March 11, 1997
President's Latest Budget a Step Backward in Deficit Reduction
Anyone willing to take an in-depth look at the President's FY 1998 budget can state with certainty that the growing chorus on Capitol Hill for President Clinton to resubmit this latest budget is not merely a renewal of the partisan give-and-take that plagued negotiations over the budget in the last Congress. Rather, that call is based on principle and fact. The President's budget, compared with his own budget of last year, actually takes a sizeable step backwards in its efforts to reduce the deficit.
In light of this, the President -- if he refuses to submit a truly balanced budget -- at least should send Congress last year's budget with its policies. While still not balancing, that budget would get us closer to balance than this year's would.
Consider that Clinton's FY98 budget:
Provides $32 billion less in deficit reduction than last year's budget during 98-02.
Increases the 1998 deficit $38 billion above last year's deficit, $30 billion above this year's deficit, and $24 billion above the estimate of next year's deficit -- even if no action were taken to restrain it.
-- Of the deficit reduction that does occur, only 36 percent reflects changed policies.
-- The remaining 64 percent reflects technical reestimating, and would have occurred even without Clinton's budget.
Without the technical changes -- which are, we repeat, merely re-estimates -- the deficit picture painted by Clinton's FY98 budget is considerably darker than it was projected to be under Clinton's last budget.
Comparing Clinton to Clinton: Deficits Then and Deficits Now
While neither of President Clinton's last two budgets balanced, according to the Congressional Budget Office (CBO), an ostensible comparison between his FY97 budget submission and his latest indicates that the deficit would be lower in 2002 under the latest budget. However, if we examine the budgets more closely, it is evident that the cumulative deficits are actually $32 billion higher under Clinton's latest budget than under his last year's.
Comparing Clinton's Last Two Deficit Scenarios
| 1998 | 1999 | 2000 | 2001 | 2002 | 98-2002 | |
| FY97 Deficit (in billions of $s) | 153 | 125 | 108 | 87 | 81 | 554 |
| FY98 Deficit (in billions of $s) | 145 | 142 | 135 | 95 | 69 | 586 |
| FY97 Deficit - FY98 Deficit | 8 | -17 | -27 | -8 | 12 | -32 |
[Source: CBO]
And if we look closer still, we can discern that most of what deficit reduction does occur under Clinton's latest budget is not due to the policies but to the technical factors of the estimate.
Not the Policies But the Technical Factors Account for the Deficit Reduction
To truly understand where the two Clinton budgets would leave us, we first have to understand where they begin. In other words, we must identify the starting point -- the so-called "baseline deficit projection," or where the budget would be if nothing were done.
Comparing CBO's Last Two Baselines
| 1998 | 1999 | 2000 | 2001 | 2002 | 98-2002 | |
| FY97 CBO Baseline Deficit | 175 | 182 | 191 | 194 | 210 | 952 |
| FY98 CBO Revised Deficit | 121 | 145 | 159 | 142 | 153 | 720 |
| Difference | 54 | 37 | 32 | 52 | 57 | 232 |
CBO stated in its January 1997 estimate of the deficit that "four major factors account" for the substantial $232 billion difference: "revised estimates of the growth of spending for Medicare and Medicaid; the enactment of welfare reform legislation; higher projected revenues...and the lower debt-service that result from lower deficits..." [CBO, The Economic and Budget Outlook, January 1997, p. xiii]. In short, "technical factors" -- none of which is contained in the FY98 Clinton budget per se and all of which would apply even if there were no Clinton FY98 budget -- are the reason for the improved deficit outlook since last year.
Technical Changes Outweigh Policy Changes by Almost Two-to-One
Looking at Clinton's latest budget and comparing the numbers between what CBO attributes to technical factors with those attributed to Clinton's budgetary policies reveals a startling fact: deficit reduction from technical estimating changes outweigh deficit reduction from policy changes by almost two-to-one -- 64 percent to 36 percent.
Comparing Clinton Policies to More Favorable Assumptions
| 1998 | 1999 | 2000 | 2001 | 2002 | 98-2002 | |
| FY98 Total Effect on Deficit | 24 | -2 | -24 | -47 | -84 | -133 |
| FY98-FY97 Baseline Difference | -54 | -37 | -32 | -52 | -57 | -232 |
Even if there had been no Clinton budget this year, almost two-thirds of the deficit reduction contained in (and claimed by) his budget would have taken place!
Clinton Then vs. Clinton Now: A Step Backward for Deficit Reduction
The favorable CBO deficit reestimate essentially allowed the White House to start $232 billion closer to balance this year than last year. And so, to fairly compare his deficit reduction effort last year with his deficit reduction effort this year, we must factor in this advantage to FY97 and factor it out of the FY98 numbers.
Comparing Clinton's Last Two Deficits With the CBO Deficit Windfall
| 1998 | 1999 | 2000 | 2001 | 2002 | 98-2002 | |
| FY97 Deficit | 153 | 125 | 108 | 87 | 81 | 554 |
| FY 97 w/FY98 Adjustment | 99 | 88 | 76 | 35 | 24 | 322 |
| FY98 Deficit | 145 | 142 | 135 | 95 | 69 | 586 |
| FY98 without FY98 Adjustment | 199 | 179 | 167 | 147 | 126 | 818 |
Applying CBO's more favorable deficit projection to Clinton's FY97 budget, we find:
Although the deficit still would not have been eliminated, it would have declined in each and every year (1998-2002) from last year's $106 billion.
Under CBO's more favorable deficit projection, by 2002 Clinton's FY97 budget would have achieved a deficit of just $24 billion; in contrast, the FY98 budget that benefits from this more favorable deficit projection leaves a $69 billion deficit in 2002.
Now looking at the other side of this hypothetical, we apply last year's less favorable deficit projection to Clinton's current FY98 budget, and find:
The deficit would reach $199 billion by next year.
The deficit would never reach last year's $107 billion level and never fall below $126 billion.
By 2002 the deficit would be $126 billion; in contrast, only because of the underlying favorable deficit projection, Clinton's FY98 budget is projected to have a $69 billion deficit in 2002. And, whether it's $126 billion or $69 billion, it's still a far cry from zero.
Clinton's FY98 Budget: Doing So Much Less With So Much More
A more favorable estimate gave President Clinton a deficit windfall. Why then does his latest budget leave the country worse off? The reason is that instead of using that windfall to reduce the deficit, he spent it. Think of it in terms of a relative asking his well-to-do uncle for a loan in order to buy a bigger house. After asking, he won a lottery prize, yet instead of using that windfall to pay his mortgage he spent it and then returned to say that he needed an even bigger loan. If President Clinton has his way, that importuning relative will be your Uncle Sam.
Congress is right to complain about President Clinton's latest budget. Not only does it not balance, and not reduce the deficit below last year's level until Clinton leaves office -- putting off more than 98 percent of its deficit reduction into the years after Clinton leaves office -- but it is even a step back from Clinton's previous budget. America would have been better off had Clinton not submitted his FY98 budget but had instead simply resubmitted his FY97 budget. And, that's not saying much.
[See also RPC's earlier analysis on the Clinton budget, "Clinton's 5th Unbalanced Budget Shows Why America Needs the BBCA," 3/4/97]