Putting Families First
It’s hard to understand why President Clinton would stake his political future on a promise to cut the federal deficit [...]
October 1 1993 by Edwin J. Feulner
It’s hard to understand why President Clinton would stake his political future on a promise to cut the federal deficit in half by the end of his first term-and then propose a budget, as he did this year, that will send the deficit soaring.
But he did, and it will. At best, the president’s economic program will reduce annual deficits temporarily: to approximately $250 billion in fiscal 1998 from $310 billion in the fiscal year ended Sept. 30. The deficits, of course, will be much higher if the administration’s extraordinary economic assumptions don’t hold up. After 1998, however, even the Congressional Budget Office-controlled by the president’s own party-looks for the deficit to shoot up again-surpassing $400 billion by 2003!
If what happened as a result of George Bush’s 1990 budget deal with Congress is any indication, the situation is much grimmer than the CBO believes. That deal called for the biggest tax hike in U.S. history (until now) in order to reduce the deficit by $500 billion. We all know the result: recession, an even higher deficit, and a one-term president. And this administration’s tax hike is larger than Bush’s.
President Clinton doesn’t seem to understand that his policies will cripple an already weak economy, hurting most those who placed such tremendous faith in his 1992 campaign promises: middle-income families.
Perhaps Clinton is wearing political blinders to shield him from the fact that the only plan that conceivably could achieve his pro-middle class, pro-economic growth objectives was put forward by Republicans. It’s hard to accept help when it comes from your supposed political enemies.
But here are the facts: In July, Rep. Rod Grams, R-Minn.; Tim Hutchinson, R-Ark.; and 49 co-sponsors introduced the “Putting Jobs and the American Family First Act of 1993.” The bill was based largely on the comprehensive budget plan my colleagues at The Heritage Foundation released in February, in response to Clinton’s well-publicized challenge to “put up” a plan of your own “or shut up” about his. This alternative budget would accomplish all the goals Clinton spelled out a year ago during his campaign: Cut the deficit in half, provide middle-class tax relief, “grow” the economy, and create jobs.
The most amazing thing about the Grams-Hutchinson plan-and about President Clinton’s failure to acknowledge it-is that it’s a political win-win situation. Instead of the government taking additional money out of taxpayers’ pockets, it increases their spending power.
Assuming no changes in current law, the CBO estimates that federal spending will rise by an average of 5 percent per year through fiscal 1998. As we proposed in the Heritage Foundation budget alternative-coincidentally titled “Putting Families First”-the “Putting Jobs and the American Family First Act” would cap the growth of all federal spending at 2 percent per year, reducing projected federal spending by more than $600 billion over five years. The 2 percent cap would be enforced by a “sequester.” This means automatic, across-the-board reductions in spending would kick in if Congress failed to take the necessary steps to hold the line. Social Security would be exempt from the sequester.
The plan is quite simple, but Clinton’s advisers and liberals in Congress dismiss spending caps as a “cop-out.” They say that since spending caps don’t specify which programs would be scaled back, those who propose them aren’t willing to make “the tough choices.”
But that’s the whole point. Under our proposed budget plan, spending on every federal program-even the pork-barrel projects strenuously guarded by so many members of Congress-theoretically could increase by 2 percent.
When liberals in Congress talk about “tough choices” on what programs to target for budget cuts, they’re not talking about real budget cuts at all-at least in the sense you and I understand. Except for the military budget-which they are only too happy to slice and dice-liberals are against any spending cuts. Why? Because, they believe, spending gets them elected.
Congressional liberals aren’t against a spending cap because it doesn’t specify “the tough choices.” Rather, they’re against it because it would slow down the congressional spending spree.
When President Clinton and his advisers start thinking about their fiscal 1995 budget, they would do well to look carefully at “Putting Jobs and the American Family First.” Here’s why:
- The plan would reduce spending by some $633 billion over five years. It would then divide the savings in a way that would fulfill the promises the president has made.
- The plan would use $135 billion of the $633 billion to provide a $500 per-child tax credit for every American family. There’s Clinton’s middle-class tax cut. The credit could be indexed to the inflation rate, raising its value to roughly $560 after five years. This would be worth, on average, approximately $60 million per year in family tax relief in every congressional district in America.
- Another $38 billion would be used to fund a series of surefire economy-growing measures such as: 1) indexing depreciation schedules for business investments so they’re not eroded by inflation; 2) indexing the capital gains tax to the rate of inflation; and 3) most important, lowering the maximum capital gains tax rate to 15 percent.
- The remaining $460 billion in savings would be used to cut the budget deficit in half over five years. Had the plan been enacted this summer, the 1998 deficit, for example, would have been reduced to around $161 billion. By contrast, even the best scenario for the Clinton budget deal-an estimate we believe to be wildly optimistic-places the deficit at $250 billion in 1998.
- If the 2 percent cap on government spending were extended for five years beyond 1998, the federal budget would be close to balanced by 2003. Again, the CBO’s rosiest projection for the Clinton budget is a deficit of $431 billion in fiscal 2003.
In addition, the plan proposes an innovative way to decide which federal programs to chop-or more realistically, which ones would have their funding increased less than usual. The plan would establish a bipartisan commission along the lines of the Base Realignment and Closure Commission, which just finished identifying the military bases we don’t need anymore-in the face of strenuous opposition from lawmakers. The budget commission’s recommendations would have to be approved or rejected as a package. All or nothing.
The beauty of this is that lawmakers could vote in favor of the recommendations, while plausibly asserting they opposed cuts directly affecting their districts or states. If they nix the recommendations, the sequester provision takes over.
It’s ironic that the “Putting Jobs and the American Family First Act,” introduced by Republicans, provides the only framework offered so far in Congress that actually would fulfill President Clinton’s campaign goals. If the president and those lawmakers who supported the record tax increase are smart, they’ll take this framework and use it to reverse the disastrous policies they adopted this year.
And U.S. business executives, if they know what’s good for their companies and the economy, will stop trying to eke out a subsidy here or an exemption there for their particular industries under the Clinton plan-and get behind a strategy that won’t leave them defenseless.
Otherwise, all politicians who sided with the administration should be prepared to explain to American families why a huge tax increase, causing severe belt-tightening in every household, was preferable to a plan that requires only modest belt-tightening by the federal government.
Edwin J. Feulner, Ph.D., is president of The Heritage Foundation, a Washington, DC-based public policy research institution. He also serves on the boards of several other foundations and research institutes. Dr. Feulner is the author of ‘Conservatives Stalk the House.”