At Last, a Budget

Both Republicans and Democrats can claim victory in the final compromise that led to a 1996 federal budget seven months into the fiscal year.

The Republicans cut spending $23 billion and forced cuts of 10 percent or more in many programs they don't like. They killed some 200 programs, about half in the Labor and Health and Human Services Departments (and many proposed by the Clinton administration for elimination).

The GOP succeeded in changing the terms of the debate from whether the budget should be balanced at all to how to balance it in seven years. Republicans also got $7 billion more in defense spending than the White House wanted.

President Clinton stood firm on protecting the environment; preserving education, student-loan, and job-training programs; and his two pet projects, the AmeriCorps national-service program and funds to put more cops on the streets. He forced Congress to restore $5 billion it had earlier slashed.

The president played his hand well. The Republicans, dizzy with success after winning control of Congress for the first time in more than 40 years, made three fundamental errors: First, they reckoned wrongly that Mr. Clinton would surrender when faced with their omnibus balanced-budget bill. When he didn't, the GOP didn't have the votes to override his vetoes.

Second, they tried to enact tax cuts while balancing the budget, thereby opening themselves up to Democratic demagoguery that they were "cutting Medicare to give a tax cut to the rich."

Third, they underestimated public reaction to long shutdowns of the federal government, allowing the president to grab the high ground and garnering the blame for gridlock.

Had the GOP, especially in the House of Representatives, contented itself with balancing the budget - including reining in the growth in spending for welfare, Medicare, Medicaid, and other entitlements - it would have been enough for the public to swallow at one time. But by targeting popular environmental and educational programs, trying to eliminate the earned-income tax credit - which benefits people on the low end of the wage scale - and pushing unpopular social legislation, they went too far and forfeited the popular approval they had enjoyed since the 1994 elections.

All that said, however, the '96 budget is but another step in a continuing bitter political struggle. Congress must now move immediately to consideration of the fiscal '97 budget and is already months behind.

Many of the same issues will arise; just because both sides have compromised for now doesn't mean they have surrendered their core beliefs. Given that this is an election year, moreover, the likelihood of getting a budget agreement before November appears slim, as both sides maneuver for advantage, and the president and Senator Dole try to avoid putting each other in a good light.

The '96 budget gets all its savings from discretionary spending. But the budget can't be balanced without tackling the growth in entitlement spending. Here the president and the Democrats had better be careful: They know that these programs are eating a larger and larger slice of the budget pie each year.

Medicare and Social Security both face funding crises in the next decade, long before the huge baby-boom generation retires. Castigating Republicans for trying to address the problem, when Democrats will have to face the issue themselves, will only strengthen public resistance to the changes that will have to come and create difficulties for whoever is in power.

The growth in Medicare spending must be reduced; this will mean some introduction of managed care. Social Security will need some serious adjustments to keep withholding taxes from skyrocketing. Turning Medicaid and welfare over to the states with block grants will help keep costs down and better serve recipients. (Some federal basic-coverage requirements may be appropriate.) And the spending cuts should not be "backloaded" in the final years of the seven-year program, but must begin right away.

BOTH the president and the Republicans have budget-balancing plans on the table, but they are far apart. A useful starting point for discussion could be the centrist plan put forward by a bipartisan Senate group led by John Chafee (R) of Rhode Island and John Breaux (D) of Louisiana.

It would trim Medicare spending by $154 billion, Medicaid by $62 billion, welfare by between $45 billion and $53 billion, and taxes by $130 billion. The plan would also adjust the Consumer Price Index downward by 0.05 percent in the first two years and 0.03 percent in the next five years, saving an additional $110 billion.

Tax cuts are a popular idea with the public (which also doesn't want any services cut in return), but balancing the budget is the primary goal. As we have said before, tax cuts should be considered only when it is clear that the budget-balancing program is having the desired effect.