Government Spending & Budget

As many Federal departments and agencies lurch into an era of

running without funds, the leaders of both parties of Congress are spending

less and less time searching for a compromise to balance the budget, and

more and more time deciding how to use it to their advantage on the

campaign trail. Meanwhile money is easily borrowed to pay for government

overhead. In an attempt to change this, on June 29, Congress voted in favor

of HConRes67 that called for a 7 year plan to balance the Federal Budget by

the year 2002 (Hager 1899). This would be done by incorporating $894

billion in spending cuts by 2002, with a projected 7 year tax cut of $245

billion. If this plan were implemented, in the year 2002, the U.S.

Government would have the first balanced budget since 1969.

There is doubt by citizens that a balanced budget will become

reality. A recent Gallop Poll from January, 1996 showed the budget as the

#1 concern among taxpayers, but 4/5 of those interviewed said they doubt

the GOP will do the job (Holding 14). Meanwhile, an ABC poll from November

reported that over 70% of those polled disapprove of the current

performance by Congress, and most blamed politicians for failure to take

action (Cloud 3709). These accusations of failure to follow through come

with historical proof that Congress and Clinton have failed to compromise

and resolve the issue. After all, current budget plans are dependent on

somewhat unrealistic predictions of avoiding such catastrophes as recession,

national disasters, etc., and include minor loopholes. History has shown

that every budget agreement that has failed was too lax. One might

remember the Gramm-Rudman-Hollings bill that attempted to balance the

budget, but left too many exemptions, and was finally abandoned in 1990

(Weinberger 33).

So after a pain-staking trial for GOP Republicans to create, promote,

and pass their budget, as promised on campaign trail 94, Clinton rejected

the very bill he demanded. This essentially brought the federal budget

back to square one. Clinton thought such a demand on Republicans to

produce a budget would produce inner-party quarrels and cause the GOP to

implode. Instead, they produced a fiscal budget that passed both houses of

Congress, only to be stalemated by a stubborn Democratic President Clinton.

Meanwhile, Clinton bounced back with a CBO scored plan with lighter, less

risky cuts to politically sensitive areas like entitlements. Clinton's plan

also saved dollars for education and did not include a tax increase, but

most cuts would not take effect until he is out of office, in the year 2001.

Although Clinton is sometimes criticized for producing a stalemate in

budget talks, the White House points out that the debt has gone down since

Clinton took office, with unemployment also falling. Republicans are quick

to state that Clinton originally increased taxes in 1993 and cut defense

programs, but his overall plan was for an increasing budget without deficit

reduction.

Startling Facts about the budget:

As of 1996, the national debt was at an all time high of $5 trillion

dollars, with interest running at a whopping $250 billion per year (Rau M-

1). This equals out to an individual responsibility of more than $50,000

per taxpayer. Nearly 90% of that debt has accumulated since 1970, and

between 1980 and 1995, the debt grew by 500%. Currently, the debt grows by

more than $10,000 per second (Rau M-l), and at current rates, a baby born

in 1992 will pay 71% of his or her income in net taxes. At current rates,

our government is about to reach its breaking point. If that's not enough

to scare a taxpayer, by 2002, 60% of government spending will be for

entitlements, and by 2012, these programs are projected to take up all

government revenue (Dentzer 32). Not only economic development, but also

family income is hurt by debt. With the cost of living going up, it becomes

harder to find a job. According to the Concord Coalition, real wages peaked

in 1973 and have gone down ever since. If the economy grew as fast as it

did in 1950, without a debt, the median family income would be $50,000,

compared to the present median of $35,000 (Rau M-1). As of current fiscal

year's budget, the United States government spends $1.64 trillion yearly.

$500 billion of that, or 1/3 of the total, is for discretionary spending

(Rau M-1). This discretionary spending is the target for most cuts, and

seems to be the easiest to make cuts in. Overall, the difference between

the two parties budget plans is only $400 billion. This could easily be

trimmed by eliminating tax cuts and adjusting the consumer price index to

reality. Democrats say the GOP plan is too lopsided, and Republicans

criticize the Democrat plan for being unrealistic. A study by the Urban

Institute shows GOP cuts will be felt mainly by the bottom 1/5 of U.S.

population. This should be more equally spread out across income brackets

(Hosansky 1449).

The GOP plan:

By fulfilling campaign promises made by freshman Republican

Congressmen to cut government spending, the GOP managed to pass a $1.6

trillion budget resolution by a party-line vote, in both houses of Congress

(Hosansky 1450). This budget called for major cuts in education,

environmental programs, discretionary spending, and the largest of all:

entitlements. 70% of the money to balance the budget under the GOP plan

would have come from entitlements. This is because entitlement programs

currently take up $301 billion a year. Such cuts had already been partially

implemented with the GOP cutting overall spending by 9.1% in 1996 alone.

First, in an attempt to stop the projected bankruptcy of Medicare in

2002, Republicans cut $270 billion overall from the program, with hospital

reimbursement cuts being the deepest (Hager 1283). Although stabilizing the

fund is only expected to cost $130-$150 billion over 7 years, the GOP

budget would reform the program to run better, and cheaper, by allowing it

to grow at 6% yearly, instead of the current 10%. While both parties agree

on premium hikes for beneficiaries, this is a touchy subject for the 38.1

Million elderly voters on Medicare in 1996 (Rubin 1221). Medicaid, another

volatile program, would be cut $182 billion under the GOP proposal. This

would entail placing a cap on the program's spending, and passing control

of it to the individual state governments. For an estimated 39 million low-

income people on Medicaid in 1996, the GOP plan cuts the program far more

than Clinton's proposed $98 billion cut. Social Security is another program

being cut.

The government has already reduced the outlay for seniors 70 and

younger who are on the program, but Republicans want more by increasing the

eligibility for Social Security from 62 to 65 for early retirement, and 65

to 70 for standard retirement (Henderson 60). Smaller cuts included $11

billion in student loan reductions, $9.3 billion in labor cuts, $10 billion

eliminated from public housing programs, and several other numerous

disaster relief programs cut (Rubin 1222). The GOP also wants to eliminate

programs initiated by Clinton like the National Service initiative, summer

jobs, Goals 2000, and Americorps. Also, by terminating unnecessary farm

programs, and cutting others by $12.3 billion, Republicans hope to cut the

yearly $6 billion that the Federal Government spends on direct subsidies to

farmers. Agricultural policies were also reformed and embedded into budget-

reconciliation bills (Hosansky 3730).

Clinton's Budget:

Clinton's budget only surfaced after he vetoed the budget passed by

Congress, and included shallower cuts, with little or no reform to

entitlements. This plan was supported by most Democrats and was used as an

alternate to a gutsy GOP budget. Clinton repeatedly trashed the

Republican's efforts to make cuts on programs he feels important like

student loans, agricultural programs, and entitlements. He accused

Republicans of wanting to kill some all together. He has also threatened to

veto a Republican plan to reform Medicare called Medical Savings Accounts,

unless his programs are left intact (Hager 752). Under Federal law, the

President is required to submit budget requests in 2 forms: Budget

Authority (BA), the amount of new federal commitments for each fiscal year,

and Outlays, the amount actually spent in the fiscal year (Rubin 1221). The

plan that Clinton has presented is not only a budget resolution in the form

of a campaign document, but also proof of how far the Republicans have

moved him to compromise since the they took control of Congress. Most

important, it does not readily translate into regular accounting principles

used for government programming.

This year's White House budget was a 2,196 page document that the

GOP struck down immediately for not cutting taxes enough and neglecting to

downsize the government (Hagar 752). "There is little or no change at all

in this budget," said Pete Domenici (Senate Budget Committee Chairman),

talking of Clinton's new budget. Among largest cuts within Clinton's plan

was the downsizing of 1/5 to 1/3 of all programs that he felt were not a

priority to present day government. In addition, he wanted to close

loopholes presented to corporate taxation, that would save an estimated $28

billion. He vowed to keep programs like education, crime prevention, and

research or environmental grants, while increasing the Pell Grant from

$2,340 to $2,700. Attention was also placed on discretionary spending, with

Clinton cutting a smaller $297 billion compared to GOP's $394 billion cut.

According to the Office of Management and Budget, the President's

plan cuts middle-income taxes by $107.5 billion in 7 years, small business

by $7 billion, and cuts $3.4 billion from distressed urban and rural area

relief (Rubin 1222). This was to be paid for by a $54.3 billion hike in

corporate and wealthy-income taxes, and also in $2.3 billion of tighter

EITC (Earned Income Tax Credit) adjustments. Although Clinton's plan was

expected to cut a whopping $593 billion in 7 years to furthermore produce

an $8 billion surplus in 2002, most cuts are long term without a clear goal.

Clinton is sometimes criticized by Republicans for unwillingness to

compromise. He has used vetoes and stubborn negotiations to protect

personal priorities like education, job training, and environmental

programs, but Republicans have also tried using domination to force him to

comply. GOP Presidential candidate Bob Dole said if Clinton was serious

about the budget, "we probably could have had an agreement on New Years

Day," 1996 (Hosansky 1449). "The President is sitting on his hands while

the federal debt keeps going up and up and up into the stratosphere," said

Congressman Jesse Helms, Rep -North Carolina. But one must remember that

President Clinton does have somewhat of an overwhelming power in this

debate that Republicans can do nothing about. He is the single person that

can veto laws sent to him, and also has the power to call Congress back

into session if he is unhappy with the current situation. This was

President Truman's "ace in the hole" back in 1948.

A Neutral Proposal:

As a neutral proposal, a group calling themselves the "Blue Dog's"

have won support for their budget from both Republicans and Democrats. The

group also known as the Concord Coalition includes many conservative

Democrats that want to see shallower budget cuts with less reform to

entitlements. They also believe a tax cut should be delayed until the

budget is balanced. The Coalition believes that by reforming entitlement

policy, rethinking government size, changing taxation methods, and

consuming less, our budget can be balanced (Rau M-1).

Defending Deficits:

In defense of deficits, some may argue that the danger of the

current situation is highly over rated. A budget deal has always had less

to do with economics than with politics and morality. Budget deficits don't

crowd out private investment, government spending does, and a large surplus

may not be a sign of strength for a country. Some say it is impossible for

every country to run either a surplus or a deficit. What matters is that a

country can service its debts (Defense 68). During most of the 19th century,

the United States borrowed from the world (a current-account deficit). By

1870, it was running a trade surplus, and by 1900 we had a current-account

surplus. But in the early 2Oth century, the U.S. became the world's largest

net creditor, and by 1970 it peaked by finally running into deficit in 1970.

Finally, 1980 brought a deficit so large, that the government was a net

debtor again (Bottom Line 14).

Current Reductions:

One of the ways we are currently reducing the deficit includes the

introduction of "means testing." This means that people would get

entitlements based on need. The government already has reduced Social

Security for modest income seniors age 70 and younger, but budget cutters

want to broaden that idea (Henderson 60). There are 2 major problems with

means testing. First, it is considered inherently unfair.

Some might argue that a person might blow all of their income before

the entitlement reductions come into place. Second, it might reduce the

incentive to work and encourage people to hide their income. For instance,

beneficiaries of Social Security, ages 62-64, lose $1.00 yearly in benefits

for every $2.00 they earn in income or wages above $8,160 per year

(Henderson 60). Some say increasing eligibility requirements would solve

some problems, and propose raising the age of early retirement from 62 to

65, and standard retirement from 65 to 70. Another touchy subject in budget

reduction is the argument that the poor are being left out of savings.

According to the Clinton Administration, the GOP budget would cause a

family with income of $13,325 per year to lose 11% of their income (Whitman

42). United States Treasury Department studies say the bottom 1/5 income

families would have net tax increase of an average $12 to $26 under the GOP

plan. The top 1/5 income families would receive more than 60% of the tax

relief. A HHS analysis states that the GOP plan would also boost child

poverty rates from 14.5% to 16.1%, and poor families with children would

loose 6% of their income.

Conclusion:

In the end, budget reduction is no easy task. "...fixing the

National debt is like catching a train leaving the station. The longer we

wait, the harder and farther we have to run," says the Concord Coalition

(Rau M-1). "Both parties want the issue," instead of an agreement, said

Representative Bill Orton. The center of attention for debate on budget

cutting is politics, and whomever takes responsibility for reform gets left

wide open to criticism. Although Congress and Clinton have spent the past

year on debating the budget and the size of the Federal Government, most

plans fall back on gimmicks, loopholes, and long-term plans. Even Democrats

now agree to downsize the government, but the two parties disagree on how

and where. As we trust our elected officials to make decisions in

Washington on our behalf, we must show interest and aptitude on the end

results. To accomplish a balanced budget deal, many suggest that we must

not only balance spending, but reform entitlements, rethink government size,

change tax methods, and depend less on Washington. Attendees of a

conference on budget cutting in Jackson Hole, Wyoming suggested we deliver

a budget that has a simple, quantifiable goal, that includes short term

goals, and eliminated gimmicks. Countries like Sweden and Canada have

successfully reformed fiscal policies. Sweden's government elected to

abandon welfare, pensions, health insurance, unemployment programs, family

assistance, and child allowances. Their deficit soon fell by 3.5% of GDP in

one year alone (Urresta 51). Sweden's plan was three times as intense as

Congress' current plan, while cutting spending in half the time.

As for cuts, everyone must suffer. As entitlement debates continue,

"the interests of older Americans are being protected at the expense of

young people," says Neil Howe and Bill Strauss (Rau M- 1). Older Americans

have good reason to protect programs that they have paid into for years,

but those programs spend an overall per capita amount of 11 times as much

on elderly than that spent on children altogether (Rau M-1). The youth are

the future of America, and we should protect them too. Currently, poverty

in US is 3 times as likely to affect the very young than the very old. By

balancing the budget, "interest rates come down, the economy picks up - we

will rebound," says Representative James Greenwood (Cloud 3709), and

everyone should be happy with that.

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