Government Spending & Budget- Essay, Research Paper

Government Spending & Budget-

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), and everyone should

be happy with that.