BUDGET - Black Ink Brawl
By David Baumann, National Journal
© National Journal
Group Inc.
Saturday, Feb. 06, 1999
When Bill Clinton took office in 1993, the deficit stood
at the daunting level of more than $ 250 billion--and there, more
or less, it was expected to stay. The idea of balancing the
federal budget existed only on the fringes of politics. It was
one of those notions, like defeating communism, that was
passionately embraced by only the most conservative of
Republicans and was casually dismissed by everyone else. Where
budget-balancers were thought to live was not quite kook
territory, but it was in that neighborhood.
Clinton then was certainly no budget-balancer himself.
The new President was overwhelmingly concerned with the fact that
many Americans believed the overall economy was rotten--a belief
that had greatly aided Clinton in his 1992 triumph over George
Bush, the incumbent steward of the putatively rotten economy. In
fact, the economy was not in rotten shape at all: A fairly mild
recession had hit in 1990, and by 1993, a rebound was already
well under way. But Clinton was determined to boost the economy
even further.
So in his first budget, Clinton proposed a $ 30 billion
short-term ''stimulus'' package of job-creation proposals to
boost spending in such areas as highway construction and summer
youth employment programs. He also called for $ 230 billion in new
spending over five years, and offered a plan to chip away at the
deficit by cutting spending and increasing taxes.
Clinton's plan was broad and ambitious, and he met with
mixed success, even though Democrats then still controlled
Congress. His budget proposal barely passed, and it passed
without the economic-stimulus component, which even some Senate
Democrats said was wasteful and riddled with pork-barrel
projects. The deficit-reduction element survived, and Democrats
still point to it as the start of the budget-balancing effort.
But for several House Democrats, the tough votes that they cast
to help push through that 1993 budget led to defeat at the ballot
box the following year, and their party lost control of Congress.
Six years later, the fiscal landscape is very different.
The economy is booming, and the deficit has been wiped out. And
the budget that Clinton presented on Monday is very different,
too.
This budget is far more modest than Clinton's first one,
and it is more carefully tailored to political reality. Rather
than contemplating perpetual deficits, Clinton this week
emphasized maintaining the budget surplus and paying
down the federal debt. Rather than proposing huge domestic
spending increases in a myriad of areas--anathema to the
Republicans who now control Congress--he proposed a package of
targeted boosts reflecting Democratic desires to increase
spending in such areas as education.
Overall, the plan would increase government spending just
2.2 percent over the current fiscal year's level, an increase
only slightly higher than the current inflation rate. And
Clinton, who in 1993 proposed cutting defense spending by $ 112
billion, now is going along with the Republicans' desire to
significantly boost spending in that area.
''It's like two different people,'' said Richard E. May,
who is a principal at the Washington lobbying firm of Davidson &
Co. and served as staff director of the House Budget Committee
during the early years of this Republican majority. A Democrat
put it another way. ''The President has tried to do more-
practical, achievable things, rather than dramatic things,'' said
William Dauster, the former Democratic staff director of the
Senate Budget Committee. He called it ''striking'' that the
President is now arguing that paying down the federal debt is the
economically healthy thing to do.
Clearly, the President has learned a few lessons after
seeing one Republican or another pronounce his past budgets dead
on arrival on Capitol Hill. ''The Clinton Administration has
utilized the budget for its political and public relations better
than any other White House,'' May said. ''They understand better
than any other Administration the purpose of the budget. It's not
a governing document. I think they've . . . learned it's more
important to frame the debate.''
So, finally, this year, we'll see budget comity--a lean,
smart, politically ambidextrous White House proposal wins
approval from both parties on the Hill and is speedily pushed
through, in a climate of bipartisan good-fellowship. Yes, as soon
as hell freezes over, pigs fly, and Maxine Waters learns to love
Bob Barr. Already, Republicans are grousing that the President is
reverting back to his big-spending ways.
''His budgets only succeeded when he began adopting
conservative principles,'' said a key Senate Republican aide. ''I
think he lost sight of that in this budget. It's a return to the
bad old days of tax-and-spend. It's like a kid outside the five-
and-dime with a quarter in his pocket.'' Likewise, House Ways and
Means Committee Chairman Bill Archer, R-Texas, called the Clinton
plan a ''throwback to the days when the government tried to solve
problems by raising taxes and throwing money at problems.''
Republicans, however, found it politically difficult this
week to rule out Clinton's proposal to set aside 62 percent of
the surplus to ''save'' Social Security, though some questioned
the details of the plan and assailed it as budget gimmickry. ''I
think it is very clear now, that as we enter this era of
surpluses as far as the eye can see, that we are all in agreement
that the surpluses of the Social Security program should be set
aside and used to preserve that program,'' said Senate Budget
Committee Chairman Pete V. Domenici, R-N.M.
At the same time, virtually every Republican on Capitol
Hill says that, Social Security aside, his or her next budget
priority is an across-the-board income tax cut--an idea that
appears nowhere in the Clinton budget. Discussing the 38 percent
of the surplus that theoretically remains after Social Security
funds are deducted, Domenici told reporters, ''We ought to start
with the premise that it isn't ours, and we ought to give it
back.'' Added House Budget Committee Chairman John R. Kasich, R-
Ohio, who proposed a 10 percent tax cut this week: ''Cutting
taxes is really a moral issue. For the first time since we've
been in the majority, we've got good news. We're not going to
blow it by spending it.''
The Clinton Administration prefers targeted tax cuts, and
is painting its Universal Savings Account--or USA--plan for
encouraging savings, as a tax cut. ''The President wants a
fiscally responsible tax cut,'' Office of Management and Budget
Director Jacob Lew told the Senate Budget Committee on Tuesday.
''He believes that the USA is the right kind of tax cut--targeted
toward the future and helping the many American families who have
the most difficulty saving for their retirement.''
Still, Republicans--who were unable to pass a big tax cut
last year and are pursuing one this year with renewed vigor--said
that the Clinton proposal for only limited tax relief is not
enough. ''We did a lot of targeted tax cuts, and if you weren't a
left-handed cab driver in New York, you didn't get anything,''
Kasich complained. ''A lot of people got left out.''
Then there are Clinton's spending proposals, which
clearly establish Democratic priorities, but which also appear
designed to pick some of the same old fights with Republican
adversaries. The Administration, for instance, proposed allotting
$22 billion for school construction and renovation bonds,
something the Republicans strongly objected to during last fall's
end-of-session debate over the omnibus spending bill. The Clinton
budget plan also calls for an 18.6 percent boost in funding for
the Corporation for National Service (which includes AmeriCorps),
payment of the dues owed to the United Nations, expansion of
federal benefits for legal immigrants, and a $ 25 million boost in
family-planning funds--all of which are perennial Republican
targets.
Administration officials argue that even with billions of
dollars in spending for new domestic initiatives, their budget
remains under the strict spending caps set in 1997 as part of the
five-year balanced budget deal. But Republican lawmakers, and
even some Democratic ones, maintain that the mechanisms that the
Administration is counting on to keep spending under the caps--
such as new user fees and taxes--are suspect.
For example, the Administration contemplates receiving
billions of dollars through increased tobacco taxes--an idea that
fizzled last year and that many doubt can pass this year. House
Appropriations Committee Chairman C.W. ''Bill'' Young, R-Fla.,
maintained that Republicans cannot count on such funding schemes.
''Most of these proposals are carbon copies of ideas rejected
last year by both parties,'' he said. ''Appropriators must deal
in reality. We cannot rely on imaginary proposals to make our
numbers work.''
Lurking behind all of these issues is this question: How
solid is the foundation upon which the new surplus figures are
built? While the surplus figures from the White House's Office of
Management and Budget and the Congressional Budget Office are
closer now than they often are, the estimates have swung wildly
over the past year.
In a telling comment to the Senate Budget Committee last
week, outgoing CBO Director June M. O'Neill testified that
''relatively small changes in CBO's economic projections boost
surpluses by $ 348 billion'' over the next decade. By $ 348
billion? That's no small change. And presumably, those same
numbers could travel in the opposite direction, meaning a huge
plunge in surplus estimates. As House Budget Committee ranking
member John M. Spratt Jr., D-S.C., conceded: ''The surpluses we
celebrate stem from economists' predictions. We have learned over
the last two decades that economists sometimes err.''
And so the great budget debate of 1999 begins. The
following are key areas in which contention will arise as the
action heats up:
Social Security
With his seemingly simple proposal to use the bulk of the budget
surplus over the next 15 years to ''save'' Social Security,
Clinton has clearly changed the terms of the debate over the
nation's retirement plan. Whether he has improved the prospects
for a solution is far less clear.
The President says that his plan to transfer 62 percent
of the budget surplus to Social Security would close nearly half
of the program's funding gap over the next 75 years. He also
wants to allow the federal government to invest a small portion
of Social Security funds in the stock market, which he says would
fill in another 20 percent of the program's shortfall. But even
leaving aside the part about letting government invest on Wall
Street--the rankest of heresies in Republican circles--Clinton's
proposal is fiendishly complicated and hugely controversial.
The President's plan would shield the surplus from the
covetous glances of Congress and pay down existing privately held
federal debt in the short run. But it would also greatly increase
the Social Security program's claim on general revenues down the
road, when the payroll taxes earmarked for the program begin to
fall short of what the program owes in benefits. (See NJ,
1/30/99, p. 257.)
Liberal Democrats, who feared Clinton might cave in to
conservative pressure to divert Social Security payroll taxes to
private retirement investment accounts, are plainly delighted.
''Most of us like the President's plan,'' said Rep. Robert T.
Matsui, D-Calif., the ranking member
on the House Ways and Means
Social Security Subcommittee. From the Democratic vantage point,
the plan keeps the program intact and commits the government to
come up with the money to make good on promised benefits until at
least 2049. Even more delightful, Clinton's plan shifts the
burden of proof to Republicans. ''They were begging for the
President to come forward with a proposal, and he did,'' said
Rep. Charles B. Rangel, D-N.Y., the ranking member on the full
Ways and Means Committee.
All of this annoys conservatives and centrists to no end.
Clinton, they argue, has actually set back the cause of Social
Security reform by making it look painless. ''Lots of members are
pretty skeptical that this is any kind of plan at all,'' said one
Senate Republican aide.
Most conservatives disapprove of letting Social Security
tap into general revenues. Furthermore, although Clinton has said
that he fully intends to sit down with Congress and hash out the
''painful'' benefit cuts or tax increases required to make up the
part of Social Security's shortfall that his plan does not cover,
Republicans have long since stopped taking him at his word on
Social Security--or anything else.
Still, for a variety of reasons, Republicans,
particularly in the House, are reluctant to completely trash
Clinton's proposal. Some fiscal conservatives privately concede
that paying down the debt is a good idea. Would-be tax cutters
know that their plans for the surplus could leave them vulnerable
to the same charge they've leveled at Clinton--that he's spending
money already credited to Social Security. Others hope they can
massage elements of Clinton's proposal to meet their own
objectives by, for instance, using Clinton's proposed ''USA
accounts''--a sort of national 401(k) plan--to supplant rather
than supplement Social Security benefits.
But mainly Republicans know that, for the moment, they've
been outmaneuvered. ''Why bash him on an issue that you as a
party have no credibility on?'' said May, the former House Budget
Committee staff director, in explaining the Republican calculus.
''They're still trying to figure out how to respond.''
Defense
Buried deep inside federal budgets lie the outlines of new
American epochs. Their stories are told in charts and the
numerology of accountants, but evidence of profound shifts in the
national bent are unmistakable.
The long withdrawal of the post-Vietnam era, for
instance, is evident in the precipitous drop in defense spending
of the Ford-Carter years. ''Morning in America'' and the final,
decade-long struggle of the Cold War are revealed in the steeply
ascending curve of the Reagan defense buildup. The post-Cold War
period of Bush-Clinton is discernible in another long decline in
defense spending that has spanned the 1990s.
The fiscal 2000-2005 defense budget released by the
Clinton Administration this week signaled another turning point
in that national cycle. By proposing $ 112 billion more for
defense spending over the next six years--the first sustained
increase since the Berlin Wall fell, a decade ago--the
Administration has marked the end of the post-Cold War period and
the beginning of another. Call it the Era of the Indispensable
Nation.
The ''indispensable nation'' is what Administration
officials have called the United States, in its role as the only
remaining superpower and de facto sheriff on what has proved to
be an unruly global fr
ontier. For some years, Republicans and
defense analysts have warned that the Administration could not
sustain a busy, globe-spanning military on a diet of declining
defense budgets. Last fall, the Joint Chiefs of Staff added their
voices to that chorus, complaining of problems with recruitment
and retention, force readiness, and weapons modernization.
This week the Clinton Administration conceded the point.
The defense budget the White House announced on Monday for fiscal
2000, at $ 267.2 billion, represents a $ 12.6 billion increase in
purchasing power over last year's plan. It includes a 4.4 percent
increase in military salaries, the largest annual military pay
raise in nearly a generation; increased retirement benefits; $ 53
billion to buy more weapons, an 18 percent increase from fiscal
1997; and $ 2.9 billion for operations in Bosnia and Southwest
Asia.
Perhaps foreseeing a battle with congressional
Republicans who are likely to bid up defense spending even
further, Defense Secretary William S. Cohen conceded that the
Administration's plan falls $ 36 billion short of what the Joint
Chiefs requested.
''Is it all that the Joint Chiefs asked for? No,'' Cohen
told reporters. ''But I would argue that $ 112 billion in
additional funds over six years is not a small amount, and it
goes a long way towards addressing the military's most pressing
needs.''
Fully $ 26 billion of the proposed increase during 2000-
2005 is the savings projected to come from lower inflation rates
and lower fuel prices, as well as from unspecified budget
''rescissions.'' Should those estimates prove wrong, analysts
warn that defense spending could shatter the strict spending caps
contained in the 1997 Balanced Budget Act.
Steven M. Kosiak, a senior analyst with the nonpartisan
Center for Strategic and Budgetary Assessments in Washington,
sounded a note of fiscal caution. ''What remains to be seen over
the long term is whether the Administration can accommodate this
increase within the caps, and (how) defense spending stacks up
against other spending priorities, like tax cuts and saving
Social Security and Medicare,'' he said. ''Even with the
projected budget surpluses, you can't do it all.''
Environment
The Clinton Administration's environmental budget for fiscal 2000
is an attempt to create several big, splashy programs without
locking horns with the Republican Congress. The White House hopes
to win GOP support by funneling billions of dollars to state and
local governments, and by creating financial incentives to
encourage companies to voluntarily protect the environment.
''We're trying to figure out where the federal government, in a
strategic way, can encourage local government action,'' said
George T. Frampton Jr., the acting director of the White House's
Council on Environmental Quality, during a budget briefing on
Tuesday.
Frampton says the Administration anticipates broad
bipartisan support for most of its environmental agenda. But
conservatives in Congress are certain to oppose several
controversial programs, particularly proposals to curb the
pollution that many environmental scientists say causes global
warming. Fiscal conservatives might also make waves. Already,
Sen. Christopher S. ''Kit'' Bond, R-Mo., the chairman of the
Senate Appropriations subcommittee that oversees the
Environmental Protection Agency, has accused the Administration
of proposing to spend too much money on spec
ialized ''boutique
programs.''
Clinton is asking for a record-high $ 33.9 billion for
environmental programs within the EPA, the Interior Department,
the Energy Department, and other agencies. Topping his
environmental wish list is a new $ 1 billion ''Lands Legacy
Initiative.'' More than half of the money would go to help local
communities protect farmlands, forests, and parks. The rest would
be earmarked for expanding national parks and wildlife regions.
The White House also proposed a $ 1 billion ''livability'' agenda
to control suburban sprawl by helping communities underwrite new
mass transportation, urban planning, and school rehabilitation.
(See related story on the sprawl program, p. 332.)
Republican Hill staffers warned that passing the ''Lands
Legacy'' and ''livability'' programs would be complicated because
the Administration proposes pulling funding for them from several
different departments, some of which are not permitted to use the
money in the ways that the White House has outlined.
Clinton's global-warming initiative is another expensive
and politically problematic proposal. The President has called
for spending more than $ 4 billion to reduce pollutants. That
package includes a $ 3.6 billion, five-year tax incentive program
to encourage investment in renewable energy and energy-efficient
homes and products. It also includes $ 1.4 billion for researching
and deploying clean-energy technologies, and a $ 200 million grant
program with which states and communities could help local
businesses install new pollution-control equipment. None of this
is going to glide through a Republican Congress.
In addition, the White House is seeking $ 300 million for
programs to encourage farmers to limit the polluted runoff from
their land. It has also asked for nearly a half-billion dollars
for three regional environmental programs that are likely to win
support in Congress: $ 312 million to continue restoration of
Florida's Everglades, $ 100 million for a new salmon restoration
program in Alaska and the Pacific Northwest, and $ 75 million to
continue ecosystem restoration in the California Bay Delta
region.
Missing from the EPA budget proposal was the
Administration's perennial request for an additional $ 650 million
for the Superfund program, which pays for cleaning up hazardous
waste sites. During each of the past four years, the White House
has sought the additional money, contingent upon Congress'
rewriting the 1980 law. For more than a decade, however, a
rewrite has proven politically impossible, and no Superfund
legislation is expected to pass during this Congress, either.
Education
Everyone agrees that schools should be better. But deciding how
to ensure better performance will be the crux of the budget
battles over education this year. Clinton--in unveiling his $ 34.7
billion education budget, 3.7 percent larger than last year's--
has made it clear he wants to tie the national government's aid
programs to some basic performance standards to make sure that
local schools are more accountable.
Republicans and advocates of greater local control won't
necessarily turn down the extra money the President wants to
spend, but they don't want it controlled from Washington. And
therein lies the contradiction for conservatives. How can you
make sure schools measure up, when every state and local school
district is left to decide what standard they must measure up to?
''There will be some real fights over whether
accountability is going to be real or not,'' said Rep. George
Miller, D-Calif. ''(Republicans) decry the education system, but
then their answer is to give (local schools) a block grant and
let them do whatever they want.''
But Rep. Michael N. Castle, R-Del., who chairs the House
Education and the Workforce Subcommittee on Early Childhood,
Youth, and Families, said accountability incentives can be
''designed in'' to a block grant program without making it too
burdensome for states and local schools. Castle said he would
like to see block grants for school technology and teacher
training, with states deciding priorities.
But Clinton has had the ear of the public on this issue
since his State of the Union speech, and it was education he
returned to on Monday when he campaigned for his budget at a
National School Boards Association conference in Washington, and
then flew to Boston to speak at an elementary school about
accountability. He urged his listeners not to buy into the
argument that Washington was trying to micromanage local
education.
''I say it's important that you understand that you've
got to go out and talk to members of Congress of both parties and
say, 'Listen, this is not some cockamamy idea that the President
had some person with a Ph.D. think up in a windowless office in
the White House,' '' he said, drawing laughter from the school
board association group, which tends to lean Republican. He said
his plans come from what teachers and administrators have seen
work at the local level.
Apart from accountability, Clinton could have other
education fights on his hands, specifically over funding for
special education and for higher education.
Republicans and school board officials said Clinton's
funding of special education--keeping it at a flat $ 4.3 billion,
or about 10 percent of the total costs of special education--is
not nearly enough. And both Republicans and higher-education
groups vowed to fight for a larger increase in the maximum Pell
grant award for college students. Clinton upped it from $ 3,125
to $3,250, but Terry W. Hartle, senior vice president for
governmental relations at the American Council on Education, said
that that boost ''falls far short'' of the $ 400 increase they
want.
With education thrown so prominently into focus by the
President, and with polls showing that it is the most important
issue to voters, Castle said considerable effort may be needed to
bring the two sides together on education accountability. ''I
just hope that it doesn't get put aside, (with each party) taking
the position that if they can show the other one is stonewalling
this (issue), they can use it to their advantage,'' he said.
Health Care
In proposing new money for Medicare and long-term care, Clinton's
health care agenda focuses on the politically popular issue of
aiding the elderly. But it is questionable whether Congress will
go along with the President's plan. Lawmakers are already
expressing doubts about whether any major health initiative--
other than a measure to give managed care patients more rights--
will clear Congress this year.
* Medicare: The most pressing health care issue is
Medicare; the hospital insurance trust fund is projected to go
broke in 2008. Clinton wants to use 15 percent of the predicted
budget surplus to extend the life of the trust fund to 2020. The
National Bipartisan Com
mission on the Future of Medicare is
scheduled to make its recommendations to the White House and
Congress on March 1. But the commission hasn't talked much about
using surplus money. In fact, Rep. William M. Thomas, R-Calif.,
who is the commission's administrative chairman, criticized
Clinton for proposing any Medicare ideas before the commission
finishes its work. Some commission members are concerned that
Clinton's proposal will make it more difficult for them to
recommend structural changes in Medicare.
More immediately, Clinton's budget would hit hospitals
with $ 9 billion in Medicare reimbursement reductions over five
years. That proposal is likely to face sharp opposition on
Capitol Hill from members of Congress and lobbyists who argue
that hospitals haven't yet felt the full impact of reimbursement
cuts from the 1997 balanced budget act. ''Make no mistake,
gouging hospitals year after year makes it harder (for them) to
fulfill their mission and keep their commitment to patients,''
said Thomas A. Scully, president of the Federation of American
Health Systems, which represents hospitals. The two major
hospital associations are promising to fight Clinton's plan.
* The Uninsured: Clinton renewed his proposal to allow
people between the ages of 62 and 65--and some people ages 55 to
62--to buy into Medicare. That proposal has come under fire
before, from Republicans who don't want to expand an already-
enormous government program. Expect continued opposition.
* Long-Term Care: Better received was Clinton's proposal
to provide a $ 1,000 tax credit for people who provide long-term
care for relatives or loved ones. The plan also encourages the
federal government to begin offering long-term-care insurance to
federal workers. Supporters say the proposal is a good first step
toward addressing the huge challenges of financing long-term care
through Medicaid.
* Research: The President angered some members of
Congress by proposing a small increase in funding (2 percent) for
the National Institutes of Health. ''The President's proposed
budget means a cease-fire in the war against cancer, Parkinson's,
Alzheimer's, and other diseases plaguing our society,''
complained Sen. Connie Mack III, R-Fla., a cancer survivor, who
pledged to fight for more NIH money.
So what are the realistic expectations for health care
legislation this year? Some good bets are measures to ensure
medical privacy, protect patient rights, and fix the current
Medicare+Choice program; House Majority Leader Richard K. Armey,
R-Texas, says he wants to do all of those things this year. As
for the big one--Medicare restructuring--it's on Armey's list,
too. But Congress is expected to devote much of its time this
year to reforming Social Security, and will probably not take on
two politically charged issues in the same year.
