Trimming the trillions - budget; includes related article

If you equate a balanced budget with a 55-mph speed limit and each $1 billion of deficit spending with an extra mile, the nation is, fiscally speaking, going 258 miles an hour.

That analogy, offered by Rep. Nathan Deal, R-Ga., is just one of the many attempts being made on Capitol Hill to simplify federal finances as a new phase of the balanced-budget debate begins.

Several members participating in the debate over a $1.5 trillion annual budget and a cumulative national debt of nearly $5 trillion try to individualize the debt by noting that each American's share of the red ink has gone from $2,500 to $18,500 over the past 20 years.

Others point out the increasing pace of debt accumulation: It took the country 186 years to reach $500 billion in red ink, but the debt has increased nearly 10-fold in the ensuing 13 years.

Still others attack the idea of tax increases as an antidote to deficit spending: Taxes rose nearly $700 billion over the past dozen years, but the deficit still went up $3.8 trillion over the same period.

Those and similar perspectives on the condition of federal finances will be heard with increasing frequency over the next several months as Congress considers proposals for a balanced budget by 2002.

Both the Senate and the House budget committees have developed plans for reaching that goal by relating spending to revenue. That would mean keeping spending $1 trillion below levels now forecast under current laws over the seven years.

Virtually every area of government, with the exception of Social Security, would be affected. GOP leaders have exempted the retirement plan from their budget reductions.

The challenge of bringing spending into line with revenues is particularly stiff in the House, which has approved a five-year, $190 billion package of tax cuts.

The fiscal-policy debate, which will be long and divisive, will contrast the GOP plans with President Clinton's proposed 1996 budget calling for $1.6 trillion in spending and a $200 billion deficit.

The budget committees' recommendations are historically as well as fiscally significant: For the first time since the 1974 budget-reform act creating them, both panels are being led by hard-line fiscal conservatives--Sen. Pete V. Domenici, R-N.M., and Rep. John R. Kasich, R-Ohio.

The resolutions produced by these panels set broad spending and revenue goals that require other committees to cooperate by cutting spending in areas under their jurisdictions.

In setting up that arrangement, Congress took yet another in the long series of legislative actions, dating to 1921, through which it has tried to impose long-term discipline on federal spending. (See the box on Page 34.)

Although Domenici and Kasich are both heading toward budget balance, there are some differences in their respective approaches, including the House tax plan, and there will have to be some give-and-take before final action by the full Congress.

Republicans in Congress had hoped to begin their budget work while a proposed constitutional amendment mandating such balance from 2002 onward was being considered by the states. That proposal, however, fell one vote short of approval in the Senate this spring.

The current budget procedures were designed to impose discipline on budgeting by forcing Congress to weigh proposed total spending against total potential income--a fundamental concept previously absent from federal fiscal planning. The procedures do not require that spending and revenue match, however.

When the budget-reform act was adopted 21 years ago, spending was $269 billion, income was $263 billion, and the deficit was $6 billion. By contrast, the Clinton budget for fiscal 1996, which begins Oct.1, proposes $1.6 trillion in spending against $1.4 trillion in revenues, and a deficit close to $200 billion.

In 2000, the last of the five years covered by that budget, spending is projected at $1.9 trillion, receipts at $1.7 trillion, and the deficit still about $200 billion. Those estimates, not surprising, have been rejected by the budget panels as they fashion their own plans.

Domenici says of the Clinton budget: "There is no deficit reduction of any significance." He says the Clinton plan would add $2 trillion to the national debt over the next five years, increasing each American's share of that debt to $26,000.

Recalling that Clinton's 1993-94 budget was described as a major deficit-reduction plan based on tax increases and spending cuts, Domenici said that the "nightmare" that he expected--higher taxes without deficit control--is coming to pass.

In the House, the budget resolution developed under Kasich would, by 2002, limit spending increases to estimated growth in revenue. Total revenues, now $1.4 trillion, are expected to reach $1.78 trillion by 2002, and spending would equal the latter amount.

Although such balance might sound like standard fiscal policy, it would be a departure for the federal government. Since 1950, there have been five budget surpluses totaling $16.9 billion and 40 budget deficits totaling $4.5 trillion. The last surplus was in 1969.

A preliminary House plan forecast total spending for the seven fiscal years 1996-2002 at $11.7 trillion, compared with $9.5 billion over the previous seven years. The key change is capping outlays at income levels. Under longstanding federal budget policy, spending is set by the assumed growth of programs. If the total cost of that growth exceeds the increase in revenues, the gap is covered by federal borrowing, which reached a record $290 billion in fiscal 1992.

The balanced-budget amendment remains the principal GOP initiative on curbing spending.

The movement for constitutional change, rather than a law subject to revision and repeal by a majority vote in Congress, stemmed from the failure of the various mandates setting legislative targets and timetables, most notably the 1985 Gramm-Rudman-Hollings measure calling for a balanced budget by 1990.

(The term "majority"can be overstated. Half of the members of each house can comprise a quorum to do business in their respective chambers, and a majority of a quorum--or 26 senators and 110 representatives--can pass measures that include the modification or repeal of legislatively set budget restraints. It would take the votes of a two-thirds majority of each house, however--67 senators and 290 representatives--as well as the consent of 38 state legislatures to approve a constitutional amendment mandating a balanced federal budget.)

While opponents of a balanced-budget amendment--most of them Democrats--argue that budget balance is simply a matter of congressional will, advocates say the long cycle of imposing and abandoning fiscal restraint demonstrates the need for an irrevocable mandate.

After passing the House 300-132, the balanced-budget amendment fell in the Senate, 66-34. Senate Majority Leader Bob Dole, R-Kan., plans another vote when, he says, he has won over that last vote needed to send the proposal to the states for ratification or when he feels it will cause maximum political damage to the 33 Democrats who voted against it. (The 34th negative vote came from Republican Sen. Mark O. Hatfield of Oregon.)

With polls showing that a substantial majority of Americans support a balanced-budget amendment, Dole has suggested that another vote testing the Democratic position might come just before the 1996 election if a 67th vote for it has not been found sooner.

Much of the immediate and long-term action on the budget--as well as pressure for the amendment--is being driven by the recognition, which has become bipartisan, that fiscal trends of the recent past cannot be sustained without severe damage to the economy.

Without a course correction, those trends will lead to "inescapable and staggering" results, says Rep. Henry J. Hyde, R-Ill, chairman of the House Judiciary Committee and chief House strategist on the balanced-budget amendment. He points to unending deficits that will eventually require debt-service payments equal to 40 percent of all federal spending.

When that happens, he asks, "where will we find the money for essential government services and programs? ... How will the private sector finance business start-ups--job creation--with debt service eating up almost half of the private investment funds generated each year?"

The 1994 election victory that gave control of Congress to Republicans running on anti-tax, anti-spending platforms has had major impacts on the fiscal debates and budget politics. It has eliminated any prospect of tax increases as a deficit-reduction device and has made spending restraint a highly desirable policy for members of Congress contemplating re-election bids.

An indication of the changed environment is the extent to which some Democrats long opposed to the line-item veto now support it. By large margins in both houses, Congress has approved this form of veto, which lets the president reject individual items, such as pork-barrel projects, in big spending bills he previously had to sign or veto in their entirety.

To be sure, there is concern about the budget problem on both sides of the aisle. Sen. Bill Bradley D-N.J., a fiscal-policy authority for his party, says the first call on federal tax collections "is not defending the nation or feeding children or providing for education or building highways or sending money to Social Security recipients. The first place that money has to be spent is to pay those bondholders who have loaned us money."

Such comments are being made with greater frequency and intensity amid growing awareness of the consequences of unchecked deficit spending on both domestic programs and the nation's need to remain competitive in world trade. U.S. failure to cope with red-ink finances is cited as an important factor in the recent sharp decline of the dollar in world markets.

Many advocates of a balanced budget say that the problem is brought into its sharpest focus through a calculation offered by the Concord Coalition, a private, bipartisan group committed to eliminating the deficit.

This groups notes that "the national debt of the United States increases $9,600 each second, $576,000 each minute, $34,560,000 each hour, and $829,440,000 each day."

A History Of Unfinished Business

The debate over amending the U.S. Constitution to require a balanced federal budget, which will be resumed in this Congress, often centers on the question of whether such a drastic step is necessary.

President Clinton, who opposes the amendment, pledged in the 1992 campaign to cut the deficit in half in four years, but such a reduction is nowhere in sight.

Supporters of an amendment point out, however, that none of the many congressional attempts to impose a balanced-budget requirement via legislation have succeeded. Adopted by majority vote, those attempts could be--and were--undone by majority vote.

Sen. Robert C. Smith, R-N.H., offered this bit of history during Senate debate on the amendment last January:

1921--A law was passed to require the president to recommend corrective action to Congress when the federal budget fell into deficit.

1964--The Revenue Act expressed the sense of Congress that the federal budget should be balanced.

1978--The Revenue Act called for a balanced budget beginning with the 1982 fiscal year.

1978--Congress approved the Byrd amendment, sponsored by Sen. Harry F. Byrd Jr., D-Va., requiring a balanced budget by 1981.

1978--The Full Employment and Balanced Growth Act included a provision requiring a balanced budget.

1979--Legislation authorizing an increase in the federal debt required the president and the congressional budget committees to produce plans for achieving a balanced budget.

1980--Congress reaffirmed its commitment to a balanced budget by 1981 under the Byrd amendment.

1985--Congress passed the Gramm-Rudman-Hollings Act, which required a balanced budget within five years. (Sponsors were Sens. Phil Gramm, R-Texas; Warren Rudman, R-N.H.; and Ernest F. Hollings, D-S.C.)

1987--The Gramm-Rudman-Hollings target was deferred to 1993.

1990--The Budget Enforcement Act called for an $83 billion reduction in the deficit by 1999.

Smith added: "Here we are. We started in 1921. We have all these wonderful acts we have passed requiring all these balanced budgets, and we are almost $5 trillion in debt."

By Robert t. Gray

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