Self-inflicted Budget Woes

Some elections clarify basic choices. This year’s, unfortunately, obscured them. Bill Clinton ran as a dream Democrat, promising to protect entitlements for seniors, stop cuts to popular programs for children and balance the budget to boot. But he’ll have to govern like a Republican. The question is: Which one?

The federal budget is a map of barren choices and unavoidable realities. A seventh of the budget, the $250 billion for interest on the national debt, is untouchable. That’s the price of 15 years of living beyond our means. What remains is spending for all manner of programs, which is where the choices begin.

Entitlements—benefits paid automatically to millions of mostly middle-class and elderly Americans—account for nearly two thirds of the government’s budget for programs. The biggest is Social Security. Neither party wants to tangle with it. They don’t want to mess with the second biggest, Medicare, either, but there isn’t much choice. It’s a $200 billion behemoth and growing fast.

The president has a plan for Medicare: to shave its growth by paying health care providers less and thus save $116 billion over the next six years. That’s just enough to keep the Medicare trust fund from going broke—on his watch, at least. Plus he’ll appoint a bipartisan commission to recommend a long-term fix. And he’ll pray for a miracle to solve the problem for him: say, a doubling of economic growth.

Although the last two bipartisan budget commissions—one in the Reagan-Bush years, another in Clinton’s first term—dissolved into partisan pie fights, a commission may offer the best chance for major reform. But the last try at Medicare reform came from the congressional Republicans: Clinton won re-election by demonizing it. So he risks being reviled by those who supported him if he performs an about-face, commission or not.

No easy defense cuts. Another sixth of the program budget is defense. Clinton plans to bring the Pentagon down 10 percent by 2002. He probably can’t cut much more. Defense cuts have accounted for all the net reductions in spending since the peak deficits of the mid-1980s. The easy cuts are gone.

What remains is just over one sixth of the program budget for “nondefense discretionary spending.” That’s federal prisons, national parks, Head Start, medical research, the weather service and so on. If you believe the president’s figures, he will balance the budget by 2002 mostly by chopping this modest slice of the federal pie. That sounds plausible, until you look at the numbers. Robert D. Reischauer, a former Congressional Budget Office director now at the Brookings Institution, does so in a forthcoming book, and the figures point to a compelling irony: In the world of the campaign, Clinton was the anti-Gingrich. In his actual budgets, he is . . . Gingrich.

In its most recent budget, according to Reischauer, the Republican Congress wanted to reduce nondefense discretionary spending by 24 percent in the year 2002. The Clinton plan would require a 22 percent reduction—a barely consequential difference. Chopping almost a quarter off the government would reduce this “everything else” portion of domestic government to about the level of the early 1950s, as a share of the economy.

To do that, Clinton faces savage trade-offs. His budget says that he wants to increase education and job-training programs modestly over the next six years, and that he wants to protect federal law enforcement from budget cuts. But for everything he “protects,” he must doubly cut something else.

The results, Reischauer estimates, are eye-opening. Community and regional development—assistance to states and localities, spending to relieve urban blight and so on—would decline almost two thirds by 2002. That’s a third more cutting than Gingrich’s last Congress proposed. Transportation aid would decline by almost 40 percent, half again the cuts proposed by the Republicans.

In real life, you can’t run as a Democrat and govern as an antigovernment Republican. The president won’t cut discretionary spending anywhere near as much as his budget suggests, which means he won’t get the budget anywhere near close to balance. His campaign, which emitted a fine spray of proposals for inexpensive programs, set the most likely pattern for a second term: many small initiatives, a bit more money for welfare, a Band-Aid on entitlements and enough budget reductions to make it through until the end of his term. Then he could leave his successors to deal with the deficit.

There is an alternative: making choices that, while hard, aren’t all that painful. Take Medicare. Among policy wonks, there’s a consensus on the direction of reform. Medicare needs to rely more on managed-care providers and other private-sector, cost-cutting systems, instead of on government price controls. The qualifying age needs to go up, and benefits need to go down for higher-income people.

Means tests. Wealthier Americans could live with a reduction in their federal subsidies. Applying an income test to entitlements—making them taxable for richer recipients—could save up to $400 billion between now and 2002, and much more later, depending on how aggressively the reform is constructed. On the discretionary side, there is lots of “corporate welfare” to attack. Why does the country need the Market Access Program, $90 million a year to subsidize U.S. companies advertising abroad? Why the $50 million National Sheep Industry Improvement Center? If those things are too valuable to lose, there remains the unmentionable: raising taxes.

These are the real choices. The trouble is that President Clinton has just been re-elected by running against reforms, promising to “protect” Medicare, Medicaid, education, the environment and, come to think of it, everything else. The campaign he ran militates against the historic presidency he would like to lead.

In 1995, Newt Gingrich tried to push through some major reforms in government spending for which he hadn’t prepared the public. The Contract With America proposed tax cuts and a balanced budget without naming any actual programs to be cut. The Republicans were shot to pieces.

Having run against Republican “extremism,” the president is left with an unpalatable choice. He can repudiate his campaign and embrace budget cuts and fundamental entitlement reforms. In that case, he risks the sort of backlash that hurt Gingrich. Or, with a growing economy, he can delay major reforms and temporize, leaving a mess for his successors. In that case, he’ll be remembered for being a marginal president.

In other words, he can be President Gingrich or President Bush. Have a nice second term, Mr. President.