Economic Changes and Welfare Reform

Learning Objectives

  • Describe the moderate and conservative policies promoted by Clinton and the New Democrats
  • Describe economic developments during the Clinton administration

The 1992 Presidential Election

By 1992, many doubted that President George H. W. Bush could solve America’s problems. He had alienated conservative Republicans by breaking his pledge not to raise taxes, and some faulted him for failing to remove Saddam Hussein from power during Operation Desert Storm. Furthermore, despite living much of his adult life in Texas, he could not overcome the stereotypes associated with his privileged New England and Ivy League background, which hurt him among working-class Reagan Democrats.

Bill Clinton: The Centrist Baby Boomer

Flyer showing Bill Clinton running for student council president.

Figure 1. During his 1967 campaign for student council president at Georgetown University, Bill Clinton told those who voted for him that he would invite them to the White House when he became president of the United States. He kept his promise.

Still thinking that Bush would be unbeatable in 1992, many prominent Democrats passed on a chance to run, and the Democratic Party nominated a relative unknown, Arkansas governor Bill Clinton. Dogged by charges of marital infidelity and draft-dodging during the Vietnam War, Clinton was a consummate politician with enormous charisma and a skilled political team. He framed himself as a centrist open to free trade, tax cuts, and welfare reform. Twenty-two years younger than Bush, he was the first baby boomer to make a serious run at the presidency. Clinton presented the campaign as a generational choice. During the campaign, he appeared on MTV, played the saxophone on The Arsenio Hall Show, and told voters that he could offer the United States a new way forward.

Bush ran on his experience and against Clinton’s moral failings. The GOP convention in Houston that summer featured speeches from Pat Buchanan and religious leader Pat Robertson decrying the moral decay plaguing American life. Clinton was denounced as a social liberal who would weaken the American family through both his policies and his individual moral character. But Clinton was able to convince voters that his moderated southern brand of liberalism would be more effective than the moderate conservatism of George Bush. Bush’s candidacy, of course, was perhaps most damaged by a sudden economic recession. As Clinton’s political team reminded the country, “It’s the economy, stupid.”

The “New Democrat” is Elected President

During his campaign, Bill Clinton described himself as a New Democrat, a member of a faction of the Democratic Party that, like the Republicans, favored free trade and deregulation. He tried to appeal to the middle class by promising higher taxes on the rich and reform of the welfare system. Although Clinton garnered only 43 percent of the popular vote, he easily won in the Electoral College with 370 votes to President Bush’s 188. Texas billionaire H. Ross Perot won 19 percent of the popular vote, the best showing by any third-party candidate since 1912. The Democrats took control of both houses of Congress.

Conservative Democrats Continue the Reagan Revolution

Clinton won the election, but the Reagan Revolution still reigned. Clinton and his running mate, Tennessee senator Albert Gore Jr., both moderate southerners, promised a path away from the old liberalism of the 1970s and 1980s (and the landslide electoral defeats of the 1980s). They were Democrats, but conservative Democrats, so-called New Democrats. In his first term, Clinton set out an ambitious agenda that included an economic stimulus package, universal health insurance, a continuation of the Middle East peace talks initiated by Bush’s secretary of state James A. Baker III, welfare reform, and a completion of the North American Free Trade Agreement (NAFTA) to abolish trade barriers between the United States, Mexico, and Canada. His moves to reform welfare, open trade, and deregulate financial markets were particular hallmarks of Clinton’s Third Way, a new Democratic embrace of heretofore conservative policies.

Economic Development

Clinton took office towards the end of a recession. His administration’s plans for fixing the economy included limiting spending and cutting the budget to reduce the nation’s $60 billion deficit, keeping interest rates low to encourage private investment, and eliminating protectionist tariffs. Clinton also hoped to improve employment opportunities by allocating more money for education. In his first term, he expanded the Earned Income Tax Credit, which lowered the tax obligations of working families who were just above the poverty line. Addressing the budget deficit, the Democrats in Congress passed the Omnibus Budget Reconciliation Act of 1993 without a single Republican vote. The act raised taxes for the top 1.2 percent of the American people, lowered them for fifteen million low-income families, and offered tax breaks to 90 percent of small businesses.

The North American Free Trade Agreement (NAFTA)

Clinton also strongly supported ratification of the North American Free Trade Agreement (NAFTA), a treaty that eliminated tariffs and trade restrictions among the United States, Canada, and Mexico. The treaty had been negotiated by the Bush administration, and the leaders of all three nations had signed it in December 1992. However, because of strong opposition from American labor unions and some in Congress who feared the loss of jobs to Mexico, the treaty had not been ratified by the time Clinton took office. To allay the concerns of unions, he added an agreement to protect workers and also one to protect the environment. Congress ratified NAFTA late in 1993. The result was the creation of the world’s largest common market in terms of population, including some 425 million people.

Immigration During the 1990s

NAFTA opened American borders to goods and services, but people were still required to navigate strict legal barriers to immigration. Policy makers believed that free trade would create jobs and wealth that would incentivize Mexican workers to stay in Mexico, and yet multitudes continued to leave for opportunities in the U.S.

The 1990s proved that prohibiting illegal migration was, if not impossible, exceedingly difficult. Poverty, political corruption, violence, and hopes for a better life in the United States—or simply higher wages—continued to lure immigrants across the border. Between 1990 and 2010, the proportion of foreign-born individuals in the United States grew from 7.9 percent to 12.9 percent, and the number of undocumented immigrants tripled from 3.5 million to 11.2. While large numbers continued to migrate to traditional immigrant destinations—California, Texas, New York, Florida, New Jersey, and Illinois—the 1990s also witnessed unprecedented migration to the American South. Among the fastest-growing immigrant destination states were Kentucky, Tennessee, Arkansas, Georgia, and North Carolina, all of which had immigration growth rates in excess of 100 percent during the decade.

In response to the continued influx of immigrants and the vocal complaints of anti-immigration activists, policy makers responded with such initiatives as Operation Gatekeeper and Hold the Line, which attempted to make crossing the border more prohibitive. The new strategy “funneled” immigrants to dangerous and remote crossing areas. Immigration officials hoped the brutal natural landscape would serve as a natural deterrent. It wouldn’t. Illegal immigration persisted, and even as late as 2017, hundreds of immigrants died each year of drowning, exposure, and dehydration.

Unprecedented Economic Expansion

During Clinton’s administration, the nation began to experience the longest period of economic expansion in its history, almost ten consecutive years. Year after year, job growth increased and the deficit shrank. Increased tax revenue and budget cuts turned the annual national budget deficit from close to $290 billion in 1992 to a record budget surplus of over $230 billion in 2000. Reduced government borrowing freed up capital for private-sector use, and lower interest rates in turn fueled more growth. During the Clinton years, more people owned homes than ever before in the country’s history (67.7 percent). Inflation dipped to 2.3 percent and the unemployment rate declined, reaching a thirty-year low of 3.9 percent in 2000.

Much of the prosperity of the 1990s was related to technological change and the advent of new information systems. In 1994, the Clinton administration became the first to launch an official White House website and join the revolution of the electronically mediated world. By the 1990s, a new world of instantaneous global exposure was at the fingertips of billions worldwide.

The New Democrats: Centrist and Fiscally COnservative

The net effect of Clinton’s policies was moderate reform of the policies of the Reagan-Bush era, rather than a swift repudiation and return to progressive policies. The New Democrats, including Clinton, are a centrist ideological faction within the Democratic Party, sometimes liberal on social issues while being moderate or fiscally conservative on economic issues. As seen by the examples of Welfare reform and NAFTA, Clinton and the New Democrats were willing to work with Republicans in Congress to implement policy across political-party lines.

Clinton’s Centrist Policies

Welfare Reform

A central pledge of Clinton’s campaign was to reform the welfare system, adding changes such as work requirements for recipients. By 1994, no details or a plan had emerged on welfare reform, which encouraged Republicans led by Speaker of the House Newt Gingrich to take the lead and push for action. Eventually, they passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), a bill aimed at substantially reconstructing the welfare system. Authored by Republican John Kasich, the act gave state governments more autonomy over welfare delivery, while also reducing the federal government’s responsibilities.

A chart showing average monthly welfare benefits (Aid to Families with Dependent Children (AFDC), later replaced by Temporary Assistance for Needy Families (TANF)), per recipient, in constant 2006 dollars. The line shows that benefits peaked in the late 70s and declined thereafter.

Figure 2. Overall decline in welfare monthly benefits (in 2006 dollars).

The PRWORA ended the Aid to Families with Dependent Children (AFDC) program that had been the primary welfare program since the Great Depression. In place, it established the Temporary Assistance to Needy Families (TANF) program, which had stricter limits for work requirements, tighter conditions for food stamps eligibility, and reductions in immigrant welfare assistance.

President Clinton found the legislation more conservative than he would have preferred, but after vetoing two previous welfare proposals from the Republican-majority Congress, he considered it a political risk to veto a third bill during the campaign season. 

As he signed the bill on August 22, 1996, Clinton stated that the act “gives us a chance we haven’t had before to break the cycle of dependency that has existed for millions and millions of our fellow citizens, exiling them from the world of work. It gives structure, meaning and dignity to most of our lives.”[1]

Clinton’s remarks on Welfare Reform

Watch this video for the remarks of President Clinton upon signing the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), followed by the reaction of members of Congress: many Democrats opposed the bill and many Republicans approved it.

Long-term impacts of welfare reform

Welfare has continued to be a sensitive topic in American politics, from 1996 up to the 2020s. With the Covid-19 coronavirus pandemic, expanded welfare-like benefits have been a primary means the U.S. government has sought to aid people impacted by the economic shutdown. Republicans and Democrats generally remain split on ideals of personal responsibility and the free market (Republicans) versus the need for government to provide a safety net for people facing difficulties (Democrats). The 1996 reforms signed by Clinton remain a significant scaling-back of the welfare state, specifically for parents with young children, with consequences still felt during the 2020s: click here to read more about child welfare policies during the pandemic.

Don’t Ask, Don’t Tell

Although Clinton had campaigned as an economically conservative New Democrat, he was thought to be socially liberal and, just days after his victory in the 1992 election, he promised to end the fifty-year ban on gays and lesbians serving in the military. However, in January 1993, after taking the oath of office, Clinton amended his promise in order to appease conservatives. Instead of lifting the longstanding ban, the armed forces would adopt a policy of “don’t ask, don’t tell.” Those on active duty would not be asked their sexual orientation and, if they were gay, they were not to discuss their sexuality openly or they would be dismissed from military service. This compromise satisfied neither conservatives nor the LGBTQ community, which argued that LGBTQ people should be able to live without fear of retribution because of their sexuality.

DOMA

Clinton again proved himself willing to appease political conservatives when he signed into law the Defense of Marriage Act (DOMA) in September 1996, after both houses of Congress had passed it with such wide margins that a presidential veto could easily be overridden. DOMA defined marriage as a union between two people of the opposite sex, and denied federal benefits to same-sex couples. It also allowed states to refuse to recognize same-sex marriages granted by other states. When Clinton signed the bill, he was personally opposed to same-sex marriage. Nevertheless, he disliked DOMA and later called for its repeal. He also later changed his position on same-sex marriage. On other social issues, however, Clinton was more liberal. He appointed openly gay and lesbian men and women to important positions in government and denounced discrimination against people with AIDS. He supported the idea of the ERA and believed that women should receive pay equal to that of men doing the same work. He opposed the use of racial quotas in employment, but he declared affirmative action programs to be necessary.

Crime Reform

Seeking to wrest the tough-on-crime reputation from Republicans, Clinton and Democratic leaders developed the largest Federal crime law to ever be enacted. While racially disparate policing and incarceration was already well established through efforts related to the War on Drugs, the 1994 Violent Crime Control and Law Enforcement Act added new penalties, funding, and incentives for aggressive law enforcement. The law helped states and communities expand police forces and build more prisons. Provisions to scale back parole also meant that people would remain incarcerated for longer periods of time regardless of behavior. The law also expanded the number of crimes punishable by death, enacted a sweeping assault weapons ban, and established the Violence Against Women Act. The 1994 law would have significant impacts on racial and ethnic minorities, continuing the pattern of inequitable mass incarceration and driving racially motivated policing. Based on its devastating impacts on Black and Hispanic people, the law would later have significant political consequences for Democrats who supported it.

Road to a Second Term

As a result of his economic successes and his moderate social policies, Clinton defeated Senator Robert Dole in the 1996 presidential election. With 49 percent of the popular vote and 379 electoral votes, he became the first Democrat to win reelection to the presidency since Franklin Roosevelt. Clinton’s victory was partly due to a significant gender gap between the parties, with women tending to favor Democratic candidates. In 1992, Clinton won 45 percent of women’s votes compared to Bush’s 38 percent, and in 1996, he received 54 percent of women’s votes while Dole won 38 percent.

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Glossary

Contract with America: a list of eight specific legislative reforms or initiatives that Republican representatives promised to enact if they gained a majority in Congress in the 1994 midterm elections

New Democrats: a centrist ideological faction within the Democratic Party, sometimes known as centrist Democrats, Clinton Democrats, or moderate Democrats. They were known for being liberal on many social issues but moderate or fiscally conservative on economic issues. New Democrats dominated the party from the late-1980s through the mid-2010s.

Third Way: The Third Way is a political position akin to centrism that attempts to reconcile right-wing and left-wing politics by advocating a varying synthesis of centre-right economic platforms with some centre-left social policies. President Clinton was a leader of the Third Way movement in the United States.

North American Free Trade Agreement (NAFTA): NAFTA was an agreement signed by Canada, Mexico, and the United States that created a trilateral trade bloc in North America. The agreement came into force on January 1, 1994, and superseded the 1988 Canada–United States Free Trade Agreement between the United States and Canada. Passage of NAFTA resulted in the elimination or reduction of barriers to trade and investment between the U.S., Canada, and Mexico. The NAFTA trade bloc formed one of the largest trade blocs in the world by gross domestic product.

  1. Skorneck, Carolyn (July 31, 1996). "Clinton Says He Will Sign Welfare Overhaul; House Passes It". Associated Press. ↵