Right data

National Review, Dec 8, 1997 by Ed Rubenstein

YES. It's almost there. The federal budget deficit fell to a 23-year low of $23 billion in FY97. The budget will move into surplus by 2002 for the first time since 1969, according to the latest projections of the Congressional Budget Office. But there's a big asterisk here: unlike the surplus in 1969, this one will be achieved with the aid of a bogus surplus in the Social Security Trust Fund. Without this accounting gimmick 2002 would be just another in a long string of deficits.

Ever since 1990, federal spending has declined as a share of GDP. That's the good news. The bad news is that this is almost entirely due to the decline in defense spending from 5.3 per cent of GDP in 1990 to 3.4 per cent now (1997). Non-defense spending under President Clinton has remained at about 17.2 per cent of GDP despite the vibrant economy -- meaning that it has increased substantially in dollar terms.

Now the really bad news: taxes went up decisively last year. Federal taxes took 19.8 per cent of GDP in FY97, the largest share since 1945. The state and local tax take is increasing too, to an estimated 11.1 per cent of GDP this year. So the total tax share (30.9 per cent of GDP) exceeds the inflation/bracket-creep peak of 1981 (30.2 per cent) and 1944's wartime record (25.4 per cent).

We'll need it, and more, to pay for entitlements and other mandatory programs. Social Security, Medicare, and Medicaid now account for 40 per cent of all federal spending; in 1980 they accounted for 28 per cent. Although Medicare took a big hit in the recent budget deal (a $155-billion cut over five years), there were no real reforms like Medical Savings Accounts, means tests, or an increase in eligibility age to 67 from 65. Social Security was completely untouched.

A big wild card: the newly enacted Kidcare. This legislation extends health insurance to uninsured children in families with income below 200 per cent of the poverty line. Many Republicans, including conservative ones, voted for Kidcare. Their rationale? This program would supposedly allow states to experiment with private-sector alternatives to Medicaid. But Clinton Administration bureaucrats are interpreting the new law differently: states that cover children in traditional Medicaid will receive matching funds regardless of the cost of the expansion; states that experiment will receive nothing beyond their original grant. Some choice.

So Kidcare could be as unpredictable as Medicare. Medicare, you may recall, cost just $3 billion its first year (1966). At the time, the House Ways and Means Committee forecast that it would cost about $12 billion by 1990. This was supposedly a conservative estimate. The government's green eyeshades failed to realize, however, that subsidizing medical services tends to push up the costs of the services. The actual cost of Medicare in 1990: $107 billion.

[TABULAR DATA OMITTED]