Deficits in Decline for Now

December 24, 1993

President Clinton has every right to feel some satisfaction in the steep decline of the federal deficit from more than $300 billion in fiscal 1993 to a projected $190 billion in fiscal 1995.

About half of the drop can be attributed to his five-year economic plan that raises revenues, freezes discretionary spending and puts a few modest (and inadequate) clamps on runaway entitlement spending. But for these initiatives, the deficit would have been $54 billion higher in the year beginning next October 1. Piercing the $200 billion mark would have remained an idle dream.

This downward trend, however, may be temporary. Because of increasing costs of Medicare and Medicaid, the deficit could be on the rise again late in the decade -- with no end in sight. Much will depend on the fate of the health care reforms at the heart of the administration's 1994 agenda. And even more will depend on whether these reforms actually save billions or bust the budget.

The size of the deficit depends not only on federal actions but on how the economy is performing. As the year turns, things are going quite well. Fortune magazine predicts that gross domestic product will grow at a robust 3.3 percent in 1994 -- a figure more optimistic than the administration's own projections. If true, and if combined with continued low interest and inflation rates, such growth would swell the Treasury's tax take and brighten the federal budget outlook for fiscal 1996, the year Mr. Clinton will be up for re-election.

The administration's proposed shuffling of domestic priorities will create changes both pleasant and painful. Highest in the ouch category is the continuing downsizing of the military establishment through base closings and defense contract cancellations. After a battle royal between the Pentagon and the Office of Management and Budget, the Defense Department got an extra $8 or $9 billion to pay for salary increases approved by Congress but not the $21 billion it was seeking to meet its force structure requirements. The president may get away with it, provided Russia does not turn aggressive.

Close to home is the phase-out of $800 million in federal subsidies for mass transit announced by Budget Director Leon Panetta. For Maryland, this could mean a loss of $17.6 million. The Mass Transit Administration will be forced to dip into state and local coffers, cut service or raise fares.

There may be other cuts in domestic services coming in the first true Clinton budget. But they will be offset by new spending on what the president labels as "investments" -- child immunization, job training, clean water enforcement, national service, education and crime fighting. It will require long nights under green eye shades before winners, losers and equalizers are known.

For now, Americans should rejoice in lower deficit figures while keeping government's feet to the fire. No one should count on health care reform to provide the single magic answer.

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