The key players in economic policy making 541responsible for cutting hundreds of billions of dollars of proposed spending. As we
discussed in Chapter 11, reconciliation was crucial in passing the Tax Cuts and Jobs Act
in 2017 because it allowed Republicans to avoid a Democratic filibuster.
In response to exploding budget deficits in the early to mid-1980s, which even
reconciliation was inadequate to address, an additional mechanism was employed
in 1990 to give Congress more traction in managing the deficits: a zero-sum, pay-as-
you-go (PAYGO) process whereby any new tax cut or spending increase had to be paid
for by raising another tax or cutting spending in some other program. The PAYGO
procedure, along with the tax increases in President Clinton’s 1993 budget, put the
nation on the path for the first budget surpluses since the 1960s. By 1999, the budget
was balanced, and in 2000 there was a substantial surplus ($86.3 billion) for the first
time in nearly 50 years.^17
However, the surpluses soon evaporated and massive budget deficits returned in- One major contribution to this explosion in the deficits was that PAYGO was
allowed to lapse for the 2002 budget—in part to enable funding the war in Iraq and
the war on terrorism but also to make it politically easier to pass additional tax cuts.
Congress reinstated the PAYGO rule in 2007 and made it permanent in 2010. However,
there are exemptions in the statutory PAYGO rule for Social Security, interest on the
debt, and at least 12 other programs.^18 The rule also has been routinely suspended
whenever Congress wants to extend a popular tax cut or pay for emergency spending,
such as drought relief, extension of unemployment benefits, or expansion of Medicare
and the Children’s Health Insurance Program (CHIP).^19 Without the need to pay for
tax cuts or spending increases, it has proved too tempting to let the deficits increase to
unsustainable levels.
Increased partisan polarization in Congress and differences between Democrats
and Republicans in their view of taxing and spending policy have made it difficult to
pass a budget in a timely fashion. In recent years, Congress has relied on “continuing
resolutions,” which keep spending at the level of last year’s budget, when members
cannot agree on a new budget. Even traditionally noncontroversial aspects of fiscal
policy, such as increasing the debt ceiling to authorize government borrowing, have
become opportunities for partisan politics. And even unified control of government for
the first time since 2010 did not make the budget process work more smoothly.
The President
Once they are in office, presidents quickly realize that the public expects them to
promote a healthy economy. Indeed, the state of the economy has a big impact on
the public’s assessment of presidential performance, and it also influences election
outcomes. President Obama focused on the economy in his first months in office,
pushing through a massive stimulus bill; later, in the face of major unemployment,
Obama also signed legislation aimed at creating more jobs. The signature achievement
of President Trump’s first two years was enacting the $1.5 trillion tax cut, which
gave a short-term boost to the economy.^20 The Tax Cuts and Jobs Act of 2017 reduced
individual income taxes by more than $1.1 trillion over 10 years, reducing the top
marginal rate from 39.6 percent to 37 percent, nearly doubling the standard deduction,
and doubling the child tax credit. The law also limited the deductions for state and local
income tax, sales tax, and property taxes to $10,000, which could raise taxes for some
people in states with high taxes. The corporate tax rate was lowered from 35 percent
to 21 percent, and a 20 percent deduction in “pass through income” will benefit many
small business owners. The law also doubled the value of assets that would be exempt
from the estate tax.Full_16_APT_64431_ch15_530-571.indd 541 15/11/18 2:34 PM