Academic journal article Policy Review

May We Cut in, Mr. Clinton?

Academic journal article Policy Review

May We Cut in, Mr. Clinton?

Article excerpt

America can do better than the budget blueprint unveiled by President Clinton in his State of the Union Address in February. Mr. Clinton pretended in his speech that he was cutting federal spending. Under his plan, annual federal spending actually would rise by $202 billion from 1993 to 1997. Annual defense spending would fall by $49 billion -- in ways that the president failed to specify. But annual domestic spending would rise by $264 billion, or about 8 percent a year. If this is the best that a moderate "New Democrat" could come up with, it is frightening to think what the old-school liberals would propose.

President Clinton pretended in his speech that he was bringing the deficit under the control. But even according to his own numbers, the deficit in FY1998 would be $240 billion, or 3.1 percent of the gross domestic product. This figure is slightly higher than it was when Ronald Reagan left office in 1989. And this projected deficit does not count the additional costs of Hillary Clinton's health plans. It assumes that all of Mr. Clinton's budget savings are credible, and also that Congress approves no additional spending between now and 1998.

To secure these minimal benefits on the deficit front, President Clinton broke his campaign promises not to tax the middle class. He is proposing $238 billion in new taxes over four years, the largest tax increase in American history. Compared with a baseline of current services, his plan proposes $4.70 in tax increases for every dollar in spending cuts over the next four years. What few spending cuts there are are deferred to the future -- in fact, Mr. Clinton has called for a $10 billion spending stimulus in 1993 -- while the taxes kick in immediately. Next year, taxes would rise $37 billion, and there would be no net spending cuts.

The Bush-Clinton Era

Although the theme of the Clinton budget proposal is "change," in reality it perpetuates George Bush's economic policy. Domestic expenditures rose by $200 billion a year under President Bush, even after accounting for inflation and excluding the costs of the savings and loan bailout. If federal "investment" were needed to get the economy going, then America would have prospered under President Bush. Federal spending on categories Mr. Clinton calls investment -- such as infrastructure, research and development, and Head Start -- rose by $100 billion a year, or more than 40 percent, under President Bush. Yet these investments did not cause the economy to grow.

If the economy needed an immediate stimulus, as President Clinton argues, then it should have received one under his predecessor. The federal deficit rose from $153 billion in FY1989, Ronald Reagan's last year in office, to an estimated $330 billion in FY1993. The past four years have delivered the most powerful stimulus -- by Mr. Clinton's Keynesian standards -- ever in peace time. If the stimulus had worked, George Bush would have been re-elected.

The Clinton budget also repeats the mistake of President Bush's budget agreement of 1990. That agreement raised taxes by $165 billion in order to reduce the deficit. Instead, it contributed to an explosive growth in outlays, the highest five- year deficit in history, and an anemic economic performance. The Bush performance confirmed again that raising taxes in a weak economy is a recipe for stagnation.

Right Goal, Wrong Policy

President Clinton is right to insist on a major deficit- reduction plan. In the absence of any change in current policies, the Congressional Budget Office forecasts a federal deficit of $400 billion in the year 2000, and over $500 billion in 2002. Federal deficits of this magnitude will place enormous pressure on interest rates and capital availability if U.S. private savings remain low. Capital flows from Japan, Germany, and other countries are drying up and no longer can be counted upon to finance U.S. deficits. …

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