It is the economics story of the year. Maybe of the decade. We
finally have a balanced budget in Washington. The last time Congress
balanced the budget was the fiscal year 1969 when LBJ was still in
the White House. Since then weíve accumulated more than $4 trillion
of national debt.
So this is a story of momentous accomplishment. But itís also a
story that has been generally botched by the media. How did we get
to a balanced budget? Whoís really responsible?
Most of the TV and print news stories on the balanced budget over
the past six months have assigned the credit to the 1990 and 1993
budget deals ó especially the big tax increases. Thus George Bush
and Bill Clinton allegedly are the heroes of this story. Last summer
when the news first broke that we would have a balanced budget this
year, The New York Times gushed that although Clinton
deserves most of the praise for raising taxes in 1993, "George Bush
was really the man who risked the most and paid the biggest price
for cutting the deficit."
A February NPR story stated that the deficit skyrocketed in the
1980s because of Ronald Reaganís unaffordable tax cuts, but the red
ink was cured by a series of heroic tax hikes in the 1990s. CNNís
Bill Schneider reported that "President Bush, the Democratic
Congress, failed candidates for president [like Walter Mondale] ó
they are the unsung heroes of the balanced budget."
With "Taps" music playing in the background and patriotic visuals
of the Washington Monument, Schneider made a tribute to the two
Senate Democrats and 34 House Democrats who "stuck their necks out"
and voted for Bill Clintonís 1993 tax increase.
This is certainly a heartwarming story of political courage,
unfortunately, itís contradicted by the fiscal facts. These stories
only perpetuate four common myths about the budget that careful
reporters should avoid repeating.
Myth 1: The Reagan tax cuts caused the deficits while the 1990
and 1993 tax hikes helped balance the budget. In the 1980s
federal tax receipts doubled from $517 billion to $1,031 billion. As
I reported in The Wall Street Journal last summer, in the
seven years following the Reagan tax cuts (1982-1989), total federal
revenues adjusted for inflation grew at almost precisely the same
pace (24.1 percent) as they did in the seven years (1990-1997)
following the Bush-Clinton tax hikes (24.9 percent). In other words,
the two huge tax increases did not produce significantly different
rates of growth of revenues than did the Reagan tax cuts.
Myth 2: Clintonís 1993 budget set the federal government on the
track to a balanced budget. The real turning point in the
deficit was not in 1993, but in 1995. In March of 1995, the
Congressional Budget Office predicted that the budget deficit would
be $200 billion a year ó for as far as the eye could see. This was
the Clintonomics baseline. Since the GOP took over Congress in 1995
the deficit has been cut by an aggregate $512 billion from this
Clintonomics baseline. Few news stories have given any credit to
Newt Gingrich or the Republican Congress for the balanced budget,
even though the budget deficit stood at $203 billion the year they
took control of Congress.
Myth 3: Reaganís policies caused the deficit, but had nothing to
do with ending the era of red ink. The escalation of the
budget deficit in the early and mid-1980s was primarily a result of
the Reagan military buildup and expanding entitlement programs. But
just as the deficit rose in the 1980s to finance the military
expansion, the deficit has shrunk to zero in the 1990s primarily
because of the peace-dividend from Reaganís Cold War victory.
Since 1987, military spending has fallen by three percent of GDP
ó precisely the amount the deficit has fallen as a share of GDP. If
Reaganís policies deserve the blame for causing the deficit in the
1980s, then they deserve equal credit for ending it in the 1990s.
Incredibly, few reporters have even mentioned the shrinking military
budget in balanced-budget stories this year.
Myth 4: Balancing the budget has come at the cost of neglecting
important social programs. A recurring theme of many budget
stories of 1998 has been that now that the budget is balanced,
neglected social needs can again be a priority. This is the
so-called "social investment deficit." Itís a farce. From 1987 to
1998, real domestic federal spending has soared by $328 billion,
from $832 billion to $1,160 billion. This is a 39 percent increase
in spending after inflation.
I am convinced that most of the misinformation on the budget
spread by the media is a result of reporters neglecting to check the
actual budget numbers and trends to validate their stories. Every
year the Office of Management and Budget puts out a publication
called Historical Tables of the U.S. Budget that contains a gold
mine of basic data needed for almost any fiscal-related news story.
In fact, every statistic in this MediaNomics report
comes from that official document.
In fact, if you donít believe me, I urge you to look them up
Stephen Moore is director of fiscal policy studies at the
Cato Institute (www.cato.org).