Read My Lips: No New Taxes - Taxes Raised

Taxes Raised

When in office, Bush found it challenging to keep his promise. The Bush campaign's figures had been based on the assumption that the high growth of the late 1980s would continue throughout his time in office. Instead, a recession began. By 1990, rising budget deficits, fueled by a growth in mandatory spending and a declining economy, began to greatly increase the federal deficit. The Gramm-Rudman-Hollings Balanced Budget Act mandated that the deficit be reduced, or else mandatory cuts unpalatable to both Republicans and Democrats would be made. Reducing this deficit was a difficult task. The obvious government waste and easy spending cuts had already been made during the eight years of the Reagan administration. New cuts of any substance would have to come either from entitlement programs, such as Medicare or Social Security, or from defense. The Democrats, who controlled Congress, refused to agree to any massive spending cuts without at least some tax increases.

Despite these problems the budget for the 1990 fiscal year was passed with relative ease, largely as the White House team and Dan Rostenkowski, chair of the House of Representatives' Ways and Means Committee, agreed to postpone talk of both deep cuts and tax increases until the next year.

The budget for the next fiscal year proved far more difficult. Bush initially presented Congress a proposed budget containing steep spending cuts and no new taxes, but congressional Democrats dismissed this out of hand. Negotiations began, but it was clear little progress could be made without a compromise on taxes. Richard Darman, who had been appointed head of the Office of Management and Budget, and White House Chief of Staff John H. Sununu both felt such a compromise was necessary. Other prominent Republicans had also come out in favor of a tax increase, including Gerald Ford, Paul O'Neill, and Lamar Alexander. The alternative would have been to veto any budget bill that came out of Congress, risking a potential government shutdown and possibly triggering the automatic cuts of the Gramm-Rudman-Hollings Act.

At the end of June, Bush released a statement stating that "it is clear to me that both the size of the deficit problem and the need for a package that can be enacted require all of the following: entitlement and mandatory program reform, tax revenue increases, growth incentives, discretionary spending reductions, orderly reductions in defense expenditures, and budget process reform." The key element was the reference to "tax revenue increases" now being up for negotiation. An immediate furor followed the release. The headline of the New York Post the next day read "Read my Lips: I Lied." Initially some argued that "tax revenue increases" did not necessarily mean tax increases. For example, he could mean that the government could work to increase taxable income. However, Bush soon confirmed that tax increases were on the table.

Some of the most enraged over the change in policy were other Republicans, including House Whip Newt Gingrich, the Senate leadership, and Vice President Dan Quayle. They felt Bush had destroyed the Republicans' most potent election plank for years to come. That the Republican leadership was not consulted before Bush made the deal also angered them. This perceived betrayal quickly led to a bitter feud within the Republican Party. When Sununu called Gingrich with the news, Gingrich hung up on him in anger. When Senator Trent Lott questioned the reversal, Sununu told the press that "Trent Lott has become an insignificant figure in this process." Republican National Committee co-chair Ed Rollins, who issued a memo instructing Republican congress members to distance themselves from the president if they wished to be re-elected, was fired from his position. Many also felt that, while perhaps necessary, the reneging was badly handled. Bush's statement on the issue was simply posted on the notice board in the press room. There was no attempt to sell or defend the reversal. It was also very sudden; there was no attempt to slowly convince the American people of the perceived necessity of raising taxes. No figures with influence on the conservative base were recruited to endorse and try and sell the about-face.

Eventually taxes were raised in the new budget. In September, Bush released a new budget proposal, backed by the congressional leadership, which notably included an immediate five-cent per gallon increase on the federal gasoline tax, and a phased increase of even higher fuel taxes in subsequent years. To the surprise of the Bush administration, this plan was rejected in the House of Representatives. Over a hundred conservative Republicans, led by Gingrich, voted against it because of its tax increases, while liberal Democrats opposed it because the focus on excise taxes fell too heavily on the poor. Bush vetoed the continuing resolution, and thus on October 5 the federal government shut down for the Columbus Day long weekend. Three days later, Bush agreed to a new resolution, and soon after the Omnibus Budget Reconciliation Act of 1990 was finally passed. This new proposal replaced some of the fuel taxes with a 10% surtax on the top income tax bracket (thus raising the top marginal tax rate to 31%) and also included new excise taxes on alcohol and tobacco products, automobiles and luxury yachts. It also included the Budget Enforcement Act of 1990 which established the "pay-as-you-go" or PAYGO process for discretionary spending and taxes.

These events delivered a severe blow to Bush's popularity. From the historic high of 79% early in his term, Bush's approval rating had fallen to 56% by mid-October 1990. This was a blow to Republicans generally, who lost ground in both the House and Senate in the 1990 midterm elections. However, the events of the Gulf War pushed the issue out of the news, and Bush's popularity up. By February 1991 his approval rating rose to its highest level -- 89%.