“Clinton came into the White House acknowledging that the deficit was a problem and that it was necessary to be a little more disciplined about tax cuts and spending going forward in his administration,” said Diane Lim, a principal at District Economics Group who served as an economist in that administration.
Lim returned to “Facing the Future” for the latest segment of “The Economist Mom.” She joined Concord Coalition Executive Director Robert L. Bixby to discuss the fiscal policies and budget realities of the Bill Clinton and G.W. Bush administrations.
“When the Clinton administration came in, the first thing they realized was there was a case to be made to raise revenue,” Lim said. “That was very controversial at the time because Republicans still did not like the idea of raising taxes even if they did not like the deficit.”
Bixby said that the period between 1992 and 2001 proved that a “balanced budget amendment” to the Constitution was not necessary to pursue responsible fiscal policy. He said that era showed that with a combination of economic growth, increased revenues, spending restraint and bipartisanship, we could get on a solid fiscal track.
The combination of these factors led to budget surpluses for the first time in decades.
Lim said, “It was a combination of the policy that raised marginal tax rates without hurting the economy, the strong growth of the economy, a little bit of windfall growth in the economy from the tech bubble that eventually burst right at the end of the Clinton administration.”
She added: “Those of us who had worked as economists for the Clinton administration tried to make the case at the end of the administration that the surpluses that were accumulating were necessary to prepare for what we knew would otherwise be massively growing deficits as the Baby Boomer generation continued to retire.”
She said that with the bursting of the tech bubble, the wars in Iraq and Afghanistan, entitlement expansion and large tax cuts, the surpluses ended and deficits returned under the Bush administration.
“The deficit became an inconvenient truth at the time,” Lim said. “The Bush administration wanted to push their large tax cut, they wanted to not be constrained in terms of military spending to address the war.”
“The administration,” Bixby said, “did push Social Security reform but … it wasn’t part of a grand fiscal strategy, it was kind of an isolated thing and so it didn’t really catch on.”
Chase Hagaman hosts “Facing the Future” each week on WKXL, NHTalkRadio.com (N.H.), which is also available via podcast. Join him and his guests as they discuss issues relating to national fiscal policy with budget experts, industry leaders, elected officials and candidates for public office. Past broadcasts are available here. You can now subscribe to the podcast on iTunes, Google Play or through RSS.
