Gramm-Rudman-Hollings Is a Success
THE Balanced Budget and Emergency Deficit Control Act - better known by the names of its three principal Senate sponsors, Phil Gramm, Warren B. Rudman, and Ernest F. Hollings - has been roundly criticized ever since its enactment in December 1985. Now, efforts are underway in both the House and Senate to revise the law, and some would scrap it altogether. Critics argue that the legislation has encouraged budget gimmickry, and point out that four years after its passage the annual federal deficits remain very large. For all its volume and persistence, though, the criticism of Gramm-Rudman-Hollings is mostly without foundation. Granted, the law hasn't solved the federal budgetary mess. But these problems are so deeply rooted that no statute could possibly remove them. The practical impact of the deficit reduction legislation has been entirely positive and the law should be retained.
The deficit reduction targets set in the original legislation have indeed been missed by a wide margin. The 1985 statue required that the federal budget not be in deficit by more than $172 billion in fiscal year 1986, $144 billion in '87, $108 billion in '88, $72 billion in '89, $36 billion in 1990, and that the budget be balanced in fiscal '91. In the fall of 1987, however, the president and Congress acknowledged they could not meet these goals and agreed on higher ceilings.
Even these revised targets have been skirted. The Office of Management and Budget has used optimistic forecasts of tax revenues and expenditures - which helps explain why each year the actual deficit has exceeded the one projected. Spending has also been shifted to help meet the immediate reduction goal. For example, the federal fiscal year ends September 30, and a military payday was recently moved to September 30, 1989, from October 1, to get this spending out of the new year's budget.
Large surpluses now being accumulated by the Social Security trust funds are counted to partially offset the government's current operating deficit. The revised 1990 Gramm-Rudman-Hollings deficit target of $100 billion can be projected as being met only by counting an estimated $65 billion surplus in Social Security taxes (over current outlays) - even though these funds are explicitly dedicated to paying future retirement benefits.
Yet, however one might deplore all this budget gamesmanship, one really can't blame it on Gramm-Rudman-Hollings. The law sets reduction targets; it doesn't mandate subterfuge in meeting them. The plain fact is that the president and Congress are now having a terrible time keeping revenue close to outlays.
Officials have always found it more agreeable to provide benefits than to tax to pay for them. But with the US public now paying a higher proportion of its income in taxes than ever before, resistance to tax hikes has become especially strong. Besides this, the country has been in a prolonged period of divided government, with Republican control of the presidency and Democratic ascendancy in Congress. The two parties just don't agree on fundamental issues of taxing and spending - and given separation of powers each has the institutional base to see that its essential priorities are met. Far from being an accident, the federal deficit is the result of deliberate partisan compromise.
In this environment, the Gramm-Rudman-Hollings law is an essential source of budgetary discipline. It sets deficit reduction targets which can be flouted only partially and it provides a means, however imperfect, for implementing them. The legislation stipulates that if its targets are not met in any year, uniform percentage cuts in spending must be applied - half from defense programs, and half from domestic programs with Social Security and aid to the needy exempted. Critics charge that such uniformity would be ill advised, since some programs can stand cutting better than others. With aid to the needy exempted, though, across-the-board cuts are not horrific. And the idea is that they will be invoked only as a last resort anyway - if president and Congress prove unable to negotiate their way to the budget targets.
Finally, for all of its messiness and backsliding, deficit reduction is actually working. Put aside the Social Security trust funds and consider only the current operating budget. Put aside, too, the overestimation of revenues and other accounting gimmicks. In 1983 the actual deficit in the federal government's operating budget was 6.1 percent of GNP; it was lowered to 5.5 percent of GNP in 1985 and to 4 percent in 1988. In fiscal year 1989, which ended September 30, it was about 3.8 percent. And even if the more pessimistic congressional estimates hold, the federal deficit for 1990 will be about 3.5 percent of GNP.