As Democrats prepare to enact strict new budget rules, and markets ponder whether their actions will be significant, it's useful to take a stroll down memory lane. A look at the political history of balanced budgets suggests that the new rules will be nothing but window dressing.

Resident Scholar Kevin A. Hassett

In that climate, Ronald Reagan stepped to the podium in Washington, D.C., and rallied his party with an impassioned speech that outlined the Republican weltanschauung. At the center of this nascent conservative ideology was the idea that the government should have a balanced budget.

"Balancing the budget is like protecting your virtue," Reagan said; "you have to learn to say 'no.'" He added: "Let us show that we stand for fiscal integrity and sound money and above all for an end to deficit spending, with ultimate retirement of the national debt."

While the balanced budget seemed a worthy objective when Reagan was on the outside looking in, he abandoned his commitment to it upon taking office, pursuing fiscal policies that racked up historically unprecedented deficits. Democrats, of course, abhorred the Reagan deficits with impressive virtue.

Republican "Contract"

Reagan's flip-flop was quite typical. Fast forward to 1994. President and Mrs. Clinton had just attempted to enact a sweeping expansion of government health care that would have permanently busted the budget. Republicans effectively ran against the big-government Democrats, and for the first time in 40 years captured control of the House of Representatives.

The focus of the Republican efforts was a "Contract With America" that committed party members to the enactment of a long list of conservative reforms. The very first economic-policy legislation proposed in the contract was a call for a balanced-budget amendment and a line-item veto.

The Republicans and Clinton--who pivoted to budget-balancing "Rubinomics" to save face--pursued fiscal responsibility for the next six years. But once Republicans had complete control of government, that pursuit stopped. President George W. Bush, like Reagan before him, ran up enormous deficits.

"Pay-Go" Rules

This time around, Democrats have taken office with a promise to balance the budget. The House on Jan. 5 approved rules to enact "pay-go" legislation, which the Democrats claim will restore fiscal sanity. History suggests a clear pattern. Whichever party is in opposition claims the fiscal-hawk mantle. The party in power pays lip service to fiscal responsibility, but ignores it in practice.

This pattern likely emerged because the fundamental objectives of both parties are popular with voters. Republicans want to give voters tax cuts. Democrats want to offer them more government services.

When a party has power, opposition can take two forms. Republicans could oppose giving better medicine to all, or they could say they support better health care, but oppose deficits. Opposing deficits is much easier. Democrats, on the flip side, would love to let taxpayers have some of their money back, but say it would be irresponsible to run big deficits. Again, opposing a deficit is the path to effective political opposition.

Divided Government

Progress on the deficit was only made when government was divided. Then, both parties sought to constrain each other's actions simultaneously. Agreeing to be virtuous on the deficit was the easy way to accomplish that.

Are things different this time? Will the Democrats succeed where others have failed?

Given that government is again divided, it's possible that effective action will be taken to reduce the deficit. On the other hand, if Democrats believe that Bush is so weak that he is effectively irrelevant for policy purposes, they might act as if they control all the levers of power, in which case they will pursue their objectives with little regard for a balanced budget.

Given that the House historically is fairly easy to control, and the Senate is populated with a large number of liberal Republicans, it seems likely the Democrats may believe that they are running our government. Even if Bush vetoed new legislation, it might be easy to override that veto.

Which suggests that budget virtue will be abandoned early. The signs are already there. Last week, Representative John Spratt of South Carolina, the incoming chairman of the House Budget Committee, suggested that Democrats might exclude the cost of fixing the Alternative Minimum Tax from their new budget rules.

Fixing the AMT--a tax created to make sure affluent Americans pay their fair share of tax, but that's now ensnaring millions of middle-class people--is probably the most expensive item on the agenda for next year.

Taking that off the books before the new pay-go rule has even been enacted is, of course, shameless, but, as Republicans themselves can attest, not in an unprecedented fashion.

Kevin A. Hassett is director of economic policy studies and a resident scholar at AEI.