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Budget Has Politicians Try A New Balancing Act - Again

IF Uncle Sam assessed each American for a portion of the government's $4 trillion debt, every man, woman, and child would owe about $16,000.

Each effort on the part of Congress to deal with federal red ink - the Gramm-Rudman-Hollings deficit-reduction bill in 1985, 1990's budget pact with President Bush, and most recently, the failed attempt to pass a constitutional amendment requiring a balanced federal budget - seems to fall short of the mark.

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Meanwhile, unbridled government spending is increasing the national debt by $12,000 per second.

With last week's defeat of the balanced-budget amendment by the House of Representatives, House Democrats are back at the drawing boards.

The focus - more laborious, if less sweeping and dramatic, than a constitutional amendment - involves pulling back on government spending. Rep. David Obey (D) of Wisconsin, chairman of the Appropriations subcommittee that deals with foreign aid, says there will be some tough days ahead. On Friday, his own committee slashed the White House's foreign-aid proposals by more than $1 billion.

Democratic leaders, including Budget Committee Chairman Leon Panetta (D) of California, are now putting together a budget-discipline bill with spending targets and enforcement measures.

House Speaker Thomas Foley promises fast action to eliminate the federal deficit by the year 2000, with automatic spending cuts and tax increases if necessary.

As lawmakers shape their latest proposals, economists are making their suggestions.

David Levy, vice chairman of the New York-based Levy Economic Forecasting Institute, calls for separating government operations budgets (such as social security and foreign aid) from capital investments (such as transportation and the space program) in order to provide more investments that help develop the private sector.

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"The first casualties of deficit cutting are future programs," he says. A high speed transportation program, for example, "is seen only as an initial expenditure, not a lasting asset" whose advanced technology improves the quality of life and the economy's ability to compete internationally.

Mr. Levy argues that deficits are important fiscal stimuli and help blunt the impact of the nation's economic downturn. The capital budget should be increased by the same amount the operating budget is cut, he says.

A former director of the Congressional Budget Office offers a solution that would better target federal spending.

Alice Rivlin, now a senior fellow in economic studies at the Brookings Institution, says state governments should absorb more financial pressures and allow more federal money to go toward health care, environmental protection, and trade opportunities.

Under a "productive agenda," states would embrace responsibilities for education (now largely funded by the states anyway), job training, housing, childcare, transportation, social services, and economic development, all of which raise income, says Ms. Rivlin.

States would pay for their new role by adopting one or more common taxes - using the same base and rate - and share the proceeds to offset disparities among states. This devolution would reduce federal spending by $75 billion and allow greater national focus on competitiveness, says Rivlin.

After its defeat last week, the balanced budget amendment will be difficult to revive in the current Congress.

The Democratic House leadership lobbied hard against it. Their efforts - strongly supported by organized labor and senior citizens' groups - were so vigorous that they transformed the probable passage of the bill into a narrow defeat. House leaders portray the amendment as a distraction from the real business of deficit cutting.

Levy calls the amendment, "good politics ... and absolutely horrendous economics."

Sen. Paul Simon (D) of Illinois, an early supporter of legislation to balance the budget, issues an often-heard but thus far unheeded warning. "We're the first generation of Americans who have been living on a credit card saying: `Pass the bill on to our children and future generations'." Continuing on this course, he says, will mean that debt-strapped Americans will produce 20 percent fewer products and services by the year 2020.

In his new book, "A Decade of Deficits: Congressional Thought and Fiscal Action," author Steven Schier says critics of Congress during the 1980s - a decade when the national deficit climbed to staggering heights - expected more than the voters sought from the nation's elected leaders. "One duty of representatives is to reflect opinions back home, and this lawmakers did relatively well, particularly in defending `their programs'."

Whether budget cutting measures really take hold in the coming months seems to depend entirely on their political expediency. In this election year, politicians will likely take their cues from the voters.

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