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Which Party Loves Deficits?

Which political party cares more about reducing deficits? Megan McArdle says it's not really either. To me, it's an easy call.

McArdle argues that the proper time frame is the last 20 years, and I agree. Let's briefly review the history of the deficit during that period. The story begins in 1990, when George H.W. Bush decided to compromise with Democrats in Congress and sign a major deficit reduction law. The deal contained significant cuts in spending, along with a small hike in the top tax bracket, and pay as you go budget rules requiring that any entitlement increases or tax cuts have offsets to make them deficit-neutral. Conservatives revolted, voting en masse against the deal -- just 10 House Republicans supported it -- despite a full-court lobbying effort by Bush. The deal is still remembered as a betrayal by Bush and the prototypical example of how a GOP president should not govern. Every major adviser associated with the deal from Bush's side has since been purged from the party.

In 1993, Bill Clinton's administration decided that the deficit was still too high, and pushed through another deficit-reduction measure -- similar in design to the 1990 deal, though somewhat smaller and more titled toward tax increases. Republicans declared it an economic and moral abomination and, having completed their reaction against the 1990 agreement, gave the Clinton budget zero votes in either house of Congress. After gaining control of Congress, Clinton fought with Congressional Republicans over how much to reduce the deficit and whether it was appropriate to enact a large regressive tax cut as part of such a program.

That was the last significant piece of deficit reduction for a while. The 1997 Balanced Budget Agreement, a compromise between Clinton and Congressional Republicans, is frequently cited as causing the deficit to disappear. In fact, the agreement was probably deficit neutral, and largely consisted of the two parties slicing some funding out of Medicare and dividing it between a capital gains tax cut and a childrens' health insurance program.

The next most important debate over the deficit occurred during the appearance of a budget surplus at the end of the Clinton administration. Republicans argued that the surplus demonstrated the affordability of large permanent tax cuts. Clinton argued that a surplus at the height of a red-hot business cycle ought to be devoted to reducing the national debt.

Once Republican George W. Bush took office, Clinton's veto was gone, and Republicans immediately began dismantling the bulwarks of fiscal conservatism. They ended the pay as you go budget rule, and passed a series of large tax cuts. They also passed a Medicare prescription drug benefit, also unpaid-for, and major military and homeland security spending increases. Much of the criticism over the enactment of these policies, especially the 2001 tax cut, centered around the durability of the surplus, which Democrats called uncertain, and Republicans insisted was bound to continue growing.

In 2009, President Obama took office and immediately faced a budget deficit projected before he took office to top $1 trillion, a projection that worsened as the depth of the economic crisis grew clearer. Obama passed a one-time stimulus measure in response to the emergency, adding less than 8% to the long-term deficit. He passed a health care law projected to reduce the budget deficit by more than a trillion dollars over the next two decades. The other major deficit-related debate of this period involved continuation of the Bush tax cuts, which Obama favored in part and Republican in its entirety.

I think that pretty much covers the major inter-party debates over the deficit. And the conclusion isn't very ambiguous. In 1990, a Republican president agreed with Congressional Democrats to reduce the deficit, to the dismay of Republicans. Since then, nearly every debate over fiscal policy has had Republicans favoring policies that would create larger deficits than Democratic policies would. The one, partial exception to this was 1995.

How does McArdle's account differ? Well, first she dwells at length upon the 1990 deficit deal as a rebuke to the notion that Republicans don't care about the deficit. It's a valid account if you choose, as McArdle does, to ignore the overwhelmingly negative Republican reaction to the agreement before and since. The more fair way to account for this episode is to conclude that it represents a strand of moderate Republicanism that has since been driven out of the Republican Party and taken up residence in the moderate wing of the Democratic Party.

Next, she ignores several of the episodes described above, nearly all of which demonstrate the degree to which, post-1990, Republicans abandoned and Democrats embraced the cause of deficit reduction. She further complicates the story by including as evidence the level of the deficit experienced by George W. Bush at the end of his term, which dropped to 1% of GDP at its ebb, and the high deficit experienced under Obama. Obviously this is an extremely flawed metric by which to judge a president's commitment to fiscal responsibility. In the short term, the effects of the business cycle overwhelm the effects of fiscal policy. So indeed, it is true that the deficit briefly dropped at the peak of the 2000s business cycle, and it skyrocketed at the start of 2009, but neither of these reflects any policy change.

It's so clear cut that Democrats care more about reducing deficit than Republicans that the more interesting question is why this is even a matter of debate. We don't, after all, debate which party cares more about regulating greenhouse gasses or keeping low marginal tax rates -- and the evidence on those issues is no more ambiguous than the evidence on the question of who cares more about deficits. One answer is that Republicans are rhetorically committed to deficit reduction, perhaps even moreso than Democrats, and news reporters are hesitant to frame the issue in such a way as to take sides on a contested value. A second answer is that what you'd call the anti-deficit lobby -- interest groups like the Concord Coaliion and various mainstream pundit reporters -- are also committed to bipartisanship and the belief that both parties are to blame for national problems. Any other reasons?