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The tax cuts and increased military spending during Ronald Reagan’s presidency, although favorable to wealthy Americans and supported by advocates of national defense, led to increases in the national debt and the federal budget deficit during the early 1990s.
Reagan’s former vice president, George H. W. Bush, promised to continue Reagan’s economic policies when he won the Republican nomination for president in 1988. During the Republican National Convention in 1988, Bush famously said, “The Congress will push me to raise taxes, and I’ll say no, and they’ll push, and I’ll say no, and they’ll push again, and I’ll say to them, ‘Read my lips: no new taxes.’”
Following his election, Bush found himself in a difficult position: He had to balance the budget and reduce the deficit without breaking his “no new taxes” promise. While he struggled to solve these problems, Congress became increasingly divided along partisan lines over tax cuts and economic policy.
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During the Bush administration, Congress was controlled by the Democrats, who wanted to raise taxes on the wealthiest Americans. In contrast, Congressional Republicans supported tax cuts and wanted the federal government to reduce domestic spending.In October 1990, the federal government shut down briefly when President Bush vetoed the budget proposed by Congress. They subsequently compromised and agreed to the Omnibus Budget Reconciliation Act of 1990, which was designed to reduce the deficit by cutting government spending and raising taxes. The compromise meant that President Bush had reneged on his “no new taxes” promise, which outraged conservatives.
Economic recession and growing unemployment during late 1991 and early 1992 exacerbated the differences between President Bush and conservative Republicans. The unemployment rate increased from 5.9% in 1989 to almost 8% by the summer of 1991.
The recession led many Americans to question whether the president could solve the nation’s economic problems. The growing frustration with the president was noteworthy since, just months earlier, a large majority of citizens approved of his handling of Operation Desert Storm.
The foremost challenger to George H. W. Bush during the election of 1992 was the Democratic candidate Bill Clinton. The generational contrasts between Bush and Clinton were striking. Bush came from a wealthy New England family and was a veteran of World War II. After the war, he graduated from Yale and, with family funding, began a successful career in the Texas oil industry before turning to government service.
Bill Clinton was one of the millions of baby boomers who were born after World War II.
As a student at Georgetown University during the 1960s, Clinton supported the Civil Rights Movement and the antiwar movement.
In 1968, Clinton received a Rhodes scholarship to Oxford University in England. He did not complete his studies at Oxford, but he returned to the United States and earned a law degree from Yale in 1973. He then became a law professor at the University of Arkansas and entered politics shortly thereafter. He was elected governor of Arkansas in 1978. He lost his bid for reelection to a Republican opponent in 1980 but won another term as governor in 1982. He continued to hold that office until 1992.
During the presidential campaign, Clinton appealed to Democratic voters and attracted others who were frustrated by the economic recession. He labeled himself a “New Democrat.”
According to Clinton, this label meant that he supported identity politics movements (including those that supported gay rights and gender equality), which the Democrats had been trying to mold into an effective coalition since the 1970s. However, as a “New Democrat,” Clinton’s agenda included elements of the economic conservatism advanced by Ronald Reagan during the 1980s, including deregulation, the reduction of federal bureaucracy, and free trade.
As the result of a platform that raised taxes on the wealthy, reduced domestic spending (especially spending on social welfare programs), and promoted free trade, Clinton won the 1992 election. He received 370 votes in the Electoral College; President Bush received 188. The Democratic Party also won control of both houses of Congress.
Following his inauguration, Clinton’s administration worked to implement its plans to fix the economy and shrink the budget deficit. The federal deficit was $60 billion when Clinton took office.
The plans included increased taxes on the wealthy and lower taxes for low-income Americans.
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In 1993, Congress passed a Budget Reconciliation Act that raised taxes on the top 1.2% of Americans, lowered taxes for 15 million low-income citizens, and provided tax breaks to 90% of small businesses. The act passed without receiving a single Republican vote.In addition to addressing the economy, the Clinton administration sought to make progress on other domestic issues to honor Democratic commitments to the disadvantaged, minority groups, and women. Initially, the primary focus of this agenda was health-care reform.
Most Americans were unhappy with the U.S. health-care system. For many of them, health insurance had become unaffordable. When the president announced his plans for health-care reform in September 1993, many observers assumed it would win Congress approval. He appointed his wife, Hillary Clinton (also a Yale Law School graduate and attorney), to lead the reform effort.
When the 1,342-page Health Security Act was presented to Congress in late 1993, it promised to provide universal coverage to all Americans. No one would be rejected based on preexisting medical conditions. Employers would be required to provide health care to their employees, and the bill limited the amount people would have to pay for medical services.
The plan was supported by a number of organizations, including the American Medical Association and the Health Insurance Association of America. However, as the 1994 midterm elections approached, Congressional Republicans strongly expressed their opposition to the bill. They called it “Hillarycare” and claimed it was an unacceptable expansion of federal power that would prevent people from exercising their right to choose a health-care provider.
To rally opposition to Clinton and the Health Security Act, Newt Gingrich and Richard (Dick) Armey, two leaders of the Republican minority in the House of Representatives, wrote the Contract With America.
The administration’s health-care bill was not passed by Congress, and the reform effort ended by September 1994. During the midterm elections in November, the Republicans gained seven seats in the Senate and 52 in the House, giving the Party control of both houses of Congress for the first time since the 1950s. The Republicans began working to implement the Contract With America, which called for decreased spending on some domestic programs (and the elimination of others) and tax cuts.
For the remainder of Clinton’s time in office during the 1990s, a Democratic White House and a Republican Congress battled over government spending and the economic agenda, as in the following two examples:
Despite growing partisanship in Washington during Clinton’s administration, the United States enjoyed a prolonged period of economic expansion. Each year, the number of jobs increased, while the budget deficit shrank. Increased tax revenue, budget cuts, and economic growth transformed the annual federal budget deficits of the early 1990s into record budget surpluses by 2000.
A number of factors contributed to U.S. economic prosperity at the end of the 20th century.
By 2000, almost 68% of Americans owned homes, the most in the country’s history. In addition, inflation dropped to 2.3%, and the unemployment rate reached a 30-year low of 3.9%.
Companies, including Apple and IBM, sold computers for office and home use, while Microsoft marketed its Windows operating system and productivity software. California’s Silicon Valley, along with Seattle, Washington, and other locations, emerged as a center of technological innovation.
By 2000, nearly half of all American households owned a personal computer, which they used to send electronic mail (email), enjoy a variety of entertainment, and shop via the internet.
In 1993, Congress approved the North American Free Trade Agreement (NAFTA), which eliminated tariffs and trade restrictions between the United States, Canada, and Mexico. The agreement created the world’s largest common market in terms of population: It included 425 million people.
NAFTA, along with increased digital communication via the internet, indicated the growing impact of globalization on the U.S. economy and on the lives of individual Americans.
NAFTA and other free trade agreements were a boon to American corporations and consumers. As a result of the agreement, U.S. corporations, including Ford and General Electric, began to manufacture their products in maquiladoras in northern Mexico, where they paid workers far less than in the United States and avoided labor and environmental regulations. Thanks to NAFTA, the companies imported the products to the United States tariff-free, where they offered them to consumers at lower prices.
However, free trade agreements (including NAFTA) also increased U.S. trade deficits and advanced the process of deindustrialization in the United States. Americans who worked in manufacturing found their jobs outsourced to countries where labor was cheaper. Companies that tried to continue manufacturing in the United States were often forced to reduce workers’ wages (or eliminate jobs) to keep up with international competitors.
Source: This tutorial curated and/or authored by Matthew Pearce, Ph.D with content adapted from Openstax “U.S. History”. access for free at openstax.org/details/books/us-history LICENSE: CREATIVE COMMONS ATTRIBUTION 4.0 INTERNATIONAL
REFERENCES
George H. W. Bush, Acceptance Speech at the Republican National Convention, August 18, 1988, George Bush Presidential Library. Retrieved from: bit.ly/2pRlVey
