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Jewish World Review Aug. 5, 1999 /23 Av 5759

Morton Kondracke

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Econophone

Pols blow fiscal smoke on budget surplus


http://www.jewishworldreview.com -- REPUBLICANS WANT TO SPEND the budget surplus on tax cuts. Democrats want to spend it on Medicare and other programs. But the real question to ask is: What surplus?

Both President Clinton and congressional Republicans base their policy proposals on estimates that the government will take in about $1 trillion more in taxes than it spends over the next 10 years -- $2.9 trillion if Social Security is counted.

But the surplus estimates are based on Congress and the executive branch making deep cuts in popular government programs and on the absence of major emergencies like wars, droughts or floods.

More realistically, the Congressional Budget Office estimated on July 21 that if spending grows at the rate of inflation and if emergencies annually cost $16 billion as in 1999, the $1 trillion non-Social Security surplus will evaporate to just $46 billion.

That's nowhere near enough to pay for the Republicans' proposed $792 billion tax cut or President Clinton's $125 billion alternative cut and the $45 billion extra he wants for Medicare and $328 billion for defense, education and other programs.

The political conclusion of this is that both parties are blowing fiscal smoke at the American people -- spending money they very well may not have. Maybe there is need for a third party after all.

But since the two main parties are inhaling surplus smoke as well as blowing it, there is a danger that they will reach a deal on spending and taxes late this year that uses up what surplus there is and increases the national debt.

As Sen. Fritz Hollings, D-S.C., explained on the Senate floor Tuesday, even without new tax cuts or Medicare spending, White House budget tables show that the total national debt is scheduled to increase from $5.7 trillion next year to $7.6 trillion in 2009, proving that surpluses are a chimera.

Afterward, Hollings told me, "If these tax cuts and spending bills pass, there is no well deep enough to stop the fall."

And some tax cuts and spending increases just might pass as part of a "grand compromise" between Republicans and the White House this October.

President Clinton now says he'll veto a $792 billion tax cut or even a $500 billion cut. But former CBO Director Robert Reischauer says he fears Clinton might sign a $400 billion cut if he got, say, $50 billion for a prescription drug benefit for Medicare recipients plus $40 billion a year extra for other domestic programs.

"This money is not in the bank," Reischauer says. "It is a gleam in the eye. It is foolhardy to commit themselves to spending resources they don't know they'll have."

Reischauer says political pressures are such that "it is hard to see how there won't be a deal," though "I'd be happy if there was gridlock."

Indeed, there is a lot to be said for gridlock -- that is, no long-term agreement on taxes, Medicare or Social Security reform, and a simple one-year funding scheme to keep the government running.

Besides not spending money the country doesn't have, gridlock would allow voters a say on their fiscal future by making taxes and spending the main issues of the 2000 elections.

Right now, both the White House and congressional Republicans are practicing fiscal legerdemain to gain an advantage in the budget game.

One category of deception involves both sides' claimed adherence to caps on domestic spending enacted in the Balanced Budget Act of 1997.

President Clinton stayed under the budget caps by proposing $42 billion in new taxes and program cuts that he had to know had zero chance of being enacted -- such as $8 billion in tobacco taxes and elimination of education and law enforcement block grants. Congressional Republicans also pledged to stay under the caps by proposing unrealistic cuts in domestic programs that GOP appropriators warned could not pass.

Under original GOP budget allocations, the Health and Human Services, Labor, and Education departments would have been hit with a 14 percent cut below last year's spending levels.

Last week, House GOP leaders relented, called for a mere budget freeze for those departments and ordered the House Budget Committee to find $11 billion in savings elsewhere in the government.

In another ploy, the GOP has declared the 2000 Census and veterans' health to be "emergencies" not subject to the caps. And, Republicans have been caught picking and choosing between CBO and White House budget estimates to show a surplus next year, when reality seems to be there will be a $3 billion deficit.

Meantime, both parties claim they are "paying down" the national debt by "locking away" Social Security surpluses, when actually they are spending the surpluses and putting IOUs into retirement trust funds.

What all this calls for is a presidential election in which somebody with more credibility than Ross Perot brings out charts and forces Republicans and Democrats to tell the truth.



JWR contributor Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill. Send your comments to him by clicking here.

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