The many failings of the Clinton budget

Nation's Business, May, 1997

President Clinton has made yet another commitment to a balanced budget with yet another plan that offers little prospect for achieving that goal.

His 1997-98 budget, which is now under consideration in Congress and which contains budget projections for the next five years, purports to achieve a surplus by 2002. Experts on Capitol Hill and in the private sector say, how ever, that the procedures he suggests for reaching that point will not work. (See the accompanying chart.)

A leading private-sector expert on economic policy and government finance spot lighted the many shortcomings of the Clinton budget in recent testimony to the House Ways and Means Committee. Martin Regalia, vice president and chief economist of the U.S. Chamber of Commerce, told the panel: "The fact is that the president's budget is little more than a shell game, and, sadly, it is the American people who are the losers."

While the administration might achieve a short-term balance through "smoke and mirrors," Regalia added, "there is no question that this budget does nothing to maintain long-term balance."

Regalia pointed out that the Clinton budget:

* Fails to address the growth of entitlement spending, the greatest obstacle to budget balance.

* Defers major deficit reduction and the spending cuts it requires to the later years of the period, when Clinton will no longer be in office.

* Claims $98 billion in tax reductions but actually provides for no more than $22 billion in tax relief over the full five years.

* And even the president's tax cuts could be canceled in three years, Regalia noted. Clinton proposed automatic repeal of many of his tax cuts and imposition of additional spending restraint if necessary to achieve the balanced-budget goal by 2002. However, Regalia said, legislative language submitted by the Treasury Department to the Joint Committee on Taxation after the president's budget was announced provides for expiration of several of the Clinton tax-cut provisions regardless of how close the budget is to balance as the year 2002 approaches.

Regalia expressed particular concern about Clinton's failure to deal with basic economic policies. The present tax system, he said, "encourages waste, retards savings, and punishes capital formation." He told the committee that "the president's budget perpetuates the present antigrowth policies that have limited productivity for the past 25 years."

He urged Congress to adopt fiscal and economic policies that would include a balanced budget; repeal or at least reform the estate- and gift-tax system, which often threatens the survival of family businesses; expand eligibility for individual retirement accounts; reduce the tax on broad-based capital gains; and eliminate or substantially reform the alternative minimum tax.

All those steps, he explained, would help create jobs by making significant amounts of new capital available for investment. Lower tax burdens, he added, would also make U.S. companies more competitive in global markets.

In summing up his testimony, Regalia offered a far more effective and credible basis than the president has produced for ensuring long-term prosperity. "As we prepare for the economic challenges of the next century," Regalia said, "we must orient our fiscal policies in a way that encourages more savings, more investment, more productivity, and, ultimately, more economic growth."

RELATED ARTICLE: Disagreement On The Deficit

President Clinton says his budget proposals would produce a surplus by fiscal 2002, but the nonpartisan Congressional Budget Office says they would keep the red ink flowing. Here are their deficit projections; amounts are billions of current dollars.

Clinton Budget              Congressional
   Proposals                Budget Office
      $-126        1997          $-116
       -121        1998           -145
       -117        1999           -142
       -87         2000           -135
       -36         2001           -95
        17(*)      2002           -69

(*) Projected Surplus SOURCE: CONGRESSIONAL BUDGET OFFICE