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Jewish World Review Feb 24, 2005 / 15 Adar I, 5765 Gramm-Rudmann — a Bad Idea Whose Time Has Come Again By Jonathan Rauch
http://www.JewishWorldReview.com |
To understand how serious President Bush is about reducing the federal
deficit, open his fiscal 2006 budget to page 364 and consider Table
S-12, "Impact of Budget Policy." Here you can see that under present
policies ("current services"), the deficit would be $361 billion in
fiscal 2006, $303 billion in 2007, and $207 billion in 2010. You can
also see the effect that Bush's budget would have on the deficit. Under
Bush's plan, the deficit would likewise be $207 billion in 2010. But it
would be $390 billion in 2006 and $312 billion in 2007.
Those numbers are not misprints: Bush's proposed deficits are higher
than under existing policies. Between 2006 and 2010, his budget would
increase the cumulative deficit by $42 billion. If you want to reduce
the flow of federal red ink, a better plan would be to drop Bush's
budget in the recycle bin and, simply, do nothing.
How can this be? After all, the administration claims that the budget
would cut the deficit in half over five years. The answer is that Bush
would cut nonsecurity discretionary spending — but he would more than
offset those reductions with spending increases in other categories and
with tax cuts. It is the economy, not Bush, that would halve the
deficit.
All of that is according to Bush's own accounting, which is, one might
fairly say, incomplete. His budget, notes The Washington Post, "does not
include future expenses of the continuing wars in Afghanistan and Iraq,
nor does it include up-front transition costs of restructuring Social
Security as Bush has proposed." (It does include an $81 billion
supplemental appropriation in fiscal 2005, mostly for Iraq.)
Yes, the budget holds discretionary nonsecurity spending below the rate
of inflation, but that category accounts for less than one-fifth of the
total budget. And even in that sector, according to the Cato Institute,
the administration's vaunted elimination of 150 programs would reduce
2006 spending by less than 1 percent.
At the Heritage Foundation, budget analyst Brian Riedl notes that Bush's
budget does not get a handle on swelling entitlement costs. But, Riedl
adds, it's better than any of Bush's earlier budgets, which increased
domestic discretionary spending. "We're just trying to turn the ship
around over here," he says, with what sounds, over the phone, like a
shrug.
Fortunately, the situation is not unprecedented. The country has been
here before.
It is 1985, and the president has just been re-elected. The deficit has
been rising through his first term, despite his annual promises to cut
it. Rising also are the trade deficit and dependence on foreign capital.
Congress is alarmed but undisciplined. As for the president, the deficit
is his second priority. His first priority is everything else —
especially avoiding tax increases, increasing security spending, and
protecting entitlements.
His method of squaring the circle is to propose reductions in one narrow
portion of the budget, domestic discretionary spending. Most of these
cuts are too politically sensitive to pass Congress, especially when
other parts of the budget and taxes are fenced off; and in truth, the
president does not seem particularly interested in getting them passed.
He and members of Congress all protect their agendas, and the deficit
takes the hindmost.
In September of 1985, three senators — Phil Gramm, R-Texas; Warren
Rudman, R-N.H.; and Ernest Hollings, D-S.C. — unexpectedly offer the
ugliest, stupidest bill anyone has ever seen. It proposes to set
declining annual deficit targets and impose primitive across-the-board
cuts ("sequestration"), as needed, to reach the goals. Rudman calls the
measure "a bad idea whose time has come."
In 1985, no one liked this Frankenstein's monster, but no one could stop
it, and it had a certain monstrous logic. The real aim was not to cut
spending automatically or even to meet precise targets, but to use the
threat of sequestration — which would brutally and mindlessly reduce
both domestic and defense spending — to force the White House and
Congress into deficit-reduction negotiations. In effect, the monster
took the Pentagon and domestic spending hostage. "Did I ever expect it
to work exactly as written?" asked Rudman in a recent interview (he is
now with the law firm Paul, Weiss, Rifkind, Wharton and Garrison in
Washington and is co-chairman of the Concord Coalition, an anti-deficit
group). "Of course not." But, he said, "it had a tremendous intimidation
factor on a lot of people."
Mechanically, the measure, which came to be known by the shorthand
"Gramm-Rudman," failed. Congress generally managed to evade or raise its
limits. But it was not without effect. First, "Gramm-Rudman made it
easier to go after defense [spending] as well as other elements," says
William Niskanen, a former Reagan administration economic adviser who
now is the chairman of Cato. Second, says Timothy Penny, a Democratic
member of Congress during that period (now a senior fellow at the
University of Minnesota's Hubert H. Humphrey Institute of Public
Affairs), "it kept us focused on spending and the size of the deficit.
The virtue of Gramm-Rudman was not that it worked as designed, but that
it elevated attention to the deficit."
Third, and possibly most important, in 1990 Gramm-Rudman helped force
the first President Bush and Congress to negotiate a sweeping budget
deal. That deal turned out to be the largest deficit-reduction package
ever; without it, the return to fiscal balance in the 1990s would have
been, in all probability, impossible. "Bush's hand would not have been
forced without Gramm-Rudman," says Allen Schick, a political scientist
and budget expert at the University of Maryland.
In 1990, as part of that deal, Congress replaced Gramm-Rudman with
measures that capped discretionary spending and required Congress to pay
for any tax cuts or entitlement increases. I talked to four former
Office of Management and Budget directors in preparing this article, and
they all agreed that the budget caps and the "paygo" rules were
"important and effective," in the words of Leon Panetta, President
Clinton's first budget director. Alice Rivlin, Panetta's successor at
OMB, recalls "many sessions, some of them lasting late into the night,"
where Clinton administration officials hunted for "offsets" to bring
spending initiatives under the limits. "For example," she says, "it
isn't that no one ever thought of adding prescription drugs to Medicare.
We just couldn't find a way to pay for it. There was very real
restraint."
Those budget-process rules expired in 2002. Deficit hawks want to bring
them back — provided that the rules require Congress to offset tax cuts
as well as spending increases. "You can't leave one-half of the barn
door open and expect to exercise fiscal discipline," says Panetta.
The bit about taxes is anathema to the president and many conservatives,
who view extending Bush's tax cuts as essential. Bush wants paygo budget
rules that place limits on spending increases only, not on tax cuts.
Other conservatives prefer a measure that would limit annual spending
growth to adjustments for inflation and population growth. Several
states are debating such measures (called TABORs, for Taxpayer Bill of
Rights), and Colorado has enacted one. Conservatives are talking about
introducing a federal equivalent this year, perhaps in the spring.
Rules requiring offsets and rules limiting spending growth both have
good and bad points; but either might work best in addition to, rather
than instead of, a rule targeting the deficit and backed by brutal
spending cuts, a la Gramm-Rudman. The budget rules could help Congress
meet the deficit targets, and the deficit targets could help enforce the
budget rules. "One of the things about Gramm-Rudman was that it was
understandable, and you had concrete goals," says Stephen Moore, a
senior fellow in budget affairs at Cato. "With deficit targets that you
have to meet, people can judge — did they meet them or not?"
One can be excused for imagining that Bush is none too serious about the
deficit targets in his 2006 budget. Perhaps his concentration might
improve if Congress were to write his projected five-year deficits into
law and back them with the threat of sequestration. That is not a good
idea, if "good" means anybody's first choice. On the other hand,
Niskanen says, "I think it's likely to be a better idea than what Mr.
Bush is trying to get away with now. He's saying 19 percent of the
budget is going to be very tight. Even if he accomplishes that, that
does not yield very significant budget effects."
There are times when the nation needs wisdom, times to summon the
spirits of Lincoln and Jefferson. There are other times, too: times to
call upon the spirits of Beavis and Butt-head. Deficit targets are
crude, ugly, and senseless. Nothing less will do.
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© 2005 Jonathan Rauch | ||||||||||
