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Why no budget news is good news

Democrats and Republicans fought each other to a standstill on this year's federal budget.

"Great!" says Robert McIntyre, director of Citizens for Tax Justice, a Washington think tank. "Nothing bad really happened."

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It also means declining federal debt and shrinking government.

So, for many budget experts, the final result of the long battles in Washington over federal spending and taxes is just fine. Both parties ended up making a show of protecting Social Security from each other, undoubtedly thinking of how many seniors will be voting next year.

Thus there were no big changes from the budget process that ended Nov. 20.

"A pretty good outcome," figures James Horney, a fellow at Washington's Center on Budget and Policy Priorities.

Republicans didn't get their $792 billion tax cut. Taxpayers weren't keen on it.

President Clinton was denied his Universal Savings Accounts, a costly touch of pension privatization outside of Social Security. The public had little idea of what that plan was all about.

Dropping federal debt

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What the impasse did produce is a major cut in federal debt. And that is just what Americans want, say opinion polls.

"We are a nation of savers," says Mr. McIntyre. "Can you believe it?"

If debt reduction continues, it will be easier for the new working generation to finance, through Social Security, the retirement of their baby-boomer parents.

Further, the deadlock has shrunk government a little in relation to the entire economy. Federal outlays as a proportion of gross domestic product came to 19.6 percent in fiscal 1997, 19.1 percent in 1998, and 18.7 percent in 1999.

Cynthia Latta, an economist at Standard & Poor's DRI, a Lexington, Mass., consulting group, expects that downsizing trend to continue through 2004, when the over-65 population starts to grow rapidly, pushing up Social Security and Medicare costs.

The congressional impasse plus vigorous revenue growth also have produced budget surpluses that go to retire debt. Uncle Sam had a surplus of $69 billion in fiscal 1998, $124 billion in fiscal 1999. It is estimated at $142.5 billion for fiscal year 2000, which began in October. That is likely too low an estimate, says Fred Ross, a Washington Research Group consultant who predicts a $200 billion surplus.

"We are talking big numbers now," Mr. Ross says. He has been closer to right in his recent forecasts of budget deficits than has the White House's Office of Management and Budget or the Congressional Budget Office, the two official budget counters.

Next year won't be different

With the election next year, the two major parties are likely to box themselves in again on the budget.

"The good news continues," figures Ross. Interest charges on the federal debt are, of course, down too. That's one reason he reckons federal spending will increase only 2 to 2.5 percent this year.

Another cause for slower spending growth is low Medicare outlays. Medicare spending actually dropped 1 percent in fiscal 1999, after hospital reimbursement rules were altered.

Slight confirmation for favorable fiscal 2000 prospects came last week with the Treasury's announcement of October's budget numbers. The deficit narrowed to $26.7 billion in the month, from $32.4 billion in October 1998.

But that's only one month. Despite all the bookkeeping gimmicks used by Congress to avoid breaking its own spending caps on discretionary spending set in 1997, outlays for fiscal 2000 will probably exceed those caps by $30 billion, the experts say.

"That ain't bad when you consider where they could have gone with this pot of gold [the surplus]," says Ross.

Moreover, the 2000 budget ate into the Social Security surplus by borrowing about $17 billion, figures Mr. Horney. The politicians will protest otherwise, though.

Yet if Ross's $200 billion surplus pans out, the politicians will end up all right.

(c) Copyright 1999. The Christian Science Publishing Society

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