House of Eratosthenes

President Obama and the Democrats argue that any debt limit deal to reduce federal deficits and debt needs to be balanced between spending reductions and tax increases. But as I show in my new book, “America’s Ticking Bankruptcy Bomb,” that is not how we did it the last time we balanced the budget, in the 1990s.

The Republican congressional majorities elected in 1994 were greeted in February, 1995 with then President Clinton’s new budget projecting continued federal deficits of $200 billion or more indefinitely into the future. The ensuing government shutdown battles ended with budget policies that cut both taxes and spending.

Republican congressional majorities, led by then House Speaker Newt Gingrich, enacted the largest capital gains tax cut in U.S. history, slashing the rate by 40% from 28% to 20%. Along with some other tax cuts on capital, that helped to promote an economic boom that produced surging revenues.

The Republican Congress then cut federal discretionary spending from 1995 to 1996 by 5.4% in real dollars, after adjusting for inflation. As a percent of GDP, federal discretionary spending, including defense and non-defense, was slashed by 17.5% in just 4 years, from 1995 to 1999.

The Congress also adopted some entitlement reform. The AFDC welfare program was terminated as an entitlement, and sent back to the states with work requirements and federal financing in fixed, finite block grants. Agricultural subsidies were phased out under the Freedom to Farm reforms (later reversed under House Speaker Dennis Hastert). President Clinton deserves credit for going along with these Congressional Republican reforms.

As a result, $200 billion annual federal deficits, which had prevailed for over 15 years, were transformed into surpluses by 1998, peaking at $236 billion by 2000. The national debt was reduced by $560 billion in surpluses from 1998 to 2001.

Political discussions about what happened in the 1990’s often involve this budget surplus President Clinton “gave” to his successor, George W. Bush. Every once in awhile — more likely if I happen to be involved in them — the question will come up “What exactly did Bill Clinton do to make the economy so rosy?” and our progressives don’t have an answer to this. They have no idea what happened, they just have a sound bite and that’s all.

But our conservatives have an idea what happened: Clinton spent his first two years taxing and spending and stimulus-ing and health-care-plan-ning, at the end of which the electorate handed him his own ass cheeks on a plate in the form of the 104th Congress. The super-duper-awesome nineties economy took off after that.

It’s not because Republicans are smarter. Some of them are just as daft, just as removed from reality, as your average liberal democrat. It’s got to do with government’s power to, not so much fix the economy, as be in the way as others try to fix the economy; good things happen when you move it out of the way. And it also has to do with incentives. When the incentives are provided for more screwing around, more smoking of the weed, laying about on the ass, waiting for everybody else to do something, people will accommodate. When things are made a bit more comfortable for the ones who take personal responsibility, and a bit less comfortable for those who do not, again, people will oblige. It really isn’t complicated at all, let alone as complicated as our beltway friends are making it out to be.

Hat tip to Boortz.

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How We Did It Last TimeTuesday, July 12th, 2011

How We Did It Last Time
Tuesday, July 12th, 2011