Hip Hip, But No Hurrah

Volume III, Number 7 May 28, 1997

The budget deal's defects are by now well known. Its proposed savings are grossly backended -- over half of the deficit reduction is postponed until 2002 -- and are therefore uncertain. It leans on highly optimistic policy assumptions. And it creates new entitlements without enacting any structural reforms to curb the cost explosion in existing entitlements scheduled to occur beyond the deal's short-term time horizon.

Still, Concord believes this deal is better than no deal at all. We support it because we trust that America's political leaders will follow through with their promises, first, to ensure that the backended cost-cutting indeed happens, and second, to move quickly to grapple with the long-term challenge they deferred. If either promise is broken, the deal will have been a mistake.

Meeting the Deal's Modest Goal

Let's be frank: If leaders fail to follow through with the first promise, this deal could end up increasing the deficit. The tax cuts will all be enacted immediately. The same goes for the raft of entitlement expansions, which run the gamut from cash assistance for immigrants to new health benefits for children and seniors.

The savings, meanwhile, are anything but guaranteed. While the deal calls for a real dollar cut of roughly 10 percent in discretionary spending over the next five years, most of the cutting is scheduled for after the year 2000. In 1998, the deal would nick discretionary spending by less than 1 percent. Congress only votes on appropriations for the coming fiscal year. Beyond that, mere wishes are being counted as savings.

And what about entitlements? Most of the savings is expected to come from cuts to Medicare and Medicaid providers -- a route that is tried but by no means true. Policy experts may recall that Medicare screw-tightening in the 1990 budget deal was supposed to lower projected outlays by $43 billion over the following five years. Actual outlays came in $8 billion lower.

The only other big savings measure is the plan to auction off the broadcast spectrum. Perhaps this can raise the $26 billion that is projected over the next five years. But a more limited auction this April raised only about a penny for every dollar that had been anticipated.

Yes, if everything goes as planned the deal will balance the budget in 2002, and perhaps keep it balanced for a few years thereafter. But sadly, we must wait four years before we can be sure it is on track to meet this modest goal. Next year, the deficit will rise, and it is not scheduled to sink beneath today's level until 2001.

Moving on to Real Reform

Assuming leaders see to it that all of the deal's savings are enacted and enforced, that still leaves their second promise: to move quickly to grapple with the much greater challenge of long-term entitlement reform.

This year's budget balancing exercise is a gentle warm-up compared with the iron-man challenge that lies ahead when Boomers retire. From now to 2030, the CBO projects that spending on Social Security, Medicare, and Medicaid will grow by 9 percent of GDP. If entitlements are simply left on autopilot, resurgent deficits will eventually shatter the economy.

No one expected Congress and the White House to solve the whole entitlements problem this year. But sadly again, the modest structural reforms that did come up -- means-testing Medicare premiums, imposing a per-capita cap on Medicaid, and trimming COLAs -- were jettisoned in unseemly haste as soon as new revenue projections handed negotiators more money to spend.

We are told that it was too risky politically to tackle long-term entitlement reform as part of the budget deal, and that now a "bipartisan process" can begin. We trust that this is so, and that the process will honestly engage the problem. Admittedly, this trust requires a leap of faith. The one entitlement issue leaders could not defer was the looming insolvency of Medicare's Hospital Insurance trust fund. Rather than require the fund to live within its own means, they disarmed its alarm bell by shifting some of its spending to the general budget.

Let's hope that this kind of gimmickry is not a harbinger of things to come. Let's hope that our leaders are finally ready for real budget reform.


The Concord Coalition web pages were designed by Marla Parker and Krista Reymann. These pages are now maintained by Craig Cheslog. . Last updated: 3 Jun 1997