Budget Agreement Is Blown Opportunity, Experts Say

By ART PINE

Aug. 1, 1997 12 AM PT

TIMES STAFF WRITER

WASHINGTON — President Clinton and Republican congressional leaders are both taking credit for their “bipartisan” agreement to balance the budget by 2002 and provide the first major tax cut in 16 years. Now comes the hard question: Should they be sharing the blame instead?

It is true that the new legislation, which has cleared both houses of Congress, promises to eliminate the federal budget deficit, at least temporarily, and to provide modest tax breaks for families, students, investors and the like.

But budget experts see another dimension: The two sides had a golden opportunity to use the unexpected windfall in government revenue to fix some of the nation’s most potentially serious fiscal problems, and they squandered it on short-term political gains instead.

If anything, says Carol Wait, director of the nonpartisan Committee for a Responsible Federal Budget, prospects now are that the new budget accord will exacerbate the strains that the government is expected to encounter after fiscal 2007, when the baby boom generation begins to retire.

“They just blew it,” said Van Doorn Ooms, a senior White House budget strategist during the Carter administration who now serves as a budget analyst at the Committee for Economic Development, a nonpartisan research group.

Daniel J. Mitchell, a fiscal policy expert with the conservative Heritage Foundation, agrees. “It’s a greatly missed opportunity,” he said.

A year ago, when the current budget-balancing push began, some policymakers hoped the political momentum toward that goal also would be used to start cutting bloated entitlement programs.

The list of needed fixes was clear: Medicare and Social Security both face serious long-term problems and need to be restructured. Other federal social programs need similar revamping. Overly generous cost-of-living adjustments in some programs needed to be pared back.

Then, almost out of the blue, the Congressional Budget Office disclosed last spring that, thanks to the booming economy, federal tax receipts were coming in far larger than had been anticipated, leaving lawmakers with an extra $50 billion a year that they could use as a cushion.

From that moment on, Ooms laments, the terms of the debate changed dramatically. Both sides threw caution--and fiscal responsibility--to the winds and embarked on a spending spree designed to benefit themselves politically at the expense of good policymaking.

Ooms likens the two sides to a bunch of kids in a candy store, with each party rushing to load up on all of its favorite issues. Republicans cut capital gains taxes and inheritance taxes. Democrats hawked new benefits for children’s health insurance and college costs.

And both parties scrambled to back a costly tax benefit designed to provide families with a $500 tax credit for each child.

The result has been an agreement that, while attractive politically, actually worsens the budget picture by creating billions of dollars’ worth of new entitlement programs. Yet it provides relatively scant benefits for most taxpayers. And it makes the tax code significantly more complicated.

Moreover, Martha Phillips, director of the Concord Coalition, a bipartisan budget-monitoring group, warns that with many of the tax cuts due to be phased in gradually, the budget will be hit by a huge drain-off of revenue just at the time it needs them most--when the baby boomers retire.

And with Congress having “spent” the revenue windfall from this past year’s good economic performance, the lawmakers’ budget-balancing pledge may prove impossible to keep if the economy slips into a recession between now and 2002, as many analysts believe is likely.

Robert D. Reischauer, a Brookings Institution budget analyst, says the irony is that there was “no need” for most of the tax cuts lawmakers enacted. Taxpayers are no more burdened now than they traditionally have been. Inflation is not eroding investments. The stock market is on a roll.

By contrast, what is needed, the Heritage Foundation’s Daniel Mitchell contends, is for the government to address its most pressing long-term challenge--how to rein in mushrooming federal entitlement programs, such as Medicare, Social Security and other benefits that threaten to swamp tomorrow’s taxpayers.

Even using this year’s fiscal windfall to pay off part of the national debt would have had some significant benefits, the budget experts contend. Doing so almost certainly would have pushed interest rates lower throughout the economy--and made it easier to cope with a recession later on.

While the two sides made some modest changes in Medicare regulations, however, they passed up a chance to take any serious steps to cope with the threat from the coming baby-boomer retirement. And they avoided action on paring back cost-of-living adjustments.

Instead, Wait asserts, politicians in both parties have reverted to form and enacted still more entitlement programs that will prove just as difficult to cut back in later years as those that already were on the books.

The agreement contains $24 billion in government-financed health insurance for children. There are billions of dollars in tax credits for college students (“an entitlement program disguised as a tax cut,” Wait contends). And there are hefty increases in welfare spending.

The $500-a-child “family” tax credit also is likely to be permanent.

To be sure, not everyone is as disappointed with the new accord. Stanley E. Collender, an analyst with the nonpartisan Federal Budgeting Consulting Group, contends that the agreement will not hurt the budget picture nearly as much as some fiscal experts say.

“There’s no requirement that they tackle big policy problems as long as [the accord brings] the deficit [to] zero,” he insisted. Debates on how to change programs such as Medicare take years to resolve, he adds. “Under the circumstances, this is about the best they could do.”

But Wait and other analysts contend that the only good thing about the accord is that it forced the two sides to pay lip service to reducing the deficit. “Can you imagine what they would have done if they hadn’t had that as a constraint?” she asked.

* BUDGET BILLS PASS: Congress gave overwhelming bipartisan approval to its tax-cut, spending bills. A16