June 26, 2017

Facing Facts Alert 12

Number 12, December 19, 1995

Facing Facts Alert 12

FACING FACTS The Truth about Entitlements and the Budget A Fax Alert from The Concord Coalition FAX ALERT ( Number 12, December 19, 1995) LET'S TAKE IT FROM THE TOP ONE MORE TIME A month ago during the last budget impasse, Concord appealed to leaders of both parties to dismiss their partisan pollsters, clarify their priorities, and speak honestly to the American public. We're still waiting. Of Deficits and Demagoguery While the administration claims to be serious about budget balance, its continued game of cat and mouse with the CBO baseline undermines its credibility. The decisive argument in favor of the CBO scenario is not that none other is plausible, but rather that it is a reasonably prudent scenario which everyone else is prepared to accept as an objective yardstick. Two years ago, President Clinton played an important role in securing this acceptance by declaring thatuunlike the Republicans in the 1980suhis administration would submit to CBO's fiscal discipline. Now, inexplicably, he seems bent on replaying the old supply-side hijinks. The White House insists the new budget impasse is all about "principles." As the President proclaimed last Friday (no less than seven times in a 550 word speech), he won't be blackmailed into accepting "deep and unconscionable" cuts in Medicare and Medicaid. One wonders how the administration squares this rhetoric with the fact that two years ago, in its Health Security Act, it called for larger cuts in Medicare than the Republicans now propose. Or the fact that the presumably "conscionable" cuts in its latest budget proposal would, by 2002, allow for a level of Medicare spending just 4 percent higher than what the GOP proposes. For their part, the Republicans would have been better able to counter charges of senior bashing if they had not shot themselves in the foot by insisting on a large tax cut. Without the tax cut, the case for fiscal belt-tightening would have been simple and compelling. With it, Republicans are open to an obvious challenge: How does your most painful dollar in spending cuts compare with your least necessary dollar in tax cuts? Thus was the debate transformed from one over shared sacrifice to one pitting winners against losers. Once it was clear that part of the public would come out of the deal better off than before, the GOP had no choice but to argue pugnaciously (and absurdly) that at least no one else would be worse off. So we arrive at a fitting image for this year's debate: the chairman of the GOP holding up a check for a million bucks payable to anyone who can prove that the party of fiscal discipline intends to "cut" a dime from Medicare, one of Washington's largest and fastest growing spending programs. Smart Policy is Also Smart Politics If smart policy were all that mattered, Congress and the White House could settle on the framework for a budget deal in five minutes. Such a deal would rely on the CBO scenario. It would forego any sizable tax cut until the budget is actually balanced. It would respect the principle of shared sacrifice and ability to pay. And it would insist that programmatic cuts begin immediately and increase yearly by roughly equal increments until the deficit is eliminated no later than 2002. By reducing the total savings needed to balance the budget, the CBO's new and more buoyant economic scenario should have made such a deal easier. Unfortunately, since the $135 billion "windfall" the CBO handed negotiators is front-ended, the new scenario may do more harm than good. In effect, negotiators can now declare the budget balanced by 2002 while deferring more of the sacrifice to the outyears. Under the proposals offered by both sides on Friday, over half of the seven-year programmatic cuts are slated for after the year 2000uthat is, after the next three elections. Many are anxiously awaiting the financial market's verdict on the budget negotiations. At best, a deal that is perceived to backend too much of the sacrifice would stall further momentum in the bond boom. At worst, it might give the market a bad jolt if Wall Street has already discounted an agreement with near-term sacrifice. But let there be no mistake: The fallout from no deal will be most toxic of all. Contrary to what many pundits believe, it is not smart politics for either side to continue its partisan posturing. Each year we delay, the public's cynicism grows. And each year we delay, the threshold of sacrifice required to put us on track toward permanent budget balance rises. If these trends combine with a souring economy later in the 1990s, a resentful electorate may punish both parties at the polls.


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