Deficit cuts are in the bag for this year, but progress is hard to measure THE CLINTON BUDGET

August 08, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- The arguing along Pennsylvania Avenue has stopped. The agonizing in Congress is done. And, with the passage of his budget plan, President Bill Clinton has gotten almost all the deficit reduction he wanted.

Or has he?

It all depends on whose figures you accept. Mr. Clinton's math put him within the ballpark of his $500 billion target.

But if you look to the respected Congressional Budget Office for guidance, the figure is likely to be some $45 billion less than that.

The problem is: What future deficit are you reducing? It is all a matter of projection, assumption and selective number-crunching.

Mr. Clinton's calculations ignore the strict caps imposed on federal spending under the 1990 budget agreement between Congress and President George Bush. They assume spending in the next five years will keep pace with inflation. This inflates projected spending -- and the deficit. Consequently, any reductions from their "base line" appear bigger because they are being made from a higher level.

The CBO, in calculating its baseline, factors in the spending caps, coming up with lower spending levels, lower deficits -- and lower reductions.

The CBO's analysis of the Clinton administration's original economic plan, which came up with the $45 billion deficit reduction difference, said, "The existence of competing base lines and competing estimates creates considerable confusion."

The CBO has yet to come up with a new figure following passage of the budget package, but economists expect it to be in the same range.

"It's as though you went out and announced you were going to save money next year by not buying a car," said Rudolph Penner, director of economic studies at KPMG Peat Marwick and director of the Congressional Budget Office from 1983 to 1987. "You could obviously save a lot more money by not buying a Cadillac than not buying a Saturn. There is a lot of that sort of element in this."

Whichever calculation is used, the multibillion dollar cut over five years approved by Congress last week is still only a drop out of the nation's deepening ocean of debt.

"It's a small step," said Mr. Penner. "We definitely need further rounds of this magnitude. The question is whether we can possibly get them. What is so disappointing is the [political] agony that getting this thing so far has caused -- and it's so small relative to the size of the problem."

Debt is still staggering

The United States is already in the hole to the tune of more than $4 trillion. Despite the Clinton deficit-reduction plan, the national debt will increase by more than $1 trillion through fiscal 1997, the highest five-year growth ever.

Until the government balances its books on an annual basis, it will not be able to start reducing its long-term debt. A balanced budget is not on the horizon for the rest of this century, according to official projections. Without health care reform, the deficit is predicted to start climbing again after bottoming out at just under $200 billion in 1997.

But those predictions and the current $496 billion deficit reduction target could be way off the mark if recent history is any guide.

Deficit reduction efforts have almost routinely fallen short of their goals, either because federal outlays increased more than expected through such unpredictable costs as floods and hurricanes or overseas military crises, or fewer revenues than expected were collected because the economy failed to grow as robustly as presumed.

In 1985 and 1987, Congress approved deficit-reduction plans aimed at balancing the budget, first in 1991 (actual deficit: $322 billion), and then this year (estimated deficit: $285 billion). Under the Budget Agreement of 1990, the deficit was supposed to be cut by $500 billion by 1995, but there is no prospect of achieving this target, either.

Deepening the deficit are health care costs, particularly Medicaid and Medicare, which are growing at a 10 percent annual rate, and interest payments on the existing debt, totaling $292 billion last year, or $1,200 for every man, woman and child in the United States.

Critics of the Clinton approach charge that the administration has not really tackled expensive health care benefits, preferring to go after the doctors and hospitals supplying the services rather than the recipients. They also note that most of the program cuts in the deficit-reduction package are slated for future years with no guarantee that they will be executed.

The problem with running a deficit is that it absorbs money that could otherwise be invested or saved, restraining economic expansion, productivity and competitiveness. It also crimps the nation's ability to fund such services as education, training and health care.

A silver lining?

There is, however, hope among some economists that the current deficit-reduction projections might actually prove to be too cautious.

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