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President Lyndon B. Johnson's surtax proposal of January 1967 was opposed by the Republicans in Congress. The Joint Economic Committee hearings on the president's economic report, led by Senator William Proxmire, was a chance for Federal Reserve System (Fed) Chairman William McChesney Martin Jr. to ask lawmakers to support a tax increase. During the hearing, Martin asserted that the country should have followed a more restrictive monetary policy from mid-1965 on and justified his concern about inflation. Johnson also decided to re-appoint Martin as chairman of the Fed in 1967. That same year, the Fed tried to counteract the economic slowdown by adopting a more expansionary economic policy. The Council of Economic Advisers, under chairman Gardner Ackley, also expressed concern about the economic slowdown.

This chapter conceives ‘fiscal squeeze’ as political effort to correct the public finances by raising taxes or cutting spending (or both), distinguishing different types of squeeze. It poses three questions about such squeezes, namely whether there is something special about the politics of austerity or retrenchment, whether fiscal squeeze presents credit-claiming opportunities or severe blame-avoidance challenges to elected governments, and how consequential the effects of fiscal squeezes are. It argues that to put fiscal squeezes into perspective we need to observe what else is happening in the relevant country and in the outside world, to examine what happened afterwards, and to compare fiscal squeezes with one another to see what, if any, common patterns they display. It introduces nine different cases of fiscal squeeze in democracies ranging from the early 1800s to the early 2000s. Each of those cases can be seen as puzzling or contested in some way.

Ireland has been taken as an exemplary instance of fiscal adjustment, not once but twice in its recent history: in the late 1980s, and again after 2008. Ireland has appeared to be a model case which would support the ‘expansionary fiscal contraction’ argument that economic recovery and renewed growth follow from fiscal consolidation. This chapter examines the merits of this argument in both time periods. It proposes a methodological approach based on analysing political and policy choice, and re-evaluates the issue of the composition of adjustment as between spending cuts and tax increases. It finds that international and domestic economic conditions had bigger effects on outcomes in this case than is conventionally recognised. The chapter thus sets out a new framework for understanding the Irish case, and presents findings that are at odds with the conventional wisdom concerning the politics of fiscal squeeze and austerity in Ireland.

This chapter examines the politics of fiscal squeeze during the Argentine Great Depression (1999–2002) and subsequent economic recovery (2003–07). Argentina’s dramatic transition from poster child to basket case has received much attention, but little systematic research has been conducted on the logic, determinants and implications of the key budget decisions taken before, during and after the financial collapse of 2001. This chapter fills the gap in two ways. First, it assesses fiscal policymaking during both the recession and economic crisis period and the subsequent recovery, focusing on the timing, size and composition of deficit-cutting measures (spending cuts and tax increases). Secondly, it analyses the politics of fiscal adjustment, including the strategies adopted by governments to legitimise the fiscal squeeze. The Argentine case provides insights into the political effort going into budget consolidation in really hard times and offers a counterpoint to received views about the possibilities and limits of austerity.

With the Labour Party winning by a narrow majority, Harold Wilson prioritized science and technology, the arts, and education. Welfare, penal reform, and race relations were also tackled. The huge balance-of-payments deficit was unsuccessfully addressed through an unpopular series of tax increases, which in turn led to a heavy run on the pound halted only by an increase in the bank rates. The promise of the new term quickly faded under issues of a stagnant economy, the weak economic structure, and political indirection due to internal bickering. Labour relations deteriorated leading to nationwide strikes that crippled the administration further. In contrast, a flourishing pop culture helped provide some relief from the bleak economic situation. Unrelenting pressure on the sterling and gold reserves led to the eventual devaluation of the sterling and failure to improve relations in Europe over the crisis in Rhodesia heralded the downfall of the Labour party's dominance.

This chapter examines the impact of current Japanese government fiscal policies on the future of public debt and the economy in general, given the inevitable aging of the population. It begins with a review of how Japan got into its current fiscal mess during the 1990s. This is followed by an analysis of debt dynamics. Next, the government's fiscal agendas are briefly discussed. The results of a simulation exercise that explicitly incorporates the effects of an aging Japanese population are then presented. The simulation shows that, apart from cuts in government spending, for the government debt to be sustainable taxes would need to increase from the current 28 percent of GDP to over 40 percent by 2020. The tax increases and the inevitable aging of the population are expected to sharply reduce household saving rates. As the labor force declines and the need to equip workers with capital decreases, corporate investment rates also are expected to fall.

This chapter offers a systematic quantitative comparison of the nine country cases examined in the book. It uses reported spending and tax data to compare the depth and duration of those squeezes, and to show how far depth and duration vary according to whether squeeze is measured by tax and spending in constant prices or relative to GDP, and whether squeeze is measured in terms of spending cuts or tax increases. It shows there is no common set of financial, economic or political preconditions for fiscal squeezes in the nine cases. It also looks at the aftermath of fiscal squeezes in electoral and other outcomes, showing that political incumbents often but not always experienced loss of vote share or loss of office. It also shows that (contrary to common claims about the impact of fiscal squeeze) constitutional or major institutional change only followed fiscal squeeze in two of the cases.

This chapter highlights five complex member lawsuits against legislative processes which resulted in mixed outcomes for the member-litigants. First is the deficit-reduction case surrounding the 1985 Balanced Budget and Emergency Deficit Control Act, known after its sponsors as the Gramm–Rudman–Hollings Act (GRH), where plaintiffs ostensibly won back power but Congress opted to delegate again. Second is a multiplaintiff suit against executive enforcement of a base-closing commission decision that required supermajorities to override. This case emphasizes the risk that Congress takes when it delegates power away and does not have an easy mechanism to regain control over processes and outcomes. Third is the Democratic House members' unsuccessful suit against their own chamber's rule that mandated a supermajority in order to raise taxes. Fourth is the landmark challenge of the 1996 Line Item Veto Act that has been used by later courts to more readily dismiss member standing, even as the item veto itself is ruled unconstitutional by private plaintiffs the next year. Fifth is a hybrid group of House members and private organizations against the Senate filibuster, which stopped the Dream Act.