February 6, 1997

Clinton's Balanced Budget Blocked by New Spending

What jumps out of the President's latest budget is not the fundamental change in his stated destination, but his insistence on taking the same old liberal path to get there. On one hand, he has turned completely around in accepting the basic conservative fiscal principle that he resisted until last year: a balanced budget by 2002 using credible numbers. Yet on the other, he continues to insist that he can get there by following the liberal path of sharp spending increases.

Congress will be justified in feeling the same ambivalence that Clinton expresses in his budget. It is heartening to see that Clinton -- after more than three years of denial -- has accepted the demand of American taxpayers to balance the budget now. However, it is also mystifying to see Clinton starting off his second Administration the way he started off his first --

with demands for new, unnecessary and excessive federal spending programs for Washington and no tax cuts for America. If Clinton insists on taking the liberal road, it is hard to see how his budget can reach balance. Here's what the President proposes:

• Increasing total federal outlays by $827 billion and $60 billion in new entitlements over the next five years.
• Total savings of $252 billion over the next five years -- of which 75 percent of the savings occurs in the last two years. Almost a third of this savings comes from an already decimated Defense budget.
• A continued reliance on "triggers" that would leave to future presidents the responsibility of slashing spending and ending tax breaks in order to achieve balance.
• A net $22.4 billion tax decrease that misses most Americans, and a $22.3 billion tax increase when the tax cuts are ended in the last two years (the "trigger"), as they were in the President's last budget.
• That tax increase would just offset the $22 billion in new welfare spending -- of which $18 billion is for noncitizens.
• Clinton still uses phony savings from gimmicks like cost shifts (such as $82 billion to claim Medicare solvency), payment shifts (of retiree benefits), one-time asset sales, and disappearing spending programs (such as a new school construction program that drops from $1.25 billion in 2001 to $0 in 2002). None of these examples addresses the need for real reform or savings.

The Good News: Clinton's New Goal of Balance

Until last year, President Clinton refused to accept the need for a balanced budget. His own budgets projected final-year deficits of $241.4 billion, $201.2 billion, and $194 billion, until finally trying to claim balance in last year's election. The Congressional Budget Office (CBO) estimated the deficits to be even higher, at $228.5 billion, $206.2 billion, $276 billion, and $81 billion, respectively.

The Bad News: Clinton Wants to Take Big Spending Path to Get There

While the goal of Clinton's latest budget seems to be a complete break from his past, it is eerily reminiscent of that past in its insistence on new spending programs. Back in 1993, in his first year in office, Clinton was insisting on a $31 billion "stimulus package" ($16 billion in new spending and $15 billion in new federal loans). Now in 1997, at the onset of his second term, Clinton is refusing to stray from his well-worn spending ways, once again asking for billions in new spending.

• Total outlays in Clinton's budget would increase $826.8 billion from 1998-2002.
• Clinton's five-year request for discretionary outlays is $131.8 billion higher than his five-year request of last year.
• Increased welfare spending on noncitizens accounts for $18 billion in new spending.
• Increased welfare spending amounts to $22 billion overall.
• Clinton's estimated savings are $189 billion less than those for the same period in his last
year's budget -- only $252 billion compared to $441 in his last year's budget.
• Clinton claims to achieve balance by assuming an increase in revenue receipts of $1.107
trillion -- almost $100 billion higher than he estimated the receipts would be just one year ago.
• Revenues are not his only overly optimistic assumption. He also starts from a much
rosier fiscal scenario than will Congress. In 2002, he estimates that the deficit will be $65.8 billion less than does CBO.
• Overall Clinton estimates $190 billion in lower deficits than does CBO. That estimate, of
course, lowers the amount of real deficit reduction he will have to accomplish.
• Furthermore, Clinton is passing the buck by proposing 75 percent of his cuts in the last
two years of his budget -- after he has left office.
• Discretionary savings account for $137.4 billion or 55 percent of the total -- a spending
area he proposed increasing by $131.8 billion in his budget last year.
• Of the $137.4 billion in discretionary spending savings, Defense bears the brunt of the
savings -- accounting for $79.5 billion, or 58 percent of discretionary savings, and 31.5 percent of total savings -- despite continuous and steep cuts since Clinton has been in office.

Washington Benefits and America Pays

Even though Clinton has been promising a middle-class tax cut since he came to office, he still fails to deliver in his latest budget. In fact, his tax cut becomes a tax hike if his "trigger" mechanism, which would cut off his tax decreases, works like it did in his last year's budget.

• Clinton claims $98.4 billion in tax cuts that will miss most Americans.
• However, he also includes tax hikes of $76 billion.
• That would appear to "net" down to a $22.4 billion tax cut, UNTIL you take into account
his "trigger" mechanism that is supposed to insure balance.
• If that trigger works like it did in his last year's budget, it would end all his tax cuts in the
last two years of his budget -- including virtually all of those he identifies for the middle class. That makes theirs just a temporary, three-year tax cut.
• The "disappearing" tax cuts of the last two years amount to $44.7 billion.
• Thus, even the minuscule $22.4 billion tax cut becomes a $22.3 billion tax hike when the
trigger is added.
• That tax hike offsets the $22 billion in increased welfare spending that Clinton is
requesting -- of which $18 billion is for noncitizens.

The Road More Traveled

The problem is that the old liberal spending of Clinton's new big-spending programs are likely to keep him from reaching the destination that he professes and America demands: Honest budget balance in 2002 and thereafter. In short, Clinton appears to still want to take the "road more traveled" and sadly, that is likely to have "made all the difference."