Bush administration efforts to gain control over the federal budget deficit, however, were more problematic. One source of the difficulty was the savings and loan crisis. Fraud, mismanagement, lax regulation and economic downturns in certain regions of the United States in the early and mid-1980s led to widespread insolvencies among savings-and-loan institutions. Of more than 3,100 such institutions that existed in the late 1970s, only 2,453 remained as of June 30, 1990. By 1993 the total cost of selling and closing down failed thrifts -- whose deposits were guaranteed by the government -- was staggering: between $300 and $500 thousand million.
In January 1990 President Bush presented his budget proposal to Congress. Democrats argued that administration budget projections were far too optimistic, and that meeting the deficit reduction law would require tax increases and sharper cuts in defense spending. The budget negotiations dragged on, and by June -- in spite of his campaign promise -- President Bush told congressional leaders that changing circumstances in the national economy meant that tax increases would have to be part of any overall budget package.
Despite the budget agreement, the combination of economic recession, losses from the savings and loan industry rescue operation, and escalating health-care costs for Medicare and Medicaid offset all the deficit reduction measures and produced a shortfall in 1991 at least as large as the previous year's.