Government Spending Essay, Research Paper

As many Federal departments and agencies lurch into an era of running without

funds, the leaders of both parties of Congress are spending less and less time

searching for a compromise to balance the budget, and more and more time

deciding how to use it to their advantage on the campaign trail. Meanwhile money

is easily borrowed to pay for government overhead. In an attempt to change this,

on June 29, Congress voted in favor of HConRes67 that called for a 7 year plan

to balance the Federal Budget by the year 2002 (Hager 1899). This would be done

by incorporating $894 billion in spending cuts by 2002, with a projected 7 year

tax cut of $245 billion. If this plan were implemented, in the year 2002, the

U.S. Government would have the first balanced budget since 1969. There is doubt

by citizens that a balanced budget will become reality. A recent Gallop Poll

from January, 1996 showed the budget as the #1 concern among taxpayers, but 4/5

of those interviewed said they doubt the GOP will do the job (Holding 14).

Meanwhile, an ABC poll from November reported that over 70% of those polled

disapprove of the current performance by Congress, and most blamed politicians

for failure to take action (Cloud 3709). These accusations of failure to follow

through come with historical proof that Congress and Clinton have failed to

compromise and resolve the issue. After all, current budget plans are dependent

on somewhat unrealistic predictions of avoiding such catastrophes as recession,

national disasters, etc., and include minor loopholes. History has shown that

every budget agreement that has failed was too lax. One might remember the

Gramm-Rudman-Hollings bill that attempted to balance the budget, but left too

many exemptions, and was finally abandoned in 1990 (Weinberger 33). So after a

pain-staking trial for GOP Republicans to create, promote, and pass their

budget, as promised on campaign trail 94, Clinton rejected the very bill he

demanded. This essentially brought the federal budget back to square one.

Clinton thought such a demand on Republicans to produce a budget would produce

inner-party quarrels and cause the GOP to implode. Instead, they produced a

fiscal budget that passed both houses of Congress, only to be stalemated by a

stubborn Democratic President Clinton. Meanwhile, Clinton bounced back with a

CBO scored plan with lighter, less risky cuts to politically sensitive areas

like entitlements. Clinton’s plan also saved dollars for education and did not

include a tax increase, but most cuts would not take effect until he is out of

office, in the year 2001. Although Clinton is sometimes criticized for producing

a stalemate in budget talks, the White House points out that the debt has gone

down since Clinton took office, with unemployment also falling. Republicans are

quick to state that Clinton originally increased taxes in 1993 and cut defense

programs, but his overall plan was for an increasing budget without deficit

reduction. Startling Facts about the budget: As of 1996, the national debt was

at an all time high of $5 trillion dollars, with interest running at a whopping

$250 billion per year (Rau M-1). This equals out to an individual responsibility

of more than $50,000 per taxpayer. Nearly 90% of that debt has accumulated since

1970, and between 1980 and 1995, the debt grew by 500%. Currently, the debt

grows by more than $10,000 per second (Rau M-l), and at current rates, a baby

born in 1992 will pay 71% of his or her income in net taxes. At current rates,

our government is about to reach its breaking point. If that’s not enough to

scare a taxpayer, by 2002, 60% of government spending will be for entitlements,

and by 2012, these programs are projected to take up all government revenue (Dentzer

32). Not only economic development, but also family income is hurt by debt. With

the cost of living going up, it becomes harder to find a job. According to the

Concord Coalition, real wages peaked in 1973 and have gone down ever since. If

the economy grew as fast as it did in 1950, without a debt, the median family

income would be $50,000, compared to the present median of $35,000 (Rau M-1). As

of current fiscal year’s budget, the United States government spends $1.64

trillion yearly. $500 billion of that, or 1/3 of the total, is for discretionary

spending (Rau M-1). This discretionary spending is the target for most cuts, and

seems to be the easiest to make cuts in. Overall, the difference between the two

parties budget plans is only $400 billion. This could easily be trimmed by

eliminating tax cuts and adjusting the consumer price index to reality.

Democrats say the GOP plan is too lopsided, and Republicans criticize the

Democrat plan for being unrealistic. A study by the Urban Institute shows GOP

cuts will be felt mainly by the bottom 1/5 of U.S. population. This should be

more equally spread out across income brackets (Hosansky 1449). The GOP plan: By

fulfilling campaign promises made by freshman Republican Congressmen to cut

government spending, the GOP managed to pass a $1.6 trillion budget resolution

by a party-line vote, in both houses of Congress (Hosansky 1450). This budget

called for major cuts in education, environmental programs, discretionary

spending, and the largest of all: entitlements. 70% of the money to balance the

budget under the GOP plan would have come from entitlements. This is because

entitlement programs currently take up $301 billion a year. Such cuts had

already been partially implemented with the GOP cutting overall spending by 9.1%

in 1996 alone. First, in an attempt to stop the projected bankruptcy of Medicare

in 2002, Republicans cut $270 billion overall from the program, with hospital

reimbursement cuts being the deepest (Hager 1283). Although stabilizing the fund

is only expected to cost $130-$150 billion over 7 years, the GOP budget would

reform the program to run better, and cheaper, by allowing it to grow at 6%

yearly, instead of the current 10%. While both parties agree on premium hikes

for beneficiaries, this is a touchy subject for the 38.1 Million elderly voters

on Medicare in 1996 (Rubin 1221). Medicaid, another volatile program, would be

cut $182 billion under the GOP proposal. This would entail placing a cap on the

program’s spending, and passing control of it to the individual state

governments. For an estimated 39 million low-income people on Medicaid in 1996,

the GOP plan cuts the program far more than Clinton’s proposed $98 billion cut.

Social Security is another program being cut. The government has already reduced

the outlay for seniors 70 and younger who are on the program, but Republicans

want more by increasing the eligibility for Social Security from 62 to 65 for

early retirement, and 65 to 70 for standard retirement (Henderson 60). Smaller

cuts included $11 billion in student loan reductions, $9.3 billion in labor

cuts, $10 billion eliminated from public housing programs, and several other

numerous disaster relief programs cut (Rubin 1222). The GOP also wants to

eliminate programs initiated by Clinton like the National Service initiative,

summer jobs, Goals 2000, and Americorps. Also, by terminating unnecessary farm

programs, and cutting others by $12.3 billion, Republicans hope to cut the

yearly $6 billion that the Federal Government spends on direct subsidies to

farmers. Agricultural policies were also reformed and embedded into

budget-reconciliation bills (Hosansky 3730). Clinton’s Budget: Clinton’s budget

only surfaced after he vetoed the budget passed by Congress, and included

shallower cuts, with little or no reform to entitlements. This plan was

supported by most Democrats and was used as an alternate to a gutsy GOP budget.

Clinton repeatedly trashed the Republican’s efforts to make cuts on programs he

feels important like student loans, agricultural programs, and entitlements. He

accused Republicans of wanting to kill some all together. He has also threatened

to veto a Republican plan to reform Medicare called Medical Savings Accounts,

unless his programs are left intact (Hager 752). Under Federal law, the

President is required to submit budget requests in 2 forms: Budget Authority

(BA), the amount of new federal commitments for each fiscal year, and Outlays,

the amount actually spent in the fiscal year (Rubin 1221). The plan that Clinton

has presented is not only a budget resolution in the form of a campaign

document, but also proof of how far the Republicans have moved him to compromise

since the they took control of Congress. Most important, it does not readily

translate into regular accounting principles used for government programming.

This year’s White House budget was a 2,196 page document that the GOP struck

down immediately for not cutting taxes enough and neglecting to downsize the

government (Hagar 752). "There is little or no change at all in this

budget," said Pete Domenici (Senate Budget Committee Chairman), talking of

Clinton’s new budget. Among largest cuts within Clinton’s plan was the

downsizing of 1/5 to 1/3 of all programs that he felt were not a priority to

present day government. In addition, he wanted to close loopholes presented to

corporate taxation, that would save an estimated $28 billion. He vowed to keep

programs like education, crime prevention, and research or environmental grants,

while increasing the Pell Grant from $2,340 to $2,700. Attention was also placed

on discretionary spending, with Clinton cutting a smaller $297 billion compared

to GOP’s $394 billion cut. According to the Office of Management and Budget, the

President’s plan cuts middle-income taxes by $107.5 billion in 7 years, small

business by $7 billion, and cuts $3.4 billion from distressed urban and rural

area relief (Rubin 1222). This was to be paid for by a $54.3 billion hike in

corporate and wealthy-income taxes, and also in $2.3 billion of tighter EITC

(Earned Income Tax Credit) adjustments. Although Clinton’s plan was expected to

cut a whopping $593 billion in 7 years to furthermore produce an $8 billion

surplus in 2002, most cuts are long term without a clear goal. Clinton is

sometimes criticized by Republicans for unwillingness to compromise. He has used

vetoes and stubborn negotiations to protect personal priorities like education,

job training, and environmental programs, but Republicans have also tried using

domination to force him to comply. GOP Presidential candidate Bob Dole said if

Clinton was serious about the budget, "we probably could have had an

agreement on New Years Day," 1996 (Hosansky 1449). "The President is

sitting on his hands while the federal debt keeps going up and up and up into

the stratosphere," said Congressman Jesse Helms, Rep -North Carolina. But

one must remember that President Clinton does have somewhat of an overwhelming

power in this debate that Republicans can do nothing about. He is the single

person that can veto laws sent to him, and also has the power to call Congress

back into session if he is unhappy with the current situation. This was

President Truman’s "ace in the hole" back in 1948. A Neutral Proposal:

As a neutral proposal, a group calling themselves the "Blue Dog’s"

have won support for their budget from both Republicans and Democrats. The group

also known as the Concord Coalition includes many conservative Democrats that

want to see shallower budget cuts with less reform to entitlements. They also

believe a tax cut should be delayed until the budget is balanced. The Coalition

believes that by reforming entitlement policy, rethinking government size,

changing taxation methods, and consuming less, our budget can be balanced (Rau

M-1). Defending Deficits: In defense of deficits, some may argue that the danger

of the current situation is highly over rated. A budget deal has always had less

to do with economics than with politics and morality. Budget deficits don’t

crowd out private investment, government spending does, and a large surplus may

not be a sign of strength for a country. Some say it is impossible for every

country to run either a surplus or a deficit. What matters is that a country can

service its debts (Defense 68). During most of the 19th century, the United

States borrowed from the world (a current-account deficit). By 1870, it was

running a trade surplus, and by 1900 we had a current-account surplus. But in

the early 2Oth century, the U.S. became the world’s largest net creditor, and by

1970 it peaked by finally running into deficit in 1970. Finally, 1980 brought a

deficit so large, that the government was a net debtor again (Bottom Line 14).

Current Reductions: One of the ways we are currently reducing the deficit

includes the introduction of "means testing." This means that people

would get entitlements based on need. The government already has reduced Social

Security for modest income seniors age 70 and younger, but budget cutters want

to broaden that idea (Henderson 60). There are 2 major problems with means

testing. First, it is considered inherently unfair. Some might argue that a

person might blow all of their income before the entitlement reductions come

into place. Second, it might reduce the incentive to work and encourage people

to hide their income. For instance, beneficiaries of Social Security, ages

62-64, lose $1.00 yearly in benefits for every $2.00 they earn in income or

wages above $8,160 per year (Henderson 60). Some say increasing eligibility

requirements would solve some problems, and propose raising the age of early

retirement from 62 to 65, and standard retirement from 65 to 70. Another touchy

subject in budget reduction is the argument that the poor are being left out of

savings. According to the Clinton Administration, the GOP budget would cause a

family with income of $13,325 per year to lose 11% of their income (Whitman 42).

United States Treasury Department studies say the bottom 1/5 income families

would have net tax increase of an average $12 to $26 under the GOP plan. The top

1/5 income families would receive more than 60% of the tax relief. A HHS

analysis states that the GOP plan would also boost child poverty rates from

14.5% to 16.1%, and poor families with children would loose 6% of their income.

Conclusion: In the end, budget reduction is no easy task. "…fixing the

National debt is like catching a train leaving the station. The longer we wait,

the harder and farther we have to run," says the Concord Coalition (Rau

M-1). "Both parties want the issue," instead of an agreement, said

Representative Bill Orton. The center of attention for debate on budget cutting

is politics, and whomever takes responsibility for reform gets left wide open to

criticism. Although Congress and Clinton have spent the past year on debating

the budget and the size of the Federal Government, most plans fall back on

gimmicks, loopholes, and long-term plans. Even Democrats now agree to downsize

the government, but the two parties disagree on how and where. As we trust our

elected officials to make decisions in Washington on our behalf, we must show

interest and aptitude on the end results. To accomplish a balanced budget deal,

many suggest that we must not only balance spending, but reform entitlements,

rethink government size, change tax methods, and depend less on Washington.

Attendees of a conference on budget cutting in Jackson Hole, Wyoming suggested

we deliver a budget that has a simple, quantifiable goal, that includes short

term goals, and eliminated gimmicks. Countries like Sweden and Canada have

successfully reformed fiscal policies. Sweden’s government elected to abandon

welfare, pensions, health insurance, unemployment programs, family assistance,

and child allowances. Their deficit soon fell by 3.5% of GDP in one year alone (Urresta

51). Sweden’s plan was three times as intense as Congress’ current plan, while

cutting spending in half the time. As for cuts, everyone must suffer. As

entitlement debates continue, "the interests of older Americans are being

protected at the expense of young people," says Neil Howe and Bill Strauss

(Rau M- 1). Older Americans have good reason to protect programs that they have

paid into for years, but those programs spend an overall per capita amount of 11

times as much on elderly than that spent on children altogether (Rau M-1). The

youth are the future of America, and we should protect them too. Currently,

poverty in US is 3 times as likely to affect the very young than the very old.

By balancing the budget, "interest rates come down, the economy picks up -

we will rebound," says Representative James Greenwood (Cloud 3709).