The Omnibus Budget Reconciliation Act of 1993 was a federal law that was enacted by the 103rd United States Congress and signed into law by President Bill Clinton. It has also been unofficially referred to as the Deficit Reduction Act of 1993. Part XIII of the law is also called the Revenue Reconciliation Act of 1993. The bill stemmed from a budget proposal made by Clinton in February 1993; he sought a mix of tax increases and spending reductions that would cut the deficit in half by 1997. Though every congressional Republican voted against the bill, it passed by narrow margins in both the House of Representatives and the Senate. The act increased the top federal income tax rate from 31% to 39.6%, increased the corporate income tax rate, raised fuel taxes, and raised various other taxes. The bill also included $255 billion in spending cuts over a five-year period. The effects of the bill helped the US federal government to experience in 1998 its first budget surplus since the 1960s.
Provisions
Previously, the top individual tax rate of 31% applied to all income over $51,900. The Act created a new bracket of 36% for income above $115,000 and 39.6% for income above $250,000.
Previously, corporate income above $335,000 was taxed at 34%. The Act created new brackets of 35% for income from $10 million to $15 million, 38% for income from $15 million to $18.33 million, and 35% for income above $18.33 million.
The 2.9% Medicare tax had previously been capped to apply to the first $135,000 of income. The cap was removed.
Transportation fuels taxes were raised by 4.3 cents per gallon.
The portion of Social Security benefits subject to income taxes was raised from 50% to 85%.
The phaseout of the personal exemption and the limit on itemized deductions were permanently extended.
The AMT tax rate was increased from 24% to tiered rates of 26% and 28%.
Part IV Section 14131: Expansion of the Earned Income Tax Credit and added inflation adjustments.
$255 billion in spending cuts over a five-year period; much of the cuts affected Medicare or the military.
Legislative history
Clinton inherited major budget deficits left over from the Reagan and Bush administrations; fiscal year 1992 had seen a $290 billion deficit. In order to cut the deficit, Bentsen, Panetta, and Rubin urged Clinton to pursue both tax increases and spending cuts. They argued that by taming the deficit, Clinton would encourage Federal Reserve ChairmanAlan Greenspan to lower interest rates, which, along with increased confidence among investors, would lead to an economic boom. Some of Clinton's advisers also believed that a focus on cutting the deficit would be politically beneficial since it would potentially help Democrats shed their supposed "tax and spend" reputation. Though Secretary of LaborRobert Reich argued that stagnant earnings represented a bigger economic issue than the deficits, Clinton decided to pursue deficit reduction as the major economic priority of his first year in office. In doing so, he reluctantly abandoned a middle class tax cut that he had championed during the campaign. Clinton presented his budget plan to Congress in February 1993, proposing a mix of tax increases and spending reductions that would cut the deficit in half by 1997. Republican leaders strongly opposed any tax increase and pressured congressional Republicans to unite in opposition to Clinton's budget, and not a single Republican would vote in favor of Clinton's proposed bill. Senate Democrats eliminated the implementation of a new energy tax in favor of an increase in the gasoline tax, but Clinton successfully resisted efforts to defeat his proposed expansion of the earned income tax credit. Ultimately every Republican in Congress voted against the bill, as did a number of Democrats. Vice President Al Gore broke a tie in the Senate on both the Senate bill and the conference report. The House bill passed 219-213 on Thursday, May 27, 1993. The House passed the conference report on Thursday, August 5, 1993, by a vote of 218 to 216. The Senate passed the conference report on the last day before their month's vacation, on Friday, August 6, 1993, by a vote of 51 to 50, Richard Bryan, Sam Nunn, Bennett Johnston Jr., David L. Boren, and Richard Shelby now ) and 44 Republicans voting against). President Clinton signed the bill on August 10, 1993. The government was able to raise additional revenue, which helped to balance the budget and, by the end of the 1990s, began to reduce privately-held public debt.
Alternatives
Some alternatives to the bill included a proposal by Senator David Boren, which things would have kept much of the tax increase on upper-income payers but eliminated all energy tax increases and scaled back the Earned Income Tax Credit. It was endorsed by Bill Cohen, Bennett Johnston, and John Danforth. Boren's proposal never passed committee. Clinton himself claimed he had an alternative tax proposal that favored taxes on energy. In 1995, he expressed belief that taxes had been raised too much. Another proposal was offered in the House of Representatives by John Kasich. He sponsored an amendment that would have reduced the deficit by cutting $355 billion in spending with $129 billion of the cuts coming from entitlement programs. The amendment would have eliminated any tax increases. The amendment failed by a 138-295 vote, with many Republicans voting against the amendment and only six Democrats voting in favor.
Aftermath
Combined with a strong economy, the 1993 deficit reduction plan produced smaller budget deficits each year. In 1998, the federal government experienced the first budget surplus since the 1960s. Reflecting the perceived importance of the budget surplus, the New York Times described the end of budget deficits as "the fiscal equivalent of the fall of the Berlin Wall."
