Toward a win-win budget - includes related article - Gekko Balances the Budget

National Review, June 26, 1995 by Stephen Moore, Daniel J. Mitchell

THE Republicans' budget plans are the boldest fiscal blueprints in a quarter-century. Unfortunately, this says more about the fiscal ineptitude of recent Democratic Congresses than it does about the righteousness of this Republican one. Don't misinterpret: the Kasich and Domenici budget plans are a welcome change from Bush - Clinton budget expansionism. (After inflation, the federal enterprise is more than one-third larger than when Ronald Reagan left town.) The GOP budgets limit the growth of government and aim toward a balanced budget in 2002. Most importantly, if Republican efforts are successful, federal spending will fall from about 22 per cent of GDP today to less than 19 per cent in 2002, which will promote growth by leaving resources in the hands of those who have incentives to use them wisely.

The House budget plan has particularly ambitious goals, eliminating some three hundred domestic programs ranging from the Small Business Administration tree-planting program (embarrassingly, a Bush Administration initiative), to Bill Clinton's $7.25-an-hour Americorps "volunteers," to SSI disability payments for cocaine addicts. Three entire departments -- Commerce, Education, and Energy -- would be mothballed. Foreign aid, which Peter Bauer once aptly described as "taxing poor people in rich countries and sending it to rich people in poor countries" -- would be gradually reduced. And for the first time since the early 1980s, Americans would receive tax relief, not a tax hike.

Both the House and Senate budget plans pay homage to the worthy goal of a balanced budget. This is both good policy and good politics, because it establishes an emphatic political distinction between the congressional GOP and Clinton. Even with his world-record tax hike in 1993, Clinton's budget never approached a zero deficit. As Republican leaders have aptly noted, staying on the current policy of "$200-billion deficits as far as the eye can see" means each child born today would pay $180,000 of taxes in his lifetime just to finance the debt.

But for all the hoopla, there is less to the GOP budget plans than meets the eye. The one enduring lesson we have learned from a decade of budget deals is that the useful life of a congressional budget plan is one year -- perhaps two. The Bush and Clinton budget deals were appropriately mocked for pushing all the promised spending restraint off into the future.

What does the House budget offer in the first two years? Federal spending rises by $58 billion in the first, roughly $40 billion in the second. If this is the GOP's blitzkrieg against liberal governance, one shudders to think what the party would look like in retreat.

Though Senate Republicans deserve brickbats for opposing the Contract's tax cuts, Senate Budget Committee Chairman Pete Domenici should get credit for one thing: the Senate budget plan imposes more spending discipline than does the House plan in 1996, 1997, and 1998. Or consider this: Bill Clinton's budget requests $1.61 trillion of spending for 1996. The House Republican budget would spend $1.59 trillion. In other words, Mr. Kasich would give Mr. Clinton 98.5 per cent of all the spending he wants.

True, Clinton's and Kasich's budgets part company in the future -- but, as we said, backloading the spending cuts is historically a high-risk strategy. Under the House budget plan, 62 per cent of the deficit reduction occurs in 2001 and 2002, or two presidential elections from now. Are we really supposed to believe that in 2002 Congress will have a sudden burst of the fiscal fortitude that Gingrich and Kasich lack today?

Even the program terminations in Kasich's budget will not happen right away. It should not take four years to pull the plug on the Corporation for Public Broadcasting, the National Endowment for the Arts, or dozens of other liberal play toys. Furthermore, phasing out programs is a strategy designed to fail because it enables special-interest groups, temporarily disoriented, to regroup, reorganize, and fight with renewed vigor.

To offset these forces, the Republican budget plans must be strengthened. In particular, the goals of a balanced budget and faster growth can be furthered if Republicans combine the best parts of the House and Senate versions when the Conference Committee meets. The following five suggestions would help turn promises of a balanced budget into a reality:

1. Adopt the House tax cuts. Even the House bill's "enormous" tax cut of $350 billion over seven years is just 3.5 per cent of currently projected tax collections (discounting any supply-side effect). Indeed, if the Republicans cannot take this modest step, it will be seriously in question whether they are capable of dealing with the upcoming debate about transforming the tax system.

However, the real problem with neglecting tax cuts is politics. Republicans have put together a plan that makes genuine changes in almost every part of the budget. But beneficiaries of government spending programs will fight to preserve their place at the public trough. This is what makes reducing the capital-gains tax rate and giving families tax relief so important. These measures would help offset special-interest pleas by giving millions of voters a substantive reason to call their elected officials.