraint. Over his first three years in office—that is, even before you factor in any emergency spending related to the COVID-19 pandemic—Trump oversaw a hike in federal expenditures of about $900 billion. That's equal to the amount Obama added to the federal budget baseline, but Trump accomplished it in less than half as much time.

The most damaging budgetary move was the spending hikes enacted in 2018 (and the trashing of the Obama-era budget caps that was needed to pass them). In other ways, however, the 2017 Tax Cuts and Jobs Act might prove to be the more consequential Trump policy. It showed that Republicans were willing to discard deficit concerns to push through their preferred policies.

Unlike with the Bush tax cuts of 16 years earlier, there was no surplus at that time to return to taxpayers. And promises that the cuts would "pay for themselves" by generating higher economic growth did not pan out: They did stimulate the economy, but at nowhere near the levels necessary to make the policy revenue-neutral, as Republicans promised it would be. The tax cuts ultimately added about $1 trillion to the debt. If some of the temporary parts of the 2017 law—like the reductions in individual income tax rates, which expire after 2025—are made permanent, as many experts expect, the long-term addition to the debt could be as high as $2 trillion.

Now that they're in the minority in both chambers of Congress and a Democrat sits in the Oval Office, some Republicans are halfheartedly trying to resurrect concern for debt and deficits. It's the latest iteration of a recurring theme for the GOP: When it comes to spending, do as I say, not as I do.

Aggressive Expansions

Even during the rare periods when the deficit has declined, government has continued to grow in other ways—with the approval of both Democrats and Republicans in the White House and running Congress.

In 1995, the year before Clinton declared the era of big government to be over, there were 1,390 federal subsidy and benefit programs. Today, there are more than 2,200. "The federal government has expanded into many areas that used to be handled by the states, businesses, charities, and individuals," says Chris Edwards, who tracks the number of government programs in his role as director of the Downsizing Government project at the Cato Institute.

More programs generally means more spending, of course. But it also means more people with an incentive to lobby for even more spending. "Each subsidy generates a bureaucracy, spawns lobby groups, and encourages even more people to demand government handouts," Edwards says. "Individuals, businesses, and nonprofit groups that become hooked on subsidies become tools of the state."

There's probably not just one explanation for why deficit worries seem to have died off, but this feedback loop offers a compelling theory. Bigger government begets bigger government.

The demise of deficit politics has consequences that go beyond the immediate question of how much the federal government spends relative to how much tax revenue it collects. The emergency spending bill passed in early March provides a useful example. Although Biden and his fellow Democrats pitched the $1.9 trillion package as a COVID relief measure, much of the spending had little to do with the pandemic—which was already well on its way to being brought under control by vaccines when Biden signed the legislation on March 11. Nevertheless, the bill included another round of direct payments to couples who earned as much as $140,000 in 2020; created a new entitlement for parents that will cost an estimated $143 billion this year; and egregiously bailed out private-sector pension funds run by politically connected labor unions at a cost of $86 billion.

Republicans voted unanimously against the package. In an earlier era—say, more than five years ago—that might have been a dangerous political signal for Democrats. It would have presaged a full court press from the GOP to paint Democrats as wasteful opportunists who used a public health crisis as thin veneer to justify massive, politically motivated spending at taxpayer expense. (And, to be clear, that would be an accurate description of the law.)

"If you look historically, I think one party holding the other party accountable has been hugely important for deficit reduction," says Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget. "Certainly, that was true under Obama, and to some extent with Bush as well. The two parties holding each other accountable matters a lot."

That political pushback seems unlikely this time around. Polls show that Biden's emergency spending bill is widely popular with voters—though it is fair to question how many of them are aware of the bill's details.

It could be that the pandemic has only temporarily glossed over Americans' usual skepticism of government action. Once COVID-19 is gone and the economy has recovered, Goldwein believes subsequent deficit-hiking spending bills will be more politically difficult for Biden. "It's going to get harder to maintain the moderate Democrats," he says.

That thesis might soon be tested. Less than two weeks after the $1.9 trillion American Rescue Plan was signed into law, Biden outlined plans for a $2.25 trillion package ostensibly aimed at infrastructure spending—though it also includes a $400 billion hike in Medicare spending and several other provisions that seem totally unrelated to any traditional understanding of infrastructure. Biden says the proposal will be fully paid for by raising the corporate income tax to 28 percent from the current rate of 21 percent. But that requires a bit of budgetary gimmickry: The White House plans to use 15 years of higher taxes to offset eight years of increased spending.

At the same time, Republicans have realized their voters are more energized by culture warfare than by deficit politics. As Biden's $1.9 trillion bill was speeding toward final passage, the conservative media was consumed by a publication controversy involving long-dead children's book author Dr. Seuss. There is some dark irony in the way that Republicans' fixation with progressive cultural politics helped obscure the passage of a spending bill that grew government and entrenched actual progressive policy goals.

But the real kicker for anyone who supports fiscal conservatism is this: When the next election comes around, what will the average Republican voter be more likely to remember—the "canceling" of Dr. Seuss, or the trillions in new deficit spending?

Freed from the need to seem fiscally sane in order to win votes, some conservatives are already concocting new ways to plow borrowed dollars into their preferred goals. An emergent right-wing progressivism, led by the likes of Sen. Josh Hawley (R–Mo.), sees nothing wrong with expanding federal welfare and entitlement spending. During the negotiations over Biden's COVID relief bill, Hawley teamed up with Sanders to oppose a cost-saving measure that would have allowed direct payments only for the truly needy.

Sen. Mitt Romney (R–Utah) has proposed a framework for making the COVID-19 bill's child subsidy permanent. Romney would pay parents an annual total of $4,200 for every child under the age of 6 and $3,000 per child aged 6–17, with the payments phasing out for individuals who earn more than $200,000 annually and couples who earn more than $400,000. It would be a huge expansion of federal entitlements—at a time when existing entitlements such as Social Security and Medicare are facing the prospect of insolvency by the next decade.

This new dynamic suggests that future debates over federal policy will be focused even more on delivering benefits to politically important demographics without regard to the question of who will pay for them. The future taxpayers who will be forced to shoulder the cost of today's borrowing, after all, do not have representatives in Congress.

Already, we're getting some previews of how that will play out. Oren Cass, one of the leading voices of the new progressive right, criticized Romney's plan in the pages of The New York Times for offering benefits to all Americans without work requirements. Notably, however, Cass signaled his support for Romney's big-picture goal. "An aggressive expansion of the nation's social compact backed by a major financial commitment would shore up the economic and cultural foundations on which people build their lives," he wrote.

It's not just spending that suddenly seems to be gaining in popularity, either. Political coalitions on both the left and the right are determined to use government power to break up or regulate powerful tech companies. They agree that Facebook and Amazon are bad and that government is the solution—they merely disagree about what, exactly, should be done. Republicans such as Hawley believe government action is necessary to stop what they see as the censorship of conservative views on some social media platforms. Democrats, meanwhile, are threatening to bring down the hammer unless those same sites engage in more widespread content moderation. The two views are likely impossible to reconcile—and neither is particularly concerned with reducing the role of government in ordinary Americans' lives.

For libertarians, it doesn't seem to matter much whether the right or left wins these debates. Either way, limited government and fiscal restraint lose.

The Bill Will Come Due

The best way to measure the size of a government is to do what Milton Freidman suggested: Look at how much it is spending. Every dollar spent by the government today is a dollar of taxes that must be raised—if not now, then sometime in the future.

Rhetoric and political messaging don't cause budgets to grow or deficits to shrink on their own, but they tell you something about the political zeitgeist. Clinton's declaration that the era of big government was over did not speak a balanced budget into existence, but it signaled that fiscal hawks had, for the time being, won the meta-debate about how budget issues should be framed. Overspending was bad, and politicians caught doing it would be punished by voters.

Polls suggest there is still a constituency for deficit hawkery. According to a Pew Research Center survey from March 2019, 90 percent of Americans felt that "reducing the national debt" was an important priority for elected officials—larger than the share who said politicians should focus on climate change or income inequality.

But neither major political party seems to have much interest in reducing the size of the state—or in making the debt a campaign issue. Twenty-five years after Clinton suggested that "there's not a program for every problem," prominent figures on left and right alike now argue that even families pulling in six-figure incomes are in need of government handouts.

"It's been a major shift. People have gone from being anti-government, to beyond being even neutral on it, to thinking: 'We need the government; it has to help us,'" former Rep. Barney Frank (D–Mass.) told The Washington Post in March. "For the first time in my lifetime, people are saying that the government has done too little rather than doing too much."

It took less than five months for America to rack up a $1 trillion deficit during this fiscal year. Even before the passage of Biden's stimulus bill, the CBO anticipated a $2.3 trillion deficit for 2021; the agency expects the national debt to exceed the size of the entire U.S. economy for every year in the foreseeable future. On its current trajectory, the debt will be twice the size of the economy within the next quarter-century—as near to us now as 1996 is.

But the bill will eventually come due. A large and growing amount of debt will reduce future economic growth and sap Americans' incomes. (The Congressional Budget Office, in its most recent long-term economic outlook report, warned that the debt could cause interest rates to rise and inflation to occur.) It also leaves the federal government with less wiggle room to address the next crisis when it comes.

The new deficit politics say not to worry about overspending as long as the cost to service the debt stays low. Even if that's true, Riedl says it is cause for concern. "We're gambling our whole fiscal future on the hope that interest rates never exceed 3 percent again," he says. If interest rates increase by even a single percentage point, it could add $30 trillion to what will be owed over the next three decades.

And even if nothing truly terrible happens—no interest rate hikes, no runaway inflation, no major catastrophes or recessions demanding that we tap into a nonexistent rainy-day fund—the current projections show that, within a few decades, half of all tax revenue will be used just to pay the interest on the debt. By the time a child born today is old enough to be nostalgic for the 2020s, half of his annual tax burden will go toward paying off the debt—a debt that includes myriad benefits his parents received without paying for.

Maybe his generation will come to care about fiscal responsibility. Maybe things will change even sooner than that: Perhaps Biden, once the fog of the pandemic has lifted and the cost of its response becomes clear, will rediscover the importance of balancing budgets. Until then, it's clear that the era of small government is over.