Leaders take credit for balanced budget, but is it due?
August 1, 1997
Web posted at: 6:06 p.m. EDT (2206 GMT)An essay by CNN Interactive writer Emily Looney
(CNN) -- You can't begrudge our leaders in Washington some gleeful bipartisan boasting about their new
balanced-budget agreement and its companion tax breaks. But frankly, it's been a little embarrassing to watch them gloat.Enthusiasm for the words "balanced budget" should not be confused with the dull gray fiscal discipline needed to keep the country solvent. "Stop me before I spend again" is better overheard at the mall than on the Mall.
It sounds good to hear them say we're on a five-year track toward the first balanced budget since 1969. It feels good to a lot of people to anticipate the largest federal tax cuts since 1981.
But with the strong economy already helping to push down this year's deficit projections into the $40 billion to $50 billion range, and as the $5.3 trillion public debt grows heedlessly, the new budget begins to look less like a landmark achievement and more like business as usual.
The deal reached this week does achieve a kind of discipline through defined spending-reduction targets meant to balance the budget by 2002 -- as long as the economy continues on its blissful ascent. But history suggests that growth without big hiccups over the long haul is a big "if" to assume.
Members of Congress may have been too busy to catch a couple of economic indicators this week.
The Commerce Department announced that growth of the gross domestic product slowed in the second quarter, and the people who measure consumer confidence in the economy said that index dipped in July. Not recessionary, by any means, but timely reminders of the inevitability of fluctuations.
Budget writers agreed on $130 billion of the $270 billion in federal spending reductions -- but still must find the resolve to find the rest.
The negotiators deferred major reforms of most entitlement programs -- a budgetary albatross of spiraling costs -- to a bipartisan commission that's not scheduled to report its findings until 1999.
And the way the $95 billion or so in net tax cuts are structured, the brunt of the revenue loss is forecast to hit after 2002.
Besides, Washington's excitement concerns sums that don't amount to much in the trillion-dollar scheme of U.S. budgets. The planned spending cuts over five years are less than last year's interest payments of nearly $344 billion on the national debt.
And even though the plan is tackling the deficit, until there's a budget surplus applied to the principal, the debt and related interest payments will continue to grow.
If it feels good, don't do it
The balanced-budget concept sounds appealing in part because it eludes many Americans at a personal level. They know how much it would help if they could spend only what they earn and, say, pay off their credit cards or save more for retirement.
Still, it can make sense to borrow money for a computer to start a business, to take out a mortgage or to forgo a regular paycheck to go back to school. Such calculated risks can work when there is commitment to a defined goal.
The out-of-fashion economists who are comfortable with the government doing this kind of thing, in times such as wars and recessions, say deficit financing can be as helpful as a balanced budget and the elusive surplus now promise to be.
"Deficit" has become a dirty word in Washington, but there's more to the budget dilemma than that. Money doesn't decide to be a surplus or a debt. Despite suggestions to the contrary, dollars are politically independent.
The size of the public debt indicates that, like a credit card, deficit financing is easily abused. It's relevant to note that the United States hasn't had a war or recession for awhile. And for the record, pork-barrel projects don't qualify under the traditional justifications made for deficit financing.
The other 'D-word'
These are heady times. The economy has been expanding for so long that it seems easy, and the stock market is soaring like a summer kite. Not even Federal Reserve Board Chairman Alan Greenspan is talking now about "irrational exuberance" or growing consumer debt.
Politicians, in a kind of trickle-down exuberance from Wall Street, are using the boom to afford the tax breaks along with the budget cuts and even some new spending.
In this mix, there's a $500-per-child tax credit, education tax credits and reduced capital gains and estate taxes. There are provisions to reduce spending on Medicare -- and to keep it solvent. And there is a new $24 billion
health-care program for uninsured children.Budget makers are taking calculated risks, and appear to be able to for now without having to summon a lot of discipline.
But the need for this other "D-word" will come when -- not if -- spending cuts start to dig deeper, and when -- not if -- inflation returns, interest rates rise or there's a recession to upset financial projections.
Maybe some of the people who benefit from the new tax breaks will use their windfalls to pay off debt and invest in their futures. Maybe our leaders can watch and learn.
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