Without that history, the BBA might not have succeeded either as a negotiation or in achieving the ultimate policy outcome. The military drawdown at the end of the Cold War allowed for defense spending cuts that paved the way for bipartisan agreement on discretionary spending caps in both and The booming economy of the late s was also a big factor in reducing deficits.
In the same vein, the recession in the early s helped reduce budget surpluses along with increased defense spending after the September 11th terrorist attacks. At the time of the budget agreement in , The Concord Coalition congratulated policymakers for reaching a hard-fought agreement but warned that not only would partisan forces attempt to undo the work but that policymakers had to move towards more substantive reforms of Medicare and Social Security given the demographic and budget outlooks.
Ultimately, our fears were realized and the latter view won out as the surpluses were spent on tax cuts and a new prescription drug benefit, and between and the national debt nearly doubled relative to the size of the economy. Instead of simply lamenting the squandered opportunities of the past, policymakers should look back to the lessons we can learn from the agreement and the time since to put the federal budget back on a sustainable fiscal trajectory.
And while the fiscal track laid out by the Trudeau government shows a declining deficit and a debt-to-GDP ratio that falls after this year, the Liberals still haven't accounted for a possible increase in health transfers to the provinces. The federal government's finances are currently sustainable; the finances of provincial governments are not so healthy.
Pointing to the inequities and weaknesses exposed by COVID, Himelfarb argued in March that the balanced budget era improved Canada's "fiscal resiliency," but at the cost of "social resiliency. That could be a useful frame for the upcoming election campaign. But a greater focus on what public investment might actually accomplish is probably overdue. Something like funding for child care might be understood as a way to boost the workforce participation of parents and support the welfare and potential of children.
Conversely, the Liberal government's recent decision to boost Old Age Security might be harder to justify. At the same time, Conservatives might be happy to apply a very strict value-for-money rubric to all sorts of government spending. Either way, the question of whether the budget was perfectly balanced would no longer be paramount. This article is part of CBC News' Minority Report newsletter , which will help you navigate the parliamentary waters of a minority government.
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Already have an account? The balanced budget era is over. Now what? Measured in terms of growth rates, the eight consecutive years of expansion during the s from the end of the Reagan-era recession in to the onset of the Bush-era recession in outperformed the boom of the s see table 1. The two expansions were structured differently, which may partly explain their different revenue impacts.
The s expansion, which followed a long period of growth that was briefly interrupted by the ? Although a cooperative economy made the budget surplus possible, the surplus would not have materialized if budget policy in the s had repeated the mistakes of the s.
Differences between the revenue and spending paths taken during the two decades led to quite different budgetary outcomes. On the spending side of the ledger, the key differences were in budget enforcement rules, defense spending, discretionary appropriations, and entitlements.
During the s, Washington postured against deficits with futile gestures that reflected the inability of a Republican president and Democratic Congress to agree on tough budget measures. Although the law threatened the automatic cancellation of budget resources if the projected deficit exceeded the target, the actual deficit was above the statutory limit every year. With clumsy and unworkable sequestration procedures, GRH induced Congress and the president to lie about the deficit by substituting illusory cuts for real ones and by pretending that the budget picture was better than it actually was.
In , with the projected deficit spiraling out of control, the warring branches replaced GRH with the Budget Enforcement Act BEA , a law that focuses on revenue and spending rather than the size of the deficit. Almost a decade later, BEA remains in effect, and although it has not always been strictly enforced, it has helped improve the budget condition. It has two principal rules? In sharp contrast to GRH, it does not regulate changes in the budget caused by fluctuations in economic conditions or in the cost of existing entitlement programs.
It controls only the parts of the budget that the president and Congress directly influence? Congress and the president have had a complicated budgetary relationship under BEA. At times, one branch has deterred the other from violating the rules; at other times, both have conspired to evade the rules by designating routine expenditures as emergencies, manipulating the effective dates of tax legislation to hide the full budgetary impact, and using a bewildering variety of bookkeeping tricks.
As with other budget rules, its effectiveness has weakened over time as claimants for federal money have devised means to outwit the process or disable its controls. Hefty surpluses have also weakened BEA. Budget controllers cannot enforce the rules with the same zeal when money is abundant as they can when resources are tight. It is difficult to separate the impact of BEA from the conditions under which it has operated. Had there been no discretionary caps, defense spending still would have been held down by changes in world affairs, domestic spending pressures, and oversize deficits.
The s began with a steep boost in defense spending; the s, with the collapse of the Soviet empire and the end of the Cold War. Defense spending, which began to level off during the second half of the s, continued to fall through most of the s. If the Cold War were still raging, there probably would be no surplus.
As after past wars, some defense savings were reallocated to domestic programs. These programs, which fell more than 15 percent during the s, grew more than 25 percent during the next decade. In fact, real discretionary domestic spending is much higher today than it was when Ronald Reagan launched his campaign to roll back social programs. As a share of gross domestic product, however, discretionary domestic spending has fallen?
During the s, the president and Congress exploited BEA spending caps to demonstrate their commitment to control the budget and to reduce the size of the government while spending somewhat more than the BEA rules intended. Led by Clinton, the Democrats came out ahead in this contest; they got credit for fiscal prudence while securing more money for popular programs.
Outmaneuvered, congressional Republicans reluctantly approved the increases, sometimes after getting billions more for defense. But the marginal growth in discretionary appropriations was too small to derail the march to a balanced budget.
Spending growth in entitlements was held down during the s by the BEA pay-as-you-go rule requiring legislated increases in these programs to be offset by cuts in other direct spending or by revenue increases. But even in the absence of PAYGO, big deficits would probably have inhibited the president and Congress from establishing new entitlements and impelled them to seek savings in old ones.
After all, few initiatives made it though Congress during the pre-BEA s. The PAYGO decade did see some publicized cutbacks, though their net effect on federal spending has probably been small.
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