the partisan foundations of balanced budget politics

The Partisan Foundations of Balanced Budget Politics

Patrick Fisher Seton Hall University

The historical image of the Republican Party as aparty strongly supporting the balanced budget norm has come under increasing scrutiny as many prominent Republicans, including President George W Bush, have overtly argued that tax cuts should be a higher priority than deficit reduction. Have the Democrats truly surpassed the Republicans as being better advocates for deficit reduction, however? To determine partisan support for balancing the budget, 1 analyze balanced budget amendment votes in Congress since 1982, the “Fiscal Responsibility” vote scores given to members of Congress by the Concord Coalition, and the relationship between party control of the White House andthe size of the deficit. Findings suggest mixed evidence to support both Democratic and Republican claims to be the party most likely to back deficit reduction. While evidence >om the legislative branch implies that Republicans are competitive with the Democrats in regards to deficit reduction, the storyfiom the executive branch suggests that Democrats have done a much better job of reigning in budget deficits. As a result, the leadership ofthe White House in regards to balancing the budget appears to be more important than ever

Historically, the belief that the federal government should balance its budget has been a dominating conviction in American politics and the concept of balancing the federal budget has always had a stable majority constituency (Anderson 1987). From the nation’s founding until the 1930s, the balanced- budget rule was adhered to almost religiously, with the exception oftimes of war. Every year from 1866 to 1893, in fact, the federal government produced budget surpluses. In part this was due to the fact that tax policy after the Civil War was dictated not by revenue requirements as much as it was by economic protectionism. Nonetheless, this demonstrates to what degree the balanced budget norm dominated the American political landscape (Ippolito 2003).

The modem conventional justification for public debt emerged with John Maynard Keynes. Government, he believes, must take an active role in promoting full employment through both fiscal and monetary policy. To Keynes (1 937,372-74), classical economics fails to recognize that the market cannot

Politics & Policy Volume 33 No. 4 December 2005

618 P&cs 6 Policy Vol.33 No. 4

by itself adequately maintain consumption demands and coordinate investment decisions. Thus, Keynesian economics justifies deficit spending in the short term. Over the long-haul, however, Keynesian economics holds that government should reduce the public debt in times of economic prosperity by increasing taxes or cutting government spending. However accomplished, though, the debt should be repaid.

Keynesianism was embraced by New Dealers during the Great Depression as a means of stimulating an economy in dire straights. Once Franklin Roosevelt endorsed the concept of short-term deficit spending in order to stimulate the economy after he was elected president in 1932, the Democrats-became the party associated with Keynesian economic principles and the Republicans largely remained unfettered from their historical belief in balanced budgets. By criticizing the large deficits of New Deal policies, the Republican party began to be seen as the party that put a higher emphasis on balanced budgets, a belief reinforced by Eisenhower’s election in 1952 on a platform stressing the importance of balancing the budget. After World War 11, however, federal budget deficits were relatively small under both Republican and Democratic presidents. Democrats may have embraced Keynesian economic principles, but they still tended to support the balanced budget norm which was overwhelmingly supported by the American public.

Beginning in the 1970s, however, large federal budget deficits began to become standard. The emergence of large and rapidly increasing federal budget deficits after 1970, following 180 years of generally balanced budgets except in periods of war or recession, constitutes an historical abnormality. The transition to large and chronic deficits beginning in the 1970s was largely a result of non-defense spending growth due to the expansion of entitlement benefits, particularly Medicare and Medicaid. While spending levels increased substantially beginning in this decade, revenue levels did not, leading to large deficits (Ippolito 2003). Increasing taxes is problematic for policymakers because in order for them to gain support for it, they must either convince the public that there is a dramatic need for a tax increase or they must prove to citizens that their money will not be wasted. Increasing taxes requires a major effort to create support and defuse opposition (Rubin 1990,30). The anticipation of retrospective voting by policymakers helps to focus their attention on the possible electoral consequences of voting to raise taxes (Arnold 1990,194).

Importantly, the U.S. government is not unique in having run up deficits. Most industrialized democracies have tended to run budget deficits in the post-war period because they find it easy to spend and difficult to tax. Even though governments have the power to tax, summoning the will to tax often

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620 Politics 6 Policy Vol. 33 No. 4

economists have argued that deficits are problematic because they enable politicians to spend without the necessity of simultaneously imposing a tax and that government borrowing uses funds that would otherwise be available for other investments (Friedman and Friedman 1984). Large deficits either drive down domestic investment or are increasingly financed by capital inflow from abroad. In either case, living standards ofAmerican citizens fall. Declining investment leads to declining economic growth, and an increase of foreign investment results in a larger share ofAmerican output sent abroad in payment of debt service or other returns to foreign investors (White and Wildavsky

The fact that our government is paying such enormous sums just on the interest of our national debt also leads us to the question of the effects of the debt on future generations. Unless the interest payments are effectively reduced or denied to creditors by the future effects of inflation, large deficits finance current government consumption at the expense of hture government spending. That is, future citizens, instead of buying services with their taxes, will be paying a larger and larger proportionjust for interest payments. Many Republicans fear that this will eventually result in higher taxes for hture generations, while many Democrats fear that interest payments down the line may displace social spending. Republicans would avoid burdening future generations by cutting spending now, while Democrats want to protect spending later by financing current spending. Essentially, the two parties disagree on which spending is worth keeping (White and Wildavsky 1989, 353).

1989,527-28).

The Evolution of the Parties’ Positions on Deficits

Historically, Republicans have strongly favored balanced budgets. The large deficits of the 1 9 8 0 ~ ~ however, recast American politics, and the Republican Party’s historical image as the anti-deficit party changed with Reagan’s election in 1980. Beginning with Reagan, the emphasis for many in the party moved toward cutting taxes rather than reducing the deficit. The philosophical justification for cutting taxes in lieu of balancing the budget laid with a conservative alternative to Keynesianism that bases economic growth hopes upon the supply-side effects of reductions in personal marginal income tax rates. For many Republicans, supply-side economics promises short-term stabilization effects by promoting economic growth as well as the long-held goal of smaller government. In this way Republicans can avoid the problem of supporting limited government while at the same time supporting

Balanced Budget Politics 621

countercyclical spending (Schier 1992,26). It has been argued that the Republican Party’s conversion on taxes and

deficits and its adoption of supply-side tax policies was the result of pressure placed upon the national party by the Sunbelt states (Berkman 1993). Another argument is that supply-side economics was adopted as a result of public opinion that had become increasingly vocal about tax burdens and policies (Dionne 1991). Both of these theories imply that it was Washington elites who responded to pressure outside of the capital. An analysis of both of these hypotheses, however, finds that the Republican Party’s advocation of large across-the-board tax cuts from 1977 to I981 was the result of calculated and coordinated decisions by elites within the party. The position change was not a result of the increased influence of the conservative Sunbelt component of the party. Interestingly, the shift on tax policy was not brought about by changes in public opinion among Republican voters (Bums and Taylor 2000). Yet at the same time, the experience of the early 1980s taught Republicans that opposing taxes was good politics, while assailing popular domestic programs was not (Jacobson 1993, 378). RegardIess of the political motivations, it is clear that the policy implications of the implementation of supply-side economic theory have been enormous. It has been estimated, for example, that the Economic Recovery Tax Act of 198 1 cost the federal government $2,098 billion in lost revenue over the period 1982-1991 (Cranford 1989, 141).

Since the Reagan era, many Republicans have unquestionably become tax-cutters first and budget balancers second (Bums and Taylor 2000). For many conservatives, the deficit is simply not as important as cutting taxes and limiting the size of government. As the conservative strategist Grover Norquist puts it, “If we had a little teeny government and a big deficit, I wouldn’t care. It’s the size of the government we’re focused on” (quoted in Toner 2003, WR3). Similarly, Congresswoman Sue Myrick, chairwoman of the Republican Study Committee, a group of fiscally conservative House members that used to be ardent opponents of deficit spending, argues that “. . . anything that will help us stop spending money, I’m in favor o f . . .if there‘s a deficit, that may help us” (quoted in Firestone 2003, A24). To some Republicans, therefore, an indirect approach is to pursue the popular course of revenue reduction by “starving the beast” at its food source (Peterson 2004, 167). One former Republican who has been critical of this change in Republican priorities is Ross Perot. When he ran for president as a third-party candidate in 1992, the size of the deficit was his primary issue, and his criticism of the Republican Party’s approach on the deficit may have considerably hurt President Bush. After Bill Clinton was elected president, Perot’s success at highlighting the


deficit may have encouraged the Clinton administration and congressional Democrats to adopt a more stringent deficit-reduction course of action.

As the approach of the Clinton administration demonstrates, the Republicans’ embracing of tax cuts as the foremost economic priority has changed the way that Democrats view deficits. For many Democrats today, eliminating the deficit is simply a means to an end: protecting entitlement programs and restoring the government’s credibility. Balancing the budget has come to be seen as a means by which Democrats can maintain spending levels, while Republicans increasingly believe that large deficits will force spending cuts in the future.

The Democrats first began trying to make large deficits an issue during the Reagan administration. Beginning with Walter Mondale’s run for the presidency in 1984, the Democrats began to be more widely seen as the anti- deficit party, moving away from the Keynesian position that dominated the economic beliefs of the party in the postwar era. Democrats’ historical support for a Keynesian budget policy that makes redistribution an ongoing achievement of stabilization gave way to the perception that budget deficits were getting out of control and needed to be curtailed. It is also possible that Republicans began to see the deficit as not so bad because it tended to favor creditors, who were mainly Republicans, over debtors, who were mainly Democrats. Thus, by the 1980s a plausible constituency-based argument supported Democratic concern about deficits (White and Wildavsky 1989,412).

This trend can be seen worldwide. Prior to the 1 9 7 0 ~ ~ parties of the political left were more likely to run larger deficits than were parties of the right. Since the 1970s, however, many parties on the right have pursued policies that have lead to large deficits (Cowart 1978). The supply-side economic policies of some governments on the right have produced very large deficits, while Socialist and Social Democratic governments increasingly have adopted rather conservative fiscal policies. Overall, the political persuasion of a government appears to have little relationship to deficits, with several conservative governments, such as those in the Netherlands and Canada, for example, producing large deficits, and several social democratic governments, such as Finland and Sweden, producing relatively small deficits (Peters 199 1,

The Republicans’ historical image as a party supporting balanced budgets has for many given way to the supply-side stereotype that tax cuts are more important than balancing the budget. Is the image true, however? Do Democrats actually support balanced budget principles, or have they simply been put on the defensive due to Republican success at reducing taxes?

1 18-23).


What party really is the best today at supporting balanced budget principles at the federal level of government? This study attempts to answer these questions. To determine partisan support for balancing the budget, three measures of potential balanced budget support are analyzed: balanced budget amendment votes in Congress since 1982; the “Fiscal Responsibility” vote scores given to members of Congress by the Concord Coalition, a group dedicated to lobbying against large deficits; and the relationship between party control of the White House and the size of the deficit. The first two measures analyze partisan support from within the legislative branch and the last measure studies the level of partisan support From the executive branch.

Balanced Budget Amendments

In recent years, a number of constitutional amendments have been proposed to force the federal government to balance the budget. I analyze here the congressional votes on these amendments to see how strong of a partisan relationship exists. I also present an overview of the merits, both politically and economically, of such an amendment.

Since 1982, five votes have been held on a balanced budget amendment in the House and seven have been held in the Senate. Though the details of the amendments sometime varied-usually with exceptions for time of war or a change in economic conditions-the overall goal of supporters of a balanced budget amendment was to require the federal government to produce a balanced budget constitutionally. While four out of the five votes in the House, the exception being in 1982, had the required two-third majority to send the amendment to the states for ratification, only in 1982 did the Senate pass the amendment with a two-thirds majority.

To determine the degree of unity within each party with regard to balanced budget amendments, I developed the Rice Index of Cohesion which measures unity by subtracting the percentage of party members who vote against a particular bill from the percentage who vote for the bill. The Index is then expressed as the absolute difference between the two percentage figures. In regards to the partisan divide on the amendment votes, Republicans tend to be overwhelmingly in favor of a balanced budget amendment and Democrats generally oppose it. See Table 1. According to the Rice Index, a marked contrast can be seen between the unity of the Republicans and that of the Democrats, Republicans averaging 93.5 percent unity for the House and 87.4 for the Senate and Democrats averaging only 23.5 percent unity in the House and 30.2 in the Senate. While the Republican Party generally spoke with one

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624 Politics Or Policy ~ ~~

Vol. 33 No. 4

Table 1. Partisanship on Balanced Budget Amendments to the Constitution

Year

House 1 982 1990 1992 1% 1995 Average

Senate 1982 1986 1W 1% 1995 19% 1997 Average

Total Democrats Republicans For- Against For-Against For- Against

236-187 69-167 167-20 279150 110-145 1695 280-153 116-150 164-2 271-153 W150 172-1 300-132 72-129 228-2

69-3 1 22-24 47-7 66-34 23-24 43-10 56-36 15-39 414 63-37 22-34 41-3 63-35 14-33 51-2 65-35 1 2-34 52-1 6634 11-34 554

Rice Index of Cohesion Total Democrats Republicans

11.7 41.5 78.6 30.1 13.7 943 28.9 12.8 97.6 27.8 20.4 98.8 38.9 28.4 983 27.5 23.4 93.5

38.0 32.0 21.7 26.0 28.6 30.0 32.0 29.8

4.4 2.1

44.4 21.4 40.4 47.8 51.1 302

74.1 623 100

86.4 92.5 %2 100

87.4

Note: The Rice Index is expressed as the absolute difference of the percentage of party members voting against a bill subtracted from the percentage of those voting for it.

Source: Roll call votes are taken from various years of the congressional e a r t e r l y Almanac.

voice in support of a balanced budget amendment, the Democratic Party was divided. The balanced budget amendment votes, therefore, tend to support the argument that congressional Republicans are more supportive of balancing the budget than congressional Democrats. Thus, they reinforce the traditional stereotype of the Republican Party as the balanced budget party. Congressional Republicans have in the past used the votes on balanced budget amendments as a wedge issue to differentiate themselves from Democrats as well.

The actual merits of a balanced budget amendment, however, are hotly contested. For one, it is unclear what the practical effects of such an


amendment would be. Balanced budget amendment votes have been criticized by many as being purely symbolic since they deal with the process, not with tangible outcomes {Taylor 2002). Many Democrats argue that it is a phony proposal used simply to win political points and that it is possible for someone who supports the concept of balancing the budget to oppose such a change in the Constitution. Those who support deficit reduction through means other than amending the Constitution often argue that such an amendment would allow the judiciary to make fiscal policy and prevent the federal government from implementing the type of deficit spending necessary to extricate a potential budgeting crisis (Taylor 2002).

Furthermore, even if a balanced budget amendment were enacted, it remains unlikely that the federal government could balance the budget consistently every year even if it wanted to. Producing a balanced budget requires accurate forecasting of revenues and expenditures. These forecasts in t u n depend upon accurate forecasts of economic conditions, which is an inexact science to say the least. Inaccurate forecasts can play an important role in increasing the deficit. Deficit estimates are almost inevitably subject to seemingly large swings, even when they are made only a month before the end of the fiscal year. The projections of the fiscal 1993 deficit, for example, went from $352 billion in January 1992 to $327 billion in January 1993 to $285 billion in September 1993, while the actual deficit was $255 billion (Hager 19935). Deficit projections for 1993 went down as the economy proved to be healthier than expected, and interest rates dropped to record lows. Conversely, the economy proved to cause havoc with 1990 deficit figures even though the 1990 budget summit produced a deal that generated huge budget savings. Paradoxically higher deficits resulted as the savings were overwhelmed by the recession (Hager 1993a).

Concord Coalition “Fiscal Responsibility’’ Vote Scores

Another potential indicator ofthe degree by which legislators support the difficult political compromises that must be made in order to produce balanced budgets regularly are the vote scores given by the Concord Coalition, an anti- deficit organization formed in 1992 as a reaction against the massive budget deficits that plagued the national government at the time. Beginning with the 104th Congress in 1995, the Concord Coalition has released deficit reduction scores for members of Congress. The Coalition’s so-called “Fiscal Responsibility Scorecard” gives each legislator a score between “0” and “1 00.” Votes deemed to have a significant impact on deficit reduction were assigned


various weights according to their relative importance. A beneficial characteristic of the Concord Coalition ratings is that the

organization considers the tax side of the budget to be equal to the spending side of the budget in its political and economic importance. To the Coalition, “fiscal responsibility” means voting in favor of reduced spending or increased taxes and voting against increased spending or reduced taxes. Thus, the Coalition’s congressional vote scores can be seen as a means of measuring a legislator’s willingness to support the principles of balancing the budget from both the revenue side as well as the expenditure side of the budget.

Officially, the Concord Coalition is anonpartisan entity, but it is possible that partisanship may be related to the organization’s legislative ratings. It has been found that a liberal/conservative ordering of members of Congress is a predominant feature of nearly all roll call voting (Hager 1993a). On the other hand, parochial interests may push legislators away from their party’s position (Fisher 2005). Given the parochial nature of a member’s support, individual members of Congress may benefit by going out of their way to protect their own interests and the interests and preferences of their particular partisan electoral coalition. For instance, this may lead Republican congressmen and women to support tax cuts even if it is seems to contradict district opinion; Democrats may feel pressured to increase spending totals beyond that which is favored by their constituency as a whole. If one party consistently receives higher scores from the Concord Coalition, however, it may suggest that support for balancing the budget indeed falls along partisan lines.

Comparing the mean Concord Coalition vote scores of the parties from the 104th to the 107th Congresses, we find that Democrats and Republicans do indeed have noticeably different ratings in both houses of Congress, as shown in Table 2. An interesting characteristic of the effect of partisanship on the Concord Coalition vote scores, however, is that even though, with p < .OO 1, the parties’ mean Concord Coalition vote scores are a statistically significant predictor for all four Congresses in the House and, with the exception of the 107th Congress, three Congresses in the Senate, the direction of partisan influences in not consistent. That is, for some years being a Republican has a positive effect on scores by the Concord Coalition and in other years a positive relationship is shown by being a Democrat. This suggests that Democrats and Republicans can both occasionally make the claim of being the party supporting balanced budget principles.

Importantly, a distinguishable pattern of partisan support can be detected. In the 104th Congress, House Republicans had higher mean Concord Coalition vote scores, but in the 105th-107th Congresses House Democrats did. In the


Table 2. Mean Annual Concord Coalition Vote Scores by Party

House Senate Congress Democrats Republicans t-ratio Democrats Republicans t-ratio

104th 40.12 58.41 -6.860*** 36.88 62.82 -4.948*** 105th 55.24 45.50 3.576*** 38.51 60.31 -4.014*** 106th 56.72 43.78 4.752*** 61.38 4123 3.676*** 107th 54.72 45.09 3.528*** 46.62 52.71 -1.038 * * * p < .oo 1

Note: The party with highest annual mean is represented in bold print. The figures for the 104th, I05th, and 106th Congresses are the composite of individual year vote scores during that Congress.

Senate, the Republicans had statistically significant higher scores in the 104th and 105th Congresses and the Democrats showed higher scores in the 106th Congress. Thus, since the Concord Coalition began giving scores to members ofcongress, in the 104th Congress a shift has occurred from the Republicans getting overall higher scores to the Democrats being more supportive of the organization’s goals. This shift is especially dramatic in the House.

The fact that the Concord Coalition’s congressional roll call vote ratings do not fit nicely on the standard left-right political spectrum suggests that the political dynamics of deficit reduction are different from those of other issues. This incongruence is reinforced by looking at the individual members of the House and Senate who received the highest annual “fiscal responsibility” scores. The highest scores given by the Concord Coalition include legislators from across the political spectrum. In the 107th Congress, for example, two of the top five Concord Coalition scores in the House were Republicans, and in the Senate three of the top six scores were Republicans, indicating that neither party consistently came out on top ofthe organization’s ratings. Another study finds that more moderate legislators were more supportive of deficit reduction, suggesting a polarization of fiscal policy as it relates to ideology (Taylor 2002).The Concord Coalition scores, on the other hand, denote that those most supportive of deficit reduction measures come From across the political spectrum.

One possible explanation for Democrats replacing Republicans in recent years as being more likely to support deficit reduction may be that the arrival of the federal budget surplus altered the parties’ budgetary priorities. After


the Republicans took majority control in the 104th Congress, annual deficits were relatively high. Republicans, therefore, made cutting domestic spending a higher legislative priority even though they publicly supported significant tax cuts. With a Democrat in the White House, congressional Republicans may have decided they would be more successful passing legislation that reduced spending than they would be by enacting tax cuts. With the advent of federal budget surpluses in 1998, however, Republicans made a more concentrated effort to reduce taxes, and congressional Democrats on the defensive voted against the tax cuts, arguing that the surplus would be better used for domestic programs and reducing the national debt. Thus, immediately after the Republicans took control of Congress after the 1994 elections, they had higher Concord Coalition vote scores because they controlled the legislative agenda and supported a number of measures to reduce federal spending that Democrats opposed. By 1998, however, with projected surpluses looming, the Republicans moved toward making tax cuts a greater priority, lowering their scores, while Democrats’ opposition to tax cuts garnered them higher “fiscal responsibility” scores. Along similar lines, the Democrats’ relatively high scores in the House during the 107th Congress is probably a result of the Bush administration’s making tax reduction a major priority and then by congressional Republicans following suit, voting for significant tax cuts in the 200 1 Budget Reconciliation Bill-a measure the Concord Coalition strongly opposed because it eliminated much of the projected federal surpluses over the next decade.

To a large degree, therefore, the Concord Coalition vote scores suggest that the party that is the better advocate of balanced budget policies is determined by whether spending or taxing issues are being debated. While policymakers may sometimes think of fiscal policy along the lines of traditional budgetary balance or deficits, budgeting is now more often recognized as consisting of two distinct and separate issues: government expenditures and revenue policy (Taylor 2002). Democrats tend to be more disposed toward keeping as much social spending as possible in today’s budgetary environment, even if that means having higher taxes. Republicans, on the other hand- though they do tend to be pro-spending when it comes to the defense-desire lower taxes more than social spending. Thus, the Democrats favor relatively high expenditures and high revenues, while the Republicans favor relatively low expenditures and low revenues. Balancing the budget at lower levels of expenditures and revenues is quite different than balancing taxing and spending at higher levels.

Consequently, with the possible exception of defense spending, the Republicans are going to be seen as the better advocates of the balanced


budget when it comes to attempts at keeping spending down, but the Democrats are going to be seen as better defenders of balanced budget priorities when it comes to tax legislation. The Republicans’ emphasis on tax cuts during the George W. Bush administration, for example, suggests that Democrats, perhaps by default, may be regarded as stronger supporters of balancing the budget. Though Democrats by no means dominate the Concord Coalition ratings, the Coalition vote scores do support the Democratic Party’s claims to be the party of fiscal responsibility, unlike balanced budget amendment votes.

Party Control of the White House

While votes on balanced budget amendments and Concord Coalition vote scores focus on congressional budgetary behavior, the president is also, of course, instrumental in directing budgets toward balance. Thus, an important indicator of partisan support for balancing the budget may be the success or failure ofpresidents to get Congress to support budgets limiting deficit spending.

Since congressional passage of the Budget and Accounting Act of 192 1, the president has been legally required to develop and submit a budget to Congress. Given the importance of the presidential role in the budget process, it is fair to conclude that the White House plays a significant role in determining whether or not the federal government produces a budgetary deficit or surplus, though certainly many factors, such as the state of the economy and congressional priorities, are beyond the control of the presidency. At the same time, the size of the deficit or surplus that the federal government produces can be expected to have an important effect on what the president can propose to do.

Presidential policy, therefore, may be held to blame for large deficits (Morgan 1995). If we look at deficit and surplus totals by presidential administration, we find that from the executive level a strong argument can be made that Democrats have done a better job of keeping budget deficit totals down than Republicans. An analysis of deficit and surplus totals since the Kennedy administration shows that deficits have tended to be significantly higher under Republican administrations. See Table 3.

As the results in Table 4 show, from 1962 to 2004, the average deficit of budgets enacted with a Democrat as president was $12.3 billion, while the average deficit of budgets initiated by Republican presidents was $158.5 billion, a statistically significant difference, p < .OO 1 . I The budget deficits that existed under Republican presidents were on average more than twelve times greater than those that existed under Democratic presidents. This difference is also

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632 Politics 8 Pokv Vol. 33 No. 4

Table 4. Deficits by Presidential Party

Democratic Republican President President t-ratio

Average Deficit (billions) 1230 158.50 4.386*** Average Deficit Constant 2004 $ (billions) 4120 2.39.50 5.127*** Average Deficit as % of GDP 0.90 330 4.830***

***p < .001

large and statistically significant, p < .001, when we account for inflation. In constant 2004 dollars, deficits under Democratic presidents averaged $4 1.2 billion while the average deficit under Republican administrations was $239.5 billion. As a percentage of the GDP, the difference between deficits produced by Democratic and Republican presidents was not quite as dramatic, but was also statistically significant, p < .OO 1 : the average deficit of a budget instituted under Democratic presidencies was 0.90 percent of the GDP, while deficits enacted under Republican presidencies averaged 3.30 percent of the GDP. These figures support Democratic arguments that they have been better guardians of balancing the budget, at least from the White House (Fisher

The significance of party control of the White House as a determinant of the size of the federal deficit is illustrated by the George W. Bush administration. Bush’s emphasis on tax cuts over deficit reduction is a radical departure from the budgetary strategy of Clinton. After Bush’s election in 2000 and until Senator James Jeffords left the Republican Party in May 2001, Republicans controlled both the White House and Congress for the first time since the Eisenhower administration and were free to dictate the budget process for their political purposes. Bush decided to make cutting taxes the number one priority of his new administration, even though it was potentially a politically risky move. Despite the popularity of Ronald Reagan as president, the political as well as policy success of supply-side economics was still very much in doubt until George W. Bush’s election. When Bob Dole proposed a major tax reduction after winning the Republican presidential nomination in 1996, for example, his proposals were met with general skepticism and failed to be a vote winner. One potential reason for this is that the proposed tax cuts were linked to the tax cuts of 198 1, which led to massive budget deficits (Rubin

2005,123-25).

~ _ _ ~~~~ ~~ ~


2003,34). With the election ofGeorge W. Bush in 2000, however, Republicans once again embraced supply-side economics as a justification for lowering taxes even as the deficit surpassed record levels.

Bush’s plan called for a reduction of all federal income tax rates, raising the child credit, giving a break to married couples, and repealing the federal tax on large estates. The largest proportion of the tax cuts would come from changes in the federal income tax rates; congressional passage of Bush’s plan reduced the rates that had been in effect since 1993-15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent-and replaced them by new rates of 10 percent, 15 percent, 25 percent, 33 percent, and 35 percent. Overall, the tax cuts were expected to reduce federal taxes by $1.35 trillion over a ten year period.

President Bush argued that his plan to cut taxes would restrain the growth of government spending and provide the money needed to address issues that he considered priorities. At the same time, he contended that the projected federal surplus of $5.6 trillion over the next decade made tax cuts affordable. The large surplus, therefore, justified the tax cuts. “The surplus is not the government’s money,” claimed Bush in a speech in Omaha on the first day of a trip to sell his tax cut and budget plan. “The surplus is the people’s money. And I’m here to ask you to join me in making that case to any federal official you can find” (CNN.com 200 1). Bush also sold the tax cut as a way to shore up the economy, which was showing signs of slowing just as he won the presidency. Thus, not only was a tax cut a means by which to return people their own money, it was also antirecession insurance.

Democrats criticized the bill for being unfairly tilted to the wealthy, leaving too little money for other purposes, and risking putting the nation back in the red just as it confronted the costs of paying Social Security and Medicaid to an aging population. According to Senator Daschle, the tax cuts were “good short-term politics” but were “disastrous long-term policy.” Congress, Daschle predicted, would ultimately have to come back to “make corrections” in tax policy (Stevenson 200 1). Democrats claimed the United States would come to rue the day that the legislation was enacted because it risked a return to the kinds of budget deficits that plagued the federal government after the large 198 1 Reagan tax cuts.

President Bush made a big tax cut the centerpiece ofhis economic agenda and his first legislative priority. Not only was the passage of the tax cuts a victory for Bush, but it was also a victory for Republicans in Congress who had been thwarted in their tax-cutting efforts while Clinton was in the White House. Yet Bush’s tax cut proved a hard sell with voters, with majorities


in polls preferring a much smaller tax cut and many opposed to any tax cut (ABC News 2003). Though tax cuts had been advocated by Republicans since the advent of the budget surplus, the concept lacked considerable grass roots support. It may be that Bush and the Republicans were using an issue that they believed had worked for them in the past even though it may not have been the vote winner that it once was. Despite the fact that the Bush administration staked a lot of political capital on selling the desirability oftax cuts and claimed that the tax cuts were a major political victory, many Americans refused to be swayed toward believing that their taxes had indeed been reduced. In May of 2004, for example, one poll seemed to suggest that voters were less than enthused about the Bush tax cuts. Only about one in ten said they were paying less in federal taxes in the current year than the previous year because of the cuts (Moore and Newport 2004). In another poll taken in March of 2004, only 22 percent said that Bush policy lowered their taxes, 46 percent reported no change, and 25 percent blamed Bush for higher taxes (Nagourney and Elder 2004).

It has been argued that the central tenant of the George W. Bush presidency is to complete the conservative ideological agenda of Reagan: to counter liberal conceptions about the proper role of government and replace them with a conservative regime of supply-side economics (Schier 2003). The Bush administration has turned the conventional wisdom of economic policy upside down. Pursuing tax cuts even in the face of large budget deficits was a radical departure from the actions of previous presidents, even Reagan. Three potential risks were involved for the Bush presidency in this approach. It may be only a matter of time before enduring deficits divide the administration’s support among congressional Republicans. Large deficits hand the Democrats a potential issue in future elections. Finally, large deficits put at risk spending prospects for other policies the Bush administration advocated (Schier 2003).

The different budgetary approaches of Democratic and Republican presidents in recent years may be a result of the fact that Democrats and Republicans tend to follow the wishes of those partisans that elected them to office. Policymakers may be simply responding to different portions of their constituencies (Fiorina 1974). We can see this when we look at partisan budgetary preferences of voters in the 2000 presidential election. Significant partisan differences existed regarding taxing and spending proposals that played a major role in this election. An exit poll of the 2000 presidential election found that voters for A1 Gore and George W. Bush advocated noticeably different priorities for the new president. Gore supporters argued that tax


looo? -

80% -

60% -

40% -

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Figure 1. Top Priority for Next President, 2000 Elections

.Gore UBush

I

TaxCut Prescription Education Social Drugs Security

cuts should be a low priority for the new president while Bush supporters strongly supported tax cuts. Of those who claimed that tax cuts should be the top priority for the next president, 70 percent voted for Bush. Of those who claimed that prescription drugs, education, and Social Security should be the top priority, a majority cast their votes for Gore, as results in Figure I demonstrate. This may explain why Bush made tax cuts the major focus of his new administration despite public opinion polls that showed that the American public overall tended to be ambivalent toward the necessity of reducing taxes. Bush may have simply been responding to his political base,, which strongly supported tax cuts.

Presidents, of course, do not produce budgets in a vacuum. Congress, after all, has the final say in whether or not a budget is eventually enacted, and as a result the White House must consider potential congressional support when constructing budgets. Especially important in this regard is whether or not the president’s party has majorities in the House and the Senate, which has been an increasingly rare occurrence since the 1950s.

Divided government may make it more difficult to balance the budget because the president and Congress cannot agree on priorities, and partisanship in Congress may be reinforced by the prevalence of divided government. Divided government creates incentives for Congress to use divisive public policy debates on so-called “wedge issues” in order to damage the opposing party in future elections (Rose 2001). As a result, divided government may work to reinforce the differences in budgetary priorities among the parties.


Table 5. Deficits by Type of Government ~ ~ ~ ~

Divided Unified Government Government t-ratio

Average Deficit (billions) 98.00 77.80 5.488 Average Deficit Constant 2004 S (billions) 165.40 117.10 -0.958 Average Deficit as YO of GDP 2.46 1.70 - 1.347

Jacobson (1 993), for example, argues that the large budget deficits from 198 1 to 1992 were the result of a compelling political logic and were the outcome of conflicting party preferences under a divided government’s control of the federal government. Ifthe president and Congress cannot agree, then inflows and outflows will be out of balance. Depending on factors such as the state of the economy, either deficits or surpluses are likely under a divided government that cannot reach a budgetary consensus (Fiorina 1996). Interestingly, Norpoth (2001) finds that under divided government, the electorate places economic responsibility on the president and largely absolves Congress, regardless of the economic conditions.

Does divided government lead to larger deficits? The evidence is mixed. At the state level, the evidence points to divided government leading to larger budget deficits because states with divided government are slower to react and more likely to become gridlocked (Fiorina 1996, 170). At the federal level, the George H. W. Bush and Bill Clinton tax increases, in 1990 and 1993 respectively, are both widely regarded as policies that successfully lead to deficit reduction; one was produced by divided government, the other by unified government (Fiorina 1996,169). Yet overall, deficit levels during periods of divided government suggest that the budgetary polarization that occurs in these periods may make balancing the budget more problematic. The average budget deficit under divided governments from 1962 to 2004 was $98.0 billion- $165.4 billion in constant 2004 dollars-while the average budget deficits under unified governments was only $77.8 billion, that is $1 17.1 billion in constant 2004 dollars, as shown in Table 5. As a percentage of the GDP, the average budget deficit was 2.46 percent under divided governments and 1.7 percent under unified governments. Though not statistically significant, budget deficits since 1962 have thus on average been more than 20 percent higher in periods of divided government (Fisher 2005,126-27).


Conclusion

Mixed evidence exists to support both Democratic and Republican claims to be the party most likely to back deficit reduction. On measures such as party control of the White House or Concord Coalition vote scores in the House during the 105th-107th Congresses, the Democrats come out on top; congressional balanced budget amendment votes and Concord Coalition vote scores in both the House and the Senate during the 104th Congress suggest that Republicans may be better at balancing the budget. This represents a fundamental change in American politics. From the New Deal era to the election of Ronald Reagan as president, it was widely held that Republicans put a higher premium on balancing the budget than Democrats. To be conservative on fiscal policy meant that one was averse to deficits. Since 1980, however, fiscal policy has bifurcated. Though conservatives and Republicans still tend to support budgetary balance in the abstract, they are less willing than previously to support the concept when presented with the specifics. Democrats and liberals, on the other hand, increasingly support deficit reduction as an important means in itself-at least when it is defined in their terms (Taylor 2002).

Potentially there are political as well as pol icy consequences to the parties’ positions on deficit reduction. It has been found that the public actually notices and responds to budgetary pol icy change, though sizeable group differences occur in political responses to government performance (Hibbs 1982). Changes in budget preferences are negatively related to spending decisions whereby the public modifies its preferences for more spending downward when appropriations increase and prefer increased spending when appropriations decrease (Wlezien 1995). Such public responsiveness implies that people acquire and process fairly accurate information about budgetary policy. The long-term policy consequences of the parties’ positions in regard to balancing the budget, however, may be more significant than the short-term political ramifications. Long-term projections, for example, suggest that as the nation grows older entitlement spending for the elderly, specifically in the areas of Social Security and Medicare, risks overwhelming the budget.

The stakes of party control over the budget process are as stark as ever. This can especially be seen at the presidential level. One’s vote for president in recent years has never been more important in dictating the degree to which the federal government will pursue deficit reduction. Though Clinton did not run on a balanced budget platform in 1992, after he was elected he immediately made deficit reduction a priority by supporting increased taxes.

638 Politics 6 Policv Vol. 33 No. 4

The results of his policies, coupled with a very strong economy, were remarkable. During every year of the Clinton presidency, the federal government produced a budget with a lower deficit or higher surplus, and in a development that would have been thought impossible as late as the mid- 1990s, there were budget surpluses from 1998 to 2001, including a record surplus of $236 billion in 2000. The elimination of a federal budget deficit may be Clinton’s greatest accomplishment as president (Fisher 2002). Clinton, however, was unable to reap the rewards of his budgetary achievements. According to a poll conducted in January 1998,32 percent said that Clinton deserved no credit at all for balancing the budget. When asked who deserved more credit for reducing the deficit, the number who said Clinton was virtually even with the number who claimed Republicans in Congress (Page and Welch 1998).

In a significant departure from the Clinton administration, the George W. Bush administration saw projected surpluses as justification for implementing significant tax cuts, and by 2003 the federal budget deficit was $375 billion dollars, the largest deficit ever. Bush’s reaction to the large deficits of his administration was to argue that they were irrelevant because cutting taxes was a higher priority than balancing the budget. Though evidence from Congress implies that Republicans are competitive with the Democrats in the deficit reduction department, the story from the White House suggests that Democrats have done a much better job of reining in budget deficits.

The fact that congressional Republicans can at least sometimes legitimately claim to be supportive of deficit reduction indicates that the Republican Party still has many who would prioritize deficit reduction ifthe White House moved in such a direction. Congressional Republicans, therefore, may be more willing to support balanced budget legislation if that was the position of the White House. On the other side of the aisle, congressional Democrats may be less likely to support deficit reduction ifthey were not prodded to do so by the White House, as was the case during the Clinton administration. Thus, partisans in Congress appear to be following the lead of the executive branch to determine the priority of deficit reduction. As a result, the leadership of the White House in regards to balancing the budget appears to be more important than ever.

Note

’ Refer to Table 3 for a list of the mean annual deficits of both Democrats and Republicans and the average annual budget surplus of budgets passed during the Clinton administration.

~~

Balanced Budeet Politics 639

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