consensus for reforms to Social Security. The reform, which included both tax increases and reductions in benefits for retirees, did not fully solve the program’s sustainability problems but it greatly ameliorated them.
Similarly, in 1990, the nation adopted a budget agreement that constituted significant deficit reduction, to be followed by similar action in 1993; see Box 10-1. That agreement, engineered by leaders of both major parties, helped turn the federal government from then-chronic deficits to a 4-year period of budget surpluses.
These examples illustrate how leaders can confront politically charged fiscal challenges (see Light, 1995). The 1990 example provides both a positive and a cautionary message. It created budget process rules that for almost 10 years brought discipline to budget decisions. But the rules were eroded when budget surpluses seemed to make budget discipline less important. Partly as the result of the abandonment of those rules, the budget surpluses soon disappeared.
These infrequent examples of far-sighted leadership can provide guidance for how to break through long-standing gridlock to produce major
The 1990 Budget Agreement
In 1990, the nation faced a budget crisis brought on in part by a projected deficit far in excess of the targets established by the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985 (Pub.L. 99-177). That act had established annual deficit targets and required an automatic cancellation of budget resources for many programs if the target for a given year was exceeded. The projected deficit for fiscal 1991 was so far in excess of the legislated target, and the resulting automatic cuts would have been so severe, that leaders began bipartisan negotiations to find new targets and a new approach to budget discipline as an alternative to one they considered unworkable.
Under this pressure, President George H.W. Bush and Democratic congressional leaders negotiated a set of tax increases, cuts in entitlements, and limits on discretionary appropriations. These policy actions were supported by enactment of procedural reforms incorporated in the Budget Enforcement Act of 1990. The act legislated dollar caps on discretionary appropriations spending for fiscal 1991-1995 (later extended through 2002) and instituted a new pay-as-you-go (PAYGO) regime that required any new tax cuts or entitlement expansions to be offset by other benefit cuts or tax increases over the following 5 (later 10) years. The 1990 actions were updated in 1993 with another set of major cuts and tax increases, along with extensions of the budget process rules. The budget rules, constraints on discretionary programs, and PAYGO offsets were observed through much of the decade, until the emergence of budget surpluses. Ironically, of course, those surpluses were partially brought about by these earlier actions.