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.