US Budget Pact Likely to Need Overhaul by '93
GET used to the phrase: budget-deficit problem. In another two or three years, Americans probably will be hearing once again about the need to make significant cuts in the deficit, although Congress and the president say what they are trying to agree on this week is a five-year program that will solve the problem by reducing the deficit $500 billion.
Many economists and political scientists say the deficit problem will not go away in five years for several reasons:
The recession that economists believe the United States is now entering is expected to reduce the taxes that government takes in and increase the money it pays out for federal programs. If the recession is sizable, the budget deficit will remain high and ``in two years we'll have to come back and go at it again,'' says political scientist Norman Ornstein of the American Enterprise Institute.
The budget-reduction proposals now being worked over by congressional conferees contain unrealistic elements that may make it impossible to meet the $500 billion deficit reduction in five years, says political scientist James Thurber, director of the Center for Congressional and Presidential Studies at American University.
He considers unrealistic the exclusion of most of the $500 billion or more cost of the savings and loan bailout from the budget, and the assumption that petroleum will cost a relatively inexpensive $24 a barrel. ``There's a lot of blue smoke and mirrors'' in the five-year plans being discussed, he says.
In a year or two Congress may find it impossible to resist spending more money than the budget plan calls for on government programs various interest groups consider essential. ``Absolutely nothing prevents the appropriations committees from raising spending,'' says economist Dan Mitchell of the Heritage Foundation. Americans would be able to adhere to the restrictions of a leaner budget, ``but Congress won't,'' he adds.
Members of Congress think they will demonstrate more responsibility than that. ``We will'' adhere to the spending limits in the new five-year budget plan, insists Sen. Patrick Leahy (D) of Vermont.
The theory may not work that is central to the current deficit-reduction plans: that a deficit can be ended by a combination of higher taxes and slower spending growth. ``We may in the end discover that the deficit is chronic and keeps tending to occur unless we are able to increase economic growth,'' says economist Henry Aaron of the Brookings Institution. ``And over the long haul we really don't know how to do that.''
Dr. Aaron notes that the rate at which America's economy grows has slowed substantially in recent decades: ``If we grew [now] the way we did in the past, in the '50s and '60s, nobody would be worrying about the deficit. It would be going away.''
Despite this somber outlook, many experts insist that Americans will tolerate most of the new taxes now generally discussed for the five-year current budget package - taxes on cigarettes, alcohol, gasoline.
Even a higher gas tax, which many Americans hotly oppose, is unlikely to be rescinded once enacted, says economist Alice Rivlin of the Brookings Institution: ``My expectation is that people will fuss about it at the beginning, and then not roll it back. It becomes part of life.''
But higher taxes must be phased in during the first year of a deficit-reduction package in order to be accepted over the long term by the public, Dr. Ornstein says. Otherwise Congress will be tempted to respond to building constituent pressure and scrap a tax that has not yet taken effect.
Although new taxes may remain in effect, within five years circumstances of one kind or another are likely to unbalance whatever plan is finally adopted this week, says economist Marvin Kosters of the American Enterprise Institute. ``Based on the experience of the last few years,'' Dr. Kosters adds, Congress ``will change the targets and goals when they're pinched. Gramm-Rudman is now undergoing change for the second time.
``In the 20 or so years I've been in Washington, it's been rare that I haven't seen predictions of the budget coming into balance in four or five years from now - whenever `now' is,'' he says.
What if the deficit isn't substantially reduced in the next five years - will that be horrific for the US? Probably not, the experts say, but ultimately it will result in a lower standard of living for Americans.
``If you don't save, and if you don't reduce the deficit, our whole standard of living will go down within a decade,'' Dr. Thurber forecasts.
Kosters cites New Zealand as an example. For years it held a protectionist posture, he says, but changed that during the 1970s when it found itself with a 1950s-level income. ``Cumulatively, over time, these things do matter, and we need to make a change,'' he adds.
If the budget deficit remains high over the next few years, the US will be ``paying a larger and larger amount of money to foreign investors'' to keep America's economic engine operating, Kosters says. This trend could continue ``for a long time without becoming unbearable,'' he adds, but it would be a heavy burden on American taxpayers.