Is This Budget for Real?

Robert D. Reischauer
Robert Reischauer Headshot
Robert D. Reischauer Distinguished Institute Fellow; President Emeritus - Urban Institute

February 6, 1997

The president’s fiscal 1998 budget proposal will be released today. Administration officials, with the usual flourishes and hyperbole, will describe it as new and different even though it will be largely a spruced-up version of last year’s proposal. They will highlight its proposed expansions of favored programs, popular tax cuts and the promise of a balanced budget by 2002, but will gloss over the specific spending cuts needed to eliminate the deficit.

Republicans will, as is expected from the opposition party, engage in a ritualistic trashing of the plan. They will spotlight its optimistic assumptions, gimmicks and other shortcomings. Congressional Democrats will give the president’s plan a polite but uneasy embrace, while interest groups will howl, each claiming that it has been unfairly singled out to bear a disproportionate share of the deficit reduction burden.

What is the average person to make of these scripted reactions? Must one wade through the indecipherable detail crammed into the budget’s three volumes to determine whether the president’s proposal represents a significant step toward a bipartisan compromise that can honestly claim to balance the budget by 2002? Fortunately, that isn’t necessary. By digging only five numbers out of the millions in the budget, a concerned citizen can quickly ascertain how far forward the president has moved the budget ball.

Unfinished Business: The first of these numbers is the budget’s estimate of the current services deficit for 2002, the deficit that will occur if policies aren’t changed. The Congressional Budget Office (CBO) expects that, after accounting for the salutary economic effects of balancing the budget, this baseline deficit will be $154 billion. If the president’s budget contains an estimate of about $90 billion, the administration will have to come up with roughly $60 billion more in spending cuts in 2002 to achieve balance should Congress, as it has in the past, choose to use CBO scoring. Such a gap would leave the president open to the charge that he hasn’t submitted a completed product. If, as was the case last year, the budget proposes vague and politically unrealistic measures to close the gap between the administration’s and CBO’s estimates of the size of the problem, sensible observers should be appropriately incredulous.

Mañana Budgeting: No politician likes to impose sacrifice today when it can be put off until after the next election. Hence, budget balancing plans tend to be backloaded; that is, they put off a disproportionate share of the spending cuts until the plan’s final years. The extent to which a particular plan is backloaded can be measured by comparing the deficit reduction that is proposed for the last two years—2001 and 2002—with that which would occur if spending were cut at an equal rate each year. If spending were reduced at a steady pace, 62 percent of the total deficit reduction needed to balance the budget would occur in 2001 and 2002. To account for the initial difficulty in getting the effort underway, CBO’s illustrative path to a balanced budget allows 65 percent of the total deficit reduction to be packed into the final two years. If the president’s budget has much more than 68 percent of the pain concentrated in the last two years, its credibility should be called into question, because deficit reduction delayed is deficit reduction that, in most cases, won’t be made.

Goodies, Gross vs. Net: When it comes to taxes, it is always easier to give than to receive. The president’s budget will give away roughly $100 billion in tax cuts over the next five years. This largess will be partially offset by about $80 billion in proposed tax increases. Anxious to curry the favor of the voters, Republicans and Democrats on the Hill are likely to treat the $100 billion figure as a foundation upon which to build. On the other hand, the $80 billion from revenue increases will be hard to realize. About two-fifths would come from extending various taxes, such as the airline ticket tax, that are scheduled to expire or already have. That will be difficult, but it’s doable.

The remainder would come from closing so-called “loopholes” and curtailing “corporate welfare.” Like the elusive “fraud, waste and abuse” category on the spending side of the budget, “loopholes” and “corporate welfare” are far easier to rail against than to eradicate. What one member regards as “corporate welfare” another views as an essential incentive preserving employment in his district. Thus, the gap between the gross tax cuts and the revenue raised from extending expiring taxes is a measure of potential trouble ahead. If the gap in the president’s budget is much more than $50 billion, the road ahead will be a rocky one.

Hamburger Helper: To attain balance, all past budget proposals have had to beef up the savings in 2002 through extraordinary measures such as auctioning off huge portions of the electromagnetic spectrum, selling government petroleum reserves and other assets, and accelerating revenue collections. The president’s last budget relied on more than $30 billion from such schemes. Of course, these one-shot savings disappear in 2003, leaving policymakers with a huge clean-up job the morning after the balanced budget celebration. While it is probably unrealistic to expect the president or Republicans to swear off such expediencies entirely, if they amount to more than about $10 billion in 2002, the public should take the promise of a balanced budget with a big wink.

Unfulfillable Promises: When Medicare, Medicaid and other entitlement programs have been squeezed for as much as the political environment will allow, policymakers have turned to cuts in nondefense discretionary spending to finish the job. Since 1990 this has been accomplished by imposing caps on future discretionary spending, which is provided through 13 annual appropriation bills. Such savings are palatable to politicians because they don’t have to identify today the specific programs that would be cut to meet the caps—that task is left for the appropriations process in the future. Affected interest groups don’t scream, because each can still hope that by mustering its supporters it will be able to protect its slice of the appropriation pie while others are decimated.

Some $322 billion would be needed in 2002 to provide nondefense discretionary programs with the real resources that they currently enjoy. If the president’s budget reduces nondefense discretionary spending for 2002 much below $289 billion (a 10 percent cut), it is probably making just another promise that the political system won’t be able to fulfill.