Budget Proposal 1998

President Clinton stated seven times in his State of the Union message that his proposed budget was balanced. So is it?

Robert Reischauer was director of the Congressional Budget Office (CBO) under the Democrats, and is now ensconced at the liberal Brookings Institution in Washington. On February 6, just prior to release of President Clinton's 1998 budget proposal, Reischauer laid down five markers that would indicate whether the budget is "for real." The markers were these:

Are the numbers honest? If the administration's baseline budget forecast is not close to the CBO's, then there is reason to doubt the budget's underlying assumptions.

Does it use gimmicks? If all significant budget cuts are put off until the distant future, then the cuts simply are not credible.

How are tax cuts paid for? If the budget proposes to pay for its tax cuts with tax increases, there's a problem because such increases are unlikely to be realized.

One time savings? If the budget relies heavily on one-shot, non-recurring savings, then it undermines the credibility of any balanced budget estimate.

Does it make unrealistic promises? If the budget promises large cuts in nondefense discretionary spending, it is very unlikely that such cuts will ever be enacted.

These are markers of a prominent liberal Democrat, not a conservative Republican. So applying Reischauer's markers to the actual budget put forward by President Clinton is not unfair or partisan.
So is the Clinton budget balanced?

No. By Reischauer's test the numbers are not honest. The administration forecasts faster growth, lower unemployment and lower interest rates than the CBO. And the nonpartisan Committee for a Responsible Federal Budget points out that the administration makes the completely unrealistic assumption that the growth of Medicare spending will fall from over 4 percent to less than 2 percent per year. As a result, the administration's current services deficit for 2002 is $60 billion less than CBO's. (Current services assumes no changes in policy.)

Second, the budget is loaded with gimmicks. The budget proposes a temporary health insurance program for workers between jobs that will cost $10 billion between 1998 and 2001 but nothing in 2002. And it proposes numerous tax cuts that also magically expire in 2001. Finally, three-fourths of all Clinton's proposed spending cuts come after the year 2000 – after he has left office. This led even the liberal Washington Post to label the budget "an illusion."

Third, on taxes Clinton gives with one hand, but takes almost all of it back with the other. His budget proposes $103.3 billion in tax cuts between 1997 and 2002, but offsets them with $82.5 billion in tax increases. This leaves a net tax cut for the American people of just $20.8 billion over five years, or just 0.1 percent of estimated federal revenues. And even this puny tax cut may not last because the budget proposes to automatically cancel the tax cuts if necessary to achieve budget balance in 2002.

Fourth, the budget assumes numerous one-shot revenues from government asset sales, including $36 billion from auctioning radio spectrum between 1998 and 2002. Interestingly, three-fifths of this revenue is expected to come in 2002.

Lastly, the budget projects $58 billion of cuts in nondefense discretionary programs between 1997 and 2002, with $45.8 billion of these cuts coming in 2001 and 2002. This would put the total for such spending at $293 billion in 2002, a mere 4 percent increase from current levels of spending in nominal terms, and actually a decrease in real terms, which is probably not achievable politically.

So what are we left with? Even by the standards of a liberal Democrat's analysis, the Clinton budget is a political scheme to misrepresent the deficit. He has claimed to balance the federal budget in the year 2002 only by making the most extraordinary assumptions, shamelessly using gimmicks and irresponsibly putting off every difficult decision until the next administration. It is a budget that richly deserved to be dead on arrival.

Amazingly, the Clinton budget is not dead, but very much alive even on Republican-controlled Capitol Hill. Apparently, Republicans in Congress are still so traumatized by the failure of their budget confrontation with Clinton a year ago that they have decided to give him a pass. It seems that even liberal Democrats like Bob Reischauer are more willing than conservative Republicans to criticize the Clinton plan. It will be too bad if the American people end up paying the price for their fear of confrontation.