[201] Bush's top domestic priority was to bring an end to federal budget deficits, which he saw as a liability for the country's long-term economic health and standing in the world.[202] As he was opposed to major defense spending cuts[203] and had pledged to not raise taxes, the president had major difficulties in balancing the budget.[204]
Bush and congressional leaders agreed to avoid major changes to the budget for fiscal year 1990, which began in October 1989. However, both sides knew that spending cuts or new taxes would be necessary in the following year's budget to avoid the draconian automatic domestic spending cuts required by the Gramm–Rudman–Hollings Balanced Budget Act of 1987.[205] Bush and other leaders also wanted to cut deficits because Federal Reserve Chair Alan Greenspan refused to lower interest rates, and thus stimulate economic growth, unless the federal budget deficit was reduced.[206] In a statement released in late June 1990, Bush said that he would be open to a deficit reduction program which included spending cuts, incentives for economic growth, budget process reform, as well as tax increases.