In 1990, with the federal deficit at $200 billion and the Congressional Budget Office suggesting it could double, President Bush negotiated with congressional Democrats to enact a budget deal which included spending cuts and tax increases aimed at reducing the deficit by approximately $500 billion over the following five years.
The 1990 bipartisan budget agreement set annual limits on discretionary spending by Congress on defense, domestic programs and international affairs. It also, for the first time, created “pay as you go” rules for entitlements and taxes.
In order to reach the deal, Bush agreed to a tax increase as part of the compromise, and he was pilloried by conservatives for doing so. Although he recognized the 1990 budget deal might doom his prospects for reelection, he did what he thought was best for the country and has since been credited with helping to lay the foundation of the economic growth of the 1990s that followed.