When Is a Budget Deal Not a Bargain?

President Clinton and the Republican congressional leadership are struggling to find a formula to balance the budget in seven years.

The middle ground is shifting sand and neither side is sure it can deliver the votes for a fair compromise. Mr. Clinton will have difficulty finding Democratic support beyond the "blue dog" Democrats, approximately 60 moderates who bravely offered the only credible Democratic alternative to the Republican budget. For his part, Speaker Newt Gingrich must fear that the ideologically driven first-year Republicans will vote against a budget agreement that meets Clinton part way by shrinking the tax cut in favor of domestic spending.

The differences between the president and the Republican Congress are not as great as either side pretends. In fact, a recent study by the Committee for a Responsible Federal Budget concludes that with the exception of education and training programs (where Clinton would increase and the Republicans cut), the Clinton and Republican budgets are heading in the same direction.

Virtually every category proposed for cuts in the Republican plan is also slated for smaller reductions under Clinton's. Those areas allowed increases would get less-generous growth from Republicans than from Clinton.

This analysis strongly suggests that the budget dispute has more to do with policy and philosophy than with numbers. Admittedly, the policy battles are significant. They involve questions of federal versus state control, block versus categorical grantmaking, entitlement versus discretionary status. Yet, even on these basic issues a reasonable compromise can be found, if both sides are willing.

The public's faith in Washington has eroded during nearly two decades of political posturing and budgetary gimmickry. The overdrawn budget standoff, resulting in a prolonged government shutdown, has caused most Americans to conclude that once again neither side is making a "good faith" effort to reach agreement.

The on-again, off-again talks may ultimately produce a deal, but Americans are not optimistic. Properly skeptical voters should be alert for the following indicators that Washington has again produced a "bad faith" budget:

Watch for a return of 'rosy scenario.'

Budget negotiators frequently substitute optimistic budget projections for real spending cuts. An honest deal requires honest numbers, and neither the Office of Management and Budget nor the Congressional Budget Office is playing it straight.

The most recent example of this budgetary legerdemain was the December update of CBO's budget projections. The new forecast assumes an unprecedented seven years of uninterrupted economic growth and significantly lowered interest costs to the government resulting from passage of a balanced-budget plan.

Upbeat economic forecasts are bad enough, but the problem is compounded when these so-called savings are counted toward deficit reduction or, worse yet, spent. When compared with CBO's April analysis, these new projections would result in fully $350 billion in savings - savings that come from economic assumptions, not budget cuts. Nevertheless, the Clinton administration continues to complain that CBO numbers are too pessimistic. Be leery of any budget deal that relies on an economic dividend.

Beware of a budgetary 'balloon payment.'

One of the most worrisome aspects of the Republican budget is the degree to which spending cuts are backloaded. Roughly 60 percent of all deficit reduction is to occur in the final three years of the seven. Clinton's budget is similarly fashioned.

Worse, by frontloading the tax cut, deficits under the Republican budget actually rise in year two. Budget negotiators could decide to resolve differences by deferring even more spending cuts until the last few years of the seven-year program. This traditionally has been a popular budget ruse. Do not trust a budget agreement that relies on a president and Congress elected in 2000 to carry out the most controversial provisions.

Look to see if government has shrunk.

The big surprise in this year's budget is that so far very few programs have been canceled. Amtrak remains on track with only slight funding reductions. The Legal Services Corporation won its case with lawmakers and will stay in the budget. The Maritime Administration will stay afloat with added wind in its sails. Dozens of federal programs, once targeted for elimination, have evidently dodged the budgetary bullet. Budget Committee chairman John Kasich is to be credited for consistently pressuring his colleagues on the Appropriations Committee to terminate these and other programs. As he recently told me, "If these programs aren't pulled out by the roots, they will grow back!" Without program cancelations, it becomes increasingly difficult to meet future deficit-reduction goals.

Read the fine print.

Policy changes do not always yield the promised savings. Budget-enforcement mechanisms must be put in place to ensure compliance with the agreed-upon deficit-reduction goals.

More-stringent restraints are needed. Discretionary spending caps and pay-go requirements (forcing new entitlement spending to be offset by cuts or tax increases) act only to limit spending growth. To guarantee real deficit reduction, negotiators must adopt a Gramm-Rudman-style sequestration process. The threat of sequestration of both discretionary and entitlement accounts will create strong incentive for future policymakers to stick with the seven-year time frame for a balanced budget. Without tough enforcement procedures, a multiyear balanced-budget plan is not legally binding.

Keep an eye on your children.

Too many budget negotiators are nearsighted when it comes to protecting future generations. A serious budget must address the long-term solvency of the Medicare and Social Security programs. Despite overblown rhetoric regarding Medicare, more-dramatic reforms than those advanced by the Republican Congress are required to maintain solvency for the baby-boom generation and beyond.

Meanwhile, both political parties insist that Social Security remain an untouchable budget item. The Social Security trustees have warned that the program will be in crisis by 2013, yet neither party has recommended substantive reforms. The current debate over Medicare and Social Security has more to do with short-term political gain than with meeting the needs of the next generation.

The elements of a "good faith" budget accord are honest numbers, up-front cuts, less bureaucracy, budget enforcement, and a long-term focus. Absent adherence to these fundamental principles, Washington's political leaders will once again produce a budget that is no bargain for the American people.