A Closer Look at the Promise of a Balanced Budget

July-August 1997

by James W. Skillen

WASHINGTON—Seeing the president and Congress work together to define the parameters of a five-year budget plan is encouraging. Moreover, the fact that a firm budget deal may help lower interest rates, increase savings, and shrink the trade deficit is also positive. The agreement shows that Washington may be getting closer to doing something about controlling entitlement spending, which could destroy budgeting altogether in forthcoming decades if serious reforms are not enacted.

These encouraging signs should be applauded, because if the president and congressional leaders from different parties can come this close to one another, then the prospects for on- going cooperation in the years ahead become brighter. The United States is going through momentous changes with respect to government spending and accountability—at federal, state, and local levels—and no single agreement will be sufficient to bring about a just reallocation of responsibilities over time. The most important ingredient is a commitment among competing parties and leaders to cooperate year by year for the public good.

For this reason, however, the negative features of the tentative budget agreement loom rather large. First, the bipartisan agreement satisfies both sides because its most hurtful consequences will not show up before 2002. In other words, Congress (on behalf of us and our interest groups) is still trying to have it both ways: to look like it is balancing the budget, while delaying the heaviest costs till 2002.

Second, the government's treatment of Social Security is still misleading. Social Security payments currently being paid into the trust fund are building up a surplus. However, the federal budget considers that surplus (about $80 to $100 billion annually) to be income. That is one reason why the budget deal was possible. When the baby boomers begin to reach retirement age in 20 years, however, the federal government will be obligated to pay out benefits to them. The Social Security trust fund will not have real money in it but only IOUs from the government which will then have to raise taxes on those still working in order to pay retiree benefits.

Third, and most important, the budget deal is oriented almost entirely to the economic benefit of those who are succeeding financially. Most of the cuts occur in programs that support the poor, the ill, and the elderly. Some government welfare programs should be changed or cut because they are the wrong programs, and Medicare and Medicaid both need to be reformed. Nevertheless, federal and state governments should now be investing more money, not less, in support of sound insurance programs, radical education and welfare reforms, and in non- government organizations that best serve the poor in order that the gap between the wealthiest and the poorest in this country does not continue to expand.

Seeing Congress and the president cooperate on budget matters is encouraging. However, we are a long way off from justice in budgeting.