As part of budget negotiations, Congress eventually passed the Balanced Budget Act of 1997, which retained Clinton’s original tax increases but cut capital gains taxes and reduced spending on Medicare and Medicaid. Meanwhile, the economy, fueled by a tech boom, expanded rapidly during Clinton’s second term.

Higher tax rates on the wealthiest Americans, strong economic growth and continued restraint in government spending produced a budget surplus of US$69 billion in 1998. The surplus peaked in 2000 at $236 billion before falling to $128 billion in 2001. The surplus – which hasn’t been seen since – allowed the U.S. to pay down the national debt by over $450 billion.

The lesson for Republicans today is that if they are serious about balancing the budget, it will require some very unpalatable choices.

On the spending side, so-called entitlements – mandatory programs such as Social Security, Medicare and veterans benefits – now [account for almost two-thirds of the federal budget](https://www.cbpp.org/research/federal-budget/introduction-to-the-federal-budget-process#:~:text=Spending.,on%20debt%20(see%20chart), compared with less than half when Clinton took office. Funding for these programs is set by formula, making it difficult to change. And the population of Americans 65 or older has grown by 32% since 1993, increasing demand for entitlements.

Defense spending takes up another 14% of taxpayer dollars, greatly exceeding every other item in the so-called discretionary budget, which includes everything else from transportation and energy to airline traffic control and national parks.

The U.S. spends 8% of the budget simply paying interest on the national debt. This percentage hasn’t changed much, but the debt itself has soared from $4.5 trillion in 1993 to $31 trillion today mainly because of massive tax cuts during the Bush and Trump administrations, costly wars in Iraq and Afghanistan and vast public spending to address the 2008 financial crisis and the COVID-19 pandemic.

Now that historically low interest rates have come to an end, the U.S. will be forced to devote a bigger slice of the pie to paying interest.

The policy nonprofit Committee for a Responsible Federal Budget recently estimated that if spending on defense, veterans, Social Security and Medicare were off the table, Congress would need to reduce all other spending by 85% to get to an overall balance. In other words, simple arithmetic means it is not feasible to achieve anything close to a balanced budget without addressing military spending and entitlement programs.

Reducing military spending is always controversial – and many Republicans (as well as some Democrats) would resist such cuts – but especially so at a time when the U.S. is ramping up military aid to Ukraine and the Pentagon perceives a threat from China. It’s the very opposite of the Clinton-era peace dividend.

Cutting mandatory spending would require significant reforms. The U.S. has one of the youngest minimum retirement thresholds in the world, at age 62, compared with 65 in Canada and 67 in Britain and Germany. Even France may soon have a higher minimum retirement age of 64 – though the current protests there over increasing it from 62 illustrate the political perils of such a change.

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