The fiscal cliff. The sequester. The debt ceiling. Washington politicians seem to do practically nothing these days except lurch from one self-inflicted budget crisis to the next.
Yet a decade ago, deficit spending was barely an issue and there were few worries about the national debt. With the Washington budget follies now harming the real economy, budget experts are calling for profound changes to restore the fiscal sanity that characterized Bill Clinton's presidency. "Go big or go home," budget guru and former Republican Senator Alan Simpson insisted recently.
Some policymakers would like to replicate the reforms of the 1980s and 1990s, which left the total national debt at just $5.8 trillion—an easily manageable 56 percent of GDP—when Clinton left office in 2001. During the last three years of Clinton's presidency, the government even ran a surplus, taking in more revenue than it spent.
The debt has since ballooned to $16.5 trillion, which is a worrisome 105 percent of GDP. Washington has run annual deficits of more than $1 trillion for four years in a row. While reforms would certainly help reduce the debt, a return to Clinton-style balances may be out of reach. "If the window of opportunity hasn't closed, it barely remains open," says Steve Bell of the Bipartisan Policy Center, a former Congressional budget expert. "We don't have the leadership in either party that's willing to say, this is what we need to do."
Here's a capsule history of the changes in the '80s and '90s that led to the federal government's last balanced budget: In the early '80s, budget deficits grew as President Ronald Reagan hiked defense spending. Budget hawks wailed, but various efforts to close those deficits failed. Reagan did, however, enact tax reform, which helped boost growth and increase federal revenue all the way into the 1990s.
Modest tax increases under George H. W. Bush (which helped scotch his 1992 reelection bid) boosted government revenue even more. Clinton, during his eight years in office, championed dozens of spending measures that appealed to liberals but had small price tags. At the same time, he enacted welfare reform and made fiscal health a top priority, especially during his second term. A booming economy helped, yet Clinton still demonstrated budget discipline unmatched in modern times.
Here's a summary of the fiscal performance under each of the last five presidents:
Ronald Reagan (1981–1989)—Increase in government revenues during his tenure: 65 percent; increase in government spending: 69 percent; total GDP growth: 75 percent; national debt at the end of his presidency: $2.9 trillion
George H. W. Bush (1989–1993)—Revenue increase: 16 percent; spending increase: 23 percent; GDP growth: 22 percent; national debt: $4.4 trillion
Bill Clinton (1993–2001)—Revenue increase: 72 percent; spending increase: 32 percent; GDP growth: 54 percent; national debt: $5.8 trillion
George W. Bush (2001–2009)—Revenue increase: 6 percent; spending increase: 89 percent; GDP growth: 36 percent; national debt: $11.9 trillion
Barack Obama (first term, 2009–2013)—Revenue increase: 38 percent; spending increase: 8 percent; GDP growth: 15 percent (estimated): national debt: $16.5 trillion.
Under Clinton, government spending rose by less than GDP, and revenue rose by twice as much as spending. On the whole, the national debt rose by just 32 percent during Clinton's eight years. If you exclude federal debt held by government agencies such as the Social Security trust fund (which is required by law) and adjust the numbers for inflation, debt declined by about 17 percent under Clinton.
The national debt exploded, however, under George W. Bush and Barack Obama. Bush cut taxes while increasing spending on defense and Medicare benefits. Instead of growing as it did after the Reagan tax cuts, the economy entered a deep recession at the end of 2007. Tax revenue plunged, while a modest stimulus plan in Bush's last year pushed spending even higher.
Revenue recovered during Obama's first term, but record amounts of stimulus spending helped push the debt up by another $4.5 trillion or so. That stimulus spending has mostly wound down, but another big factor will keep inflating the national debt unless there are radical reforms: entitlement spending on popular programs such as Social Security, Medicare and Medicaid. This spending, which goes up automatically without any vote in Congress, is the real reason it's becoming impossibly hard to return to a balanced budget.
When Reagan took office in 1981, entitlement spending accounted for 49 percent of all government outlays. By the time Obama took the oath for his second term, entitlement spending had risen to 63 percent of all outlays. With no changes, entitlements will gobble up the entire federal budget within 30 years or so, leaving nothing for defense or the many other things the government currently funds.
"What that means," says Bell, "is a candidate for Congress can say he's just going to freeze spending when he gets into office. What he doesn't know is that he has no say over the majority of spending."
It was a bit easier in Bill Clinton's day, but Clinton also took advantage of sunny times to plan for a rainy day. Nobody has done that since, and the sun hasn't been cooperating either.
Rick Newman's latest book is Rebounders: How Winners Pivot From Setback to Success. Follow him on Twitter: @rickjnewman.