Time for the GOP to Declare Victory

Robert Reischauer
Robert Reischauer Distinguished Institute Fellow and President Emeritus - The Urban Institute

January 25, 1996

Any objective observer of the year-long budget battle would have to conclude that congressional Republicans have achieved at least three-quarters of what they set out to do. Yet by refusing to lock in these gains through a comprehensive budget agreement with the President, they risk snatching defeat from the jaws of victory, of coming up largely empty-handed not just for this Congress but for the next one as well.

A year ago, the President unveiled a fiscal 1996 budget with no commitment to further deficit reduction. It proposed $200 billion deficits as far as the eye could see, scored by the Office of Management and Budget, the executive branch’s umpire. It offered no significant savings from entitlement programs and recommended no structural reforms of Medicare or Medicaid. While the budget stated that the President would “work with the new Congress to enact fundamental welfare reform,” it counted on nary a penny of savings from welfare reform.

Twelve months later, the President has embraced the Republican’s bottom line of a balanced budget, accepted the GOP timetable of eliminating the deficit by 2002, and even acquiesced to using Congress’s umpire, the Congressional Budget Office. But there’s more. The President’s latest proposal contains deep cuts in discretionary spending, significant savings from the entitlement programs, and important structural changes in Medicare, Medicaid and welfare. The discretionary spending cuts are shamelessly back-loaded, but by 2002 they are almost as Draconian as those in the Republican plan ($98 billion versus $102 billion). With cuts this deep, whoever occupies the White House in 2002 will have a hard time fulfilling President Clinton’s pledge to protect education, the environment, science, technology and other investments. With respect to entitlements, the President has been pushed into accepting savings that, over seven years, add up to nearly $300 billion, or four-fifths those of the GOP plan; some $46 billion of this would be wrung from reforms in welfare and the earned income tax credit.

The President’s structural changes for Medicare and Medicaid fall well short of what Republican revolutionaries dream about at night, but they are, nevertheless, substantial. Following the Republican lead, the President has agreed to give Medicare participants choice among a wide variety of alternative capitated health plans including preferred provider organizations, physician service organizations, HMOs, and traditional indemnity insurance. He has acceded to cuts in provider payments that, by 2002, are every bit as deep as those in the Republican plan. The President’s per capita caps on Medicaid spending are not as profound a structural change as the Republican block grant proposal, but they are a significant departure from the current open-ended matching grant system.

And, of course, the President’s latest plan does not represent his final position; Republicans can undoubtedly wring some more changes from the White House. The Administration might be willing to accept the GOP’s language that sets fixed annual budgets for Medicare (the fail-safe) if the Republican’s acquiesced to savings close to the President’s $124 billion figure. Medical savings accounts combined with high-deductible insurance might be acceptable to the Administration if the capitated payments to plans were risk-adjusted and those who joined such plans were required to wait several years before they could switch to a different type of plan. The Administration might allow Medicaid’s long-term care funds to be distributed through block grants if acute care services were retained as a capped, per capita entitlement.

Republican reluctance to accept such a “three-quarters-of-a-loaf” victory arises, in part, from their fear that such a deal would boost the President’s reelection prospects; Clinton could boast that he balanced the budget while protecting Medicare, Medicaid and other popular programs from GOP devastation. But the political fallout will be just the opposite. First, an agreement could rend the Democrats because the party’s liberal wing will find it hard to swallow. Second, most voters will realize that most of the credit for balancing the budget should go to the Republicans who forced the President to the table. Third, once he has cut a budget deal with the Republicans, the President won’t be able to mount an unrestrained attack on the GOP for its harsh budget policy. The election debate will turn to other issues—the economy, leadership, character, foreign policy, and taxes—on which Republicans, arguably, hold higher political ground.

Republican revolutionaries should understand that budgeting is a never-ending war of many annual battles. Objectives not achieved in one year can be fought over the next when the relative strength of the opposing forces will be different. If Republicans win the White House in November, they can modify, accelerate, and deepen the spending cuts and structural changes contained in any agreement reached this year. If no agreement is enacted and Republicans capture the White House, the GOP will have just delayed by a year implementation of the many policies on which the Republican and Democratic plans do not differ substantially. Furthermore, when they do enact their budget balancing package next year, they alone will shoulder the responsibility for any pain the program cutbacks impose.

If the President wins reelection and there is no budget agreement, pundits will view his victory as a referendum on Republican budget policies and Democrats will be less willing to embrace the spending cuts and entitlement reforms that they have reluctantly accepted this year. Alternatively, if Republicans accept a compromise budget balancing plan this year, they can ensure that its fiscal discipline is not undone even if the President is reelected and Democrats regain control of the House.

The compromise that could be worked out with the President won’t be everything Republicans had hoped for. With its tax relief, welfare cuts, and excessive discretionary spending reductions, it would be a far cry from my view of an ideal deficit reduction package as well. Nevertheless, such a compromise will start the unavoidable process of containing and restructuring Medicare and Medicaid and will ensure that the deficit continues to decline as it has for three straight years. For the good of the nation as well as the political fortunes of the GOP, its time for Republicans to accept and declare the victory they have won.