geekyWhen he became President, Bush inherited the problem of leftover deficits incurred during the Reagan years. By 1990, the deficit grew to $220 billion, three times its size since 1980. Bush was committed to reducing the deficit, because he believed that the United States would not continue to be a leader in the world unless this problem was addressed. The problem was that he had a Democratic controlled Congress that he was at odds with. Bush and his fellow Republicans believed that the best way to address the deficit was to cut government spending. The Democrats believed that the only way would be to raise taxes. Bush tried in vain to achieve consensus on the issue. building.
In the end, Bush's only option given to him by the Democratic majority was to raise tax revenues. As a result, many Republicans felt betrayed because of the promise that Bush had made in his convention speech that there would be "no new taxes". He faced a revolt from his own party. Republican congressmen defeated Bush's proposal which would enact spending cuts and tax increases that would reduce the deficit by $500 billion over five years. Bush was forced to accept the Democrats' demands for higher taxes and more spending. This resulted in a sharp decrease in his popularity. Bush would later say that he wished he had never signed the bill.
Near the end of the 101st Congress, the president and congressional members reached a compromise on a budget package that increased the marginal tax rate and phased out exemptions for high-income taxpayers. Despite demands for a reduction in the capital gains tax, Bush could not agree to this. This agreement with the Democratic leadership in Congress proved to be a turning point in the Bush presidency. His popularity among Republicans dropped and never fully recovered.
At around the same time as the budget deal, America entered into a mild recession, which lasted for six months. Many government programs, such as welfare, increased and the unemployment rate edged upward in 1991. Bush signed a bill providing additional benefits for unemployed workers. Bush's advisers told him to do nothing more with the economy, as they believed that he had done everything necessary. At the start of 1992, interest and inflation rates were the lowest in years, but by midyear the unemployment rate reached 7.8%, the highest since 1984. In September 1992, the Census Bureau reported that 14.2% of all Americans lived in poverty.
In the 1992 election, it looked at first as if re-election was a certainty, in part because of his previously high approval ratings, and in part because there did not appear to be any significant candidates running for the Democratic nomination. Arkansas Governor Bill Clinton was considered flawed because of a series of marital affairs and because his state's performance under his leadership was not especially inspiring. But Clinton and his campaign team attacked Bush as not doing enough to assist the working middle-class and being "out of touch" with the common man. The latter notion was reinforced by reporter Andrew Rosenthal's false report that Bush was "astonished" to see a demonstration of a supermarket scanner. Clinton strategist James Carville coined the slogan "it's the economy stupid" which was intended to reference Bush being out of touch with the issue.
In early 1992, the race took an unexpected twist when Texas billionaire H. Ross Perot launched a third party bid, claiming that neither Republicans nor Democrats could eliminate the deficit and make government more efficient. His message appealed to voters disappointed with both parties' perceived fiscal irresponsibility. In the homestretch of the race, Clinton gained momentum and defeated Bush in a 43% to 38% popular vote margin, with 19% for Perot, one of the highest totals for a third party candidate in U.S. history. Clinton captured 370 electoral votes and Bush received 168.
The ailing economy which arose from recession is considered by some as being the main factor in Bush's loss. In exit polls, 7 in 10 voters said that the economy was either "not so good" or "poor". Conservative Republicans were critical of Bush for his 1990 agreement to raise taxes in contradiction of his famous "Read my lips: no new taxes" pledge. According to one survey, of the voters who cited Bush's broken "No New Taxes" pledge as "very important", two thirds voted for Clinton. Bush had raised taxes in an attempt to address an increasing budget deficit.