Budget Deal II, the Sequel
The triumphal announcement last week that the federal budget would finally, firmly, actually (but only momentarily) be balanced in the year 2002 deserves cheers.
Three cheers, that is, for the US economy, which, as they say in Academy Awardese, made this achievement possible. And two cheers each for President Clinton, his unflappable budget director, Franklin Raines, and GOP congressional leaders Trent Lott, Pete Domenici, Newt Gingrich, and John Kasich.
The compromise they wrought was hard fought. It took two years of political combat, government shutdowns, and attack ads before agreement was reached. But now comes the hard part: voting in specific details to pin down the five-year budget outline, and selling the deal to some still-angry opponents - large numbers of whom will be running for office again next year.
But that's only the hard part, not the hardest part.
The latter will come for another president and later congresses. Those politicians will have to deal with problems today's negotiators shied away from: dealing with the weight of sharply rising entitlement costs as baby boom retirement looms after the year 2002 moment of balance.
The future president and legislators will need Budget Deal II, a sequel that will cost far more than the original. To pay for it, they will depend on the invisible star of the current budget deal: the economy, not at all stupid.
A detective sifting through last week's events will note that it was the Congressional Budget Office's certification of swelling tax revenues that allowed the budget deal to gain necessary backing. The CBO told Congress the booming economy was bringing in enough unforecast personal and corporate taxes to cut the current deficit a whopping $45 billion. Multiply this by five years and that's big money. Today's politicians owe it to their successors (as well as their own children and grandchildren) to keep this layer of golden eggs healthy.
It is in precisely this context that we urge critics in both political parties to see the virtues of the current compromise. It accepts modest cuts in Medicaid and Medicare, two programs whose expenditure growth threatened to rob other areas of economic growth. It delays for 10 years the insolvency facing the Medicare trust fund. But it also moderates the welfare reforms of last year that would have hit primarily older legal immigrants and the children of low-income legal immigrants.
That benefit to poor children, plus modest increases in education funds to help middle-income families, if well handled, can be an investment in the productivity of the next generation.
Income, capital gains, and inheritance tax cuts plus expanded IRAs will stimulate economic growth by providing more investment capital and domestic purchasing power.
Many Democrats and some Republicans felt they got only half a loaf. That's compromise. We urge them to accept the general outlines of Budget Deal I, keeping in mind that it will help make Deal II much less painful.